Those who say ‘no good deed goes unrewarded’ have surely not paid attention to Pakistan’s pharma industry. For years, MNC players such as GlaxoSmithKline (PSX: GLAXO) have kept the momentum going, hoping that the regulator will offer an enabling environment for manufacturers to pick up steam. However, pharma’s appeals seem to have fallen on deaf ears.

In its half-yearly financial results announced this Monday, the company maintained modest growth in top-line of six percent compared to same period last year. However, production costs also grew in line, trimming gross margin by 90bps.

This should come as no surprise for industry watchers. The industry has been pleading its case with regulator for CPI-based inflation adjustment for some time. It met with some success in January this year, but its benefits seem to have not translated into profitability yet.

As if industry’s chronic challenge of price control were not enough, rupee devaluation over the last nine months has not helped company (and industry’s) fortunes either, as cost of raw material import also ballooned. Overheads also expanded at the same time, with 16 percent year-on-year growth in selling, marketing and distribution expense.

Note that in line with the industry, marketing and distribution expense constitutes up to ten percent of top-line vertically for GLAXO, which is a significant input. Of this, salaries, wages and benefit on average constitute 40 percent of this head. While the firm has maintained its good name for investing in human resource, the 16 percent growth in the head managed to wipe off an incremental Rs233 million from earnings, over and above last year.

The impact from selling, marketing & distribution was sufficient to wipe off the little expansion of Rs115 million in gross profits, compared to same period last year. As a result, profit from operations recorded a year-on-year decline of eighth percent for 1HCY18.

Despite the challenges, GLAXO’s outlook on the country remains strong. Market insiders suggest that the company is planning to shift its regional headquarters to Pakistan, as the headstrong market of 220 million people remains too big to miss, despite the slow change on the regulator front. If the news is correct, the firm’s investment and expansion plans will remain one to watch closely!