The CEO of SA’s second-largest generic drug manufacturer sought to allay fears that the government’s drive for universal health coverage poses a risk to the pharmaceutical sector, saying the reforms proposed under the National Health Insurance (NHI) Bill could boost drug sales.
Adcock Ingram CEO Andy Hall’s view is in contrast to the negative investor sentiment that greeted the August 8 release of the bill. The first piece of proposed legislation for the government’s planned health sector reforms saw R14bn wiped off the value of key health-care stocks in the space of three days.
The NHI bill proposes establishing a central fund to purchase services on behalf of the entire population from both public and private health-care providers, and has created uncertainty about the future role of medical schemes and their associated businesses.
Shares in companies holding medical scheme administrators, private hospitals and rival Aspen Pharmacare all took a substantial hit.
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Sales booster
"We don’t believe it [the NHI] is as problematic as a lot of people are making it out to be," said Hall on Wednesday, arguing that universal health coverage should expand the number of people able to obtain prescription medicines and hospital products, which would boost volumes for drug companies
"We accept that will come with some downward pressure on prices, but downward pressure on prices in the generic business happens around the globe, so that’s not a new thing for pharmaceutical companies," he said in an interview shortly after the company released its results for the year to June 30.
Adcock Ingram already operates in a market constrained by restrictions on medicine sales, ranging from government caps on annual price increases to the formularies (lists of approved products) used by large medical schemes, and did not anticipate struggling to adapt to NHI, Hall said.
NHI is likely to be marginally positive for Adcock Ingram’s prescription and hospital product divisions, and neutral for its nonprescription medicines and consumer product divisions, he said.
Adcock Ingram reported that group profit after tax rose 8% to R695.4m during the period, with revenue from continuing operations up 11% to R7.1bn.
Headline earnings per share from continuing operations rose to 421.7c, up from a restated 381.3c in the previous corresponding period.
Headline earnings per share strips out once-off items and is one of the key indicators used by investors to gauge profits.
The company said it would pay a final dividend of 100c a share, taking the total dividend for the year to 200c a share, a 16% improvement on the previous corresponding period.
Despite tough trading conditions, three of four Adcock Ingram divisions reported double-digit growth in trading profit, with only its over-the-counter division reporting flat turnover.
The consumer division had been hit by problems at its Clayville plant, which stopped production of cough medicines during the key winter season.
The firm reported that prescription medication turnover surged 22.4% to R2.7bn.
Adcock Ingram, which is 51% held by services and distribution company Bidvest, said it had disposed of its assets in Ghana and Zimbabwe during the period under review.
Hall said the company did not intend to acquire further businesses in sub-Saharan Africa. It would continue to explore market expansion through agents or distributors. "Relative to the returns we can generate … the regulatory complexity of operating in all these jurisdictions … it’s not worth our while to have fixed infrastructure outside SA," he said.
Adcock Ingram stock closed 4.86% up at R58.20, their biggest one-day gain in 18 months.
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