20000309

Profitability of

pharmaceutical firms

on steep decline

RECORDER REPORT

KARACHI: Latest financial results received from some leading national and multinational pharmaceuticals companies reveal an alarming erosion in the profitability of the pharmaceutical industry in Pakistan, according to Pharma Bureau, a grouping of drug manufacturers.

While the cost of inputs in the past four years has enormously increased, there has been no corresponding relief in the form of price adjustment. With 37 percent devaluation of rupee against the US dollar since 1997, cumulative inflation of 44.28 percent, custom duty of 10 percent with effect from June 1996 and sales tax of 15 percent on packaging material of medicines during 1999, there has been a cost increase of over 40 percent during the past three years, industry sources said.

Half yearly accounts for 1999 of Abbott Laboratories Ltd and Reckitt and Colman of Pakistan Ltd, both public limited companies registered on Karachi Stock Exchange, show a loss of Rs. 14 million and 69 million respectively as against profit of Rs. 52 million and 78 million respectively for the corresponding period in 1998. Highnoon Laboratories, a national company, also registered on the stock exchange has suffered a loss of Rs. 0.941 million for half-year ending June 30,1999 as against a profit of Rs. 19 million earned for the same period last year.

The yearly accounts of Pfizer Laboratories Ltd, ending November 30, 1998 showed a staggering loss of Rs. 85 million. The figures for 1999 are expected to be even worse. Smith Kline French of Pakistan, another public limited company registered on stock exchange, for the half-year ending June 30, 1999 earned a reduced profit of Rs. 18 million against profit of Rs. 22 million for the same period in 1998. At this rate, the annual profits of the company are expected to decline even further. Similarly, the yearly after tax profits of Ferozsons Laboratories for 1999, have decreased to Rs. 13 million as against Rs. 15 million earned in 1998.

The financial health of other pharmaceutical companies, whose results have not yet been declared, is not expected to be any better. According to Pharma Bureau, the profit after tax as a percentage of total net sales of the pharmaceutical industry has been declining for some years. From 6.98 percent in 1996 the percentage of net profit to sales came down to 4.41 percent in 1997, to 0.85 percent in 1998, and 0.25 percent in 1999. Total corporate tax paid to the government has also decreased from Rs. 712 million to Rs. 418 million in 1999.

Multinationals, which have more than 60 percent of Pakistan pharmaceutical market, planned to spend Rs. 4.7 billion (US$ 84 million) in capital investment projects over the next five years, but in view of the gloomy financial picture, all modernisation and expansion plans have been postponed.

Industry circles are worried that if the present state of affairs continues, foreign investors may decide to suffer no more losses and withdraw their investment from the pharmaceutical industry in Pakistan. The industry cannot survive long without reimbursement of increased costs.