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As African countries are warming up to receive investment inflows through the African free Continental Trade Agreement (AfCTA), the pharmaceutical companies in Nigeria needs about N500billion support fund from the Federal Government to make them compete effectively, says Mr. Nnamdi Okafor, Managing Director/Chief Executive, May & Baker Nigeria Plc.
According to him, as some of those companies that used to import products would set up factories quickly, it may be an uphill task for local firms to compete. To prepare for this battle ahead, he said: “And when these companies set up factories, with their expertise, with the economies of scale, are we going to be able to compete? And my answer is no. And that is why the industry needs some bailout. We are asking government to provide a N500 billion Pharmaceutical fund that would help us build capacity; and build economies of scale so that we will be able to compete with some of these companies that are going to come from other parts of Africa,” he said.
Excerpts:
Operations
This was an election year in Nigeria. As expected, the fears and trepidation that followed lection happened in 2019.And this negatively impacted business.And from the results most of you have seen, so many companies across different sectors of the economy have been reporting negative growth in revenue,It is as a result of very low activities.The government, of course, didn’t do much because everybody was focusing on elections. And consumer spending power has been quiet low. Business activities have been low because what happened is that because of fear, a lot of business people do not want to suffer. They want to hold their money so that if they have to cross the border, they will quickly put their dollars in their pockets and take the next Okada that will take them across. Generally, business activities were quiet low. And that impacted business.
Investors were very cautious and election spending diverted funds from core business. There was a general decline in consumer purchasing power and unfavorable economic indices which led to revenue drop for a number of companies across different sectors of our economy.
Pharmaceutical Industry
As far as the pharma industry is concerned, you are aware of the ban announced by the Federal Government on codeine-containing cough syrup. That ban affected the industry especially companies that manufactured codeine-containing cough syrup. As we speak, government is holding on to finished products worth about N1billion from many companies. And the industry has been fighting to see how government could buy back the fund. As a company we have a total of N350 million exposure on the finished products and for the Active Pharmaceutical Ingredients(APIs).Government is promising to buy back and pay for the finished products and then, we would have to have agreement on what to do with the APIs. One thing is certain, all of us, in fact, brought in the materials through an approval by the government. These materials were duly authorized by the government. I believe the government has a responsibility to ensure that these companies that are employing Nigerians do not lose money as a result.
It is not that these products are on their own, harmful or dangerous.No! The problem is that they are being abused. People have been using them in ways that that we do not label them to be used.That is something to do with enforcement of how drugs are used in Nigeria. Apart from what is being held up, we have also lost revenue of about N700million [that would have been made] if we had sold these products this year.
Product restructuring
I would say that this has been a particularly challenging year for us as a company. We have been restructuring our product portfolio. You know that we are the oldest company in Nigeria. And age comes with lethargy. At some point, parts of the body would start aching and paining. It happens that we have some old brands which have been our cash cows and which are top notch. We were compelled in the last two years to discontinue the production of some of these top cash cow brands as a result of age and change in national treatment protocols and policies. We have been trying to introduce some new products to take the place of these retiring products. But, of course, we have not done it fast enough. So we have been caught up. We have to lose some revenues as a result. Some of the products involved are our sulpha-based brands; thiazamide and Thalazole as well as our chloroquine based ranges; the Nivaquines and 2-2-1 brands. These products were responsible for over N1.2 billion of our annual revenue in 2017. Two of these products- thiazamide and Thalazole-we will have to discontinue their production. The chloroquine that has been the market leader-the Nivaquines and 2-2-1 brands-which were big bang for us, in the past two years, we have to discontinue those products.Today, they are history. That explains why we have some pressure on topline. And if you look at what we are doing today, you will see that we try to mitigate the impacts of these products.
Key steps
You will recall that when we met you on December 17, 2018, we were at the verge of concluding a N2.5 billion Rights Issue. As most of you are aware, the exercise was successful despite the harsh and bearish situation as at the time of the Issue. The offer was over 76 per cent subscribed. The fund from the offer has been fully applied for the various purposes as stated in the Rights circular which include facility expansion, debt repayment, investment in our vaccine production subsidiary and marketing and promotions.
We also invested in key strategic initiatives in 2019. We took steps forward in actualizing our new anti-sickle cell medicines and nutraceuticals. Given the stage we have reached, we are hopeful these products will be launched in 2020.
We invested significantly in advertising and promotions of our key products in 2019. Some of the commercials are already running and others will break in the first quarter of 2020.
Last month we signed a contract manufacturing agreement with Sanofi Nigeria, a subsidiary of a French pharmaceutical giant to produce their key products from our World Health Organisation (WHO) standard production facility. That project will not only increase the capacity utilization of our factory which currently run at about 50 per cent but will also signal to the world that Nigeria has arrived in pharmaceutical manufacturing with facilities that can make medicines fit for the world.
Vaccine
Our joint venture company, Biovaccines Nigeria Limited is running fully now as an independent company. It is currently perfecting steps to actualize vaccine production. We are hopeful that the company will receive all the needed support to actualize this national dream soon.
Performance
We are not yet in a position to give full figures of our financial results for the outgoing year, as we still have up to two weeks to do business.The results of the first three quarters of the year show that whilst we are experiencing a drop in revenue, our profit before tax have remained uptick. Our revenue for the period dropped from N6.54 billion for the nine months of 2018 toN5.91 while our profit before tax rose by 14.2 per cent to N696.44 against N609.94 million recorded in corresponding period of 2018.
This profit growth was driven by improved operating efficiency, reducedfinance charges due to Right issue proceeds and extraordinary income from short term investments. We made more profit per unit of sale compared with 2018. Consequently, Our pre-tax profit margin improved by three percentage points to 11.8 per cent in third quarter 2019 as against 9.3 per cent in third quarter 2018. Net profit margin also improved by almost two percentage points from 6.3 per cent to 8.0 per cent.
Way forward
We have a company with world-class outlook, making strategic initiatives that will rank us as leaders in the healthcare industry in sub Saharan Africa. Our world class manufacturing facility in Ota is growing into a hub of pharmaceutical manufacturing in West Africa. It is our desire to achieve breakthrough performance in the coming years
AfCTA
This is good.It is a major policy change for this country. The objective is to improve intra-continental trade, which is on one side positive. But we know that there would be a lot of investment from outside into the continent. One big question is, where will those investments go? Are they coming to Nigeria? Are they going to go to Ghana or Cotonou? Once you manufacture in Africa, you can sell anywhere in Africa.It is good that we are going to have Africans trade with one another. But the challenge that we have as a country is whether we are ready, or specifically, whether the pharma industry is ready. My answer is both yes and no! With the current situation now, I would say we can compete in terms of our country. A lot of countries around us are not locally manufacturing pharmaceuticals. They depend on importation. But we know that the dynamics would change. The dynamics would change because some of those companies that used to import products would set up factories quickly. And when they do, with their expertise, with the economies of scale, are we going to be able to compete? That is the next question. And my answer is no. And that is why the industry needs some bailout. We are asking government to provide a N500 billion Pharmaceutical fund that would help us to build capacity; and build economies of scale so that we will be able to compete with some of these companies that are going to come from other parts of Africa.
