The quarter ended December 2014 has seen impressive growth from the pharma industry, with an improvement in both the gross profit margin and net profit margin by 400 bps and 100 bps year-over-year, respectively.
The four biggest names - GSK, Ferozsons, Abbott, and Searle - constitute over 90 percent of the pharma sectors total market capitalization. Each of these companies exhibited double-digit growth in both their top line and bottom line over the three months ended December 31.
GSK led the pack in terms of revenues with Rs7.4 billion, but Abbotts bottom line was miles ahead of its competitors at Rs807 million. The improved sales figures - and consequently, margin figures - are attributed to a strategic shift toward consumer health products.
Margins have been bottlenecked for quite some time thanks to the government overly regulating the industry; pharma companies haven been allowed a price increase since 2001. So, most companies decided to shift their focus and further develop their consumer healthcare segment. With each passing year, the consumer healthcare segment of Pakistani pharmaceutical companies grows bigger and forms a larger chunk of overall revenue. This has provided a much-needed boost to the industrys margins.
Costs seem to have been kept in check. This could be due to the fall of the rupee at the start of the year; pharma firms could have capitalized on the opportunity and imported their raw materials in bulk. Also, the declining fuel prices might have helped in cutting costs.
Other than that, selling, distribution, and marketing expenses have gone up 21 percent year-over-year. As mentioned earlier, this is due to increased investments into the consumer health portfolio.
All in all, as of the three months ended December 2014, the pharma sector appears to be in top shape. And the year ahead might bring even more good news - Ferozsons is to receive government approval for the sale of Gileads blockbuster Hepatitis C drug, Sovaldi. Gileads line of drugs could take the market by storm.
More importantly though, 2015 is expected to be an awesome year for Pakistani pharmaceuticals because the government has finally announced a new drug pricing policy - one that grants far greater clemency.
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Pharma Industry Quarterly Financials*
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Quarter ended
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Rs (mn) 14-Dec 13-Dec YoY
change
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Sales 15906 13655 16%
Cost of Sales 10391 9455 10%
Administrative expenses 436 429 2%
Selling & Distribution 2585 2144 21%
Finance cost 65 88 -26%
Other expenses 242 145 67%
Other income 527 464 14%
Profit after tax 1817 1355 34%
GP Margin 35% 31%
NP Margin 11% 10%
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*GSK, Ferozsons, Abbott, and Searle
Source: Company accounts
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