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Ongoing Investments will Sustain our Growth - Oludare Adanri

Ongoing investments, including a new World Health Organisation (WHO)-compliant factory will boost Fidson Healthcare’s competitive advantages and resilience to ensure the leading pharmaceutical company continues to sustain growth in spite of the tough macroeconomic environment and peculiar industry challenges. In this interview, Chief Accountant, Fidson Healthcare Plc, Mr. Oludare Adanri, outlined the short, medium to long term outlook for the company amidst the macroeconomic challenges and constraints in the pharmaceutical industry.

 

He pointed out that growth in the immediate period will come from the company’s new factory and the introduction of a new line of products in the area of intravenous fluids as well as increased capacities on the company’s other five lines.

“In the medium to long term, we believe expansion into other markets and disease and therapeutic areas will sustain growth. We are in a number of partnerships that will aid these growth areas,” Adanri said.

He pointed out that the company’s new plant, which complies with the WHO’s current general manufacturing practice (cGMP) will enable it to optimise economies of scale, thus enjoying the benefit of lower unit product cost while simultaneously raising the capacity of the company by more than 200 per cent.

Adanri speaks further on what investors should look for from Fidson within the context of the operating environment in the pharmaceutical industry:

 

Strategic positioning of Nigerian pharma industry for global competitiveness

 

“In order to expand our product portfolio as well as remain relevant in the global pharmaceutical space we commenced the establishment of our new manufacturing plant a few years ago. The new plant, arguably the largest pharmaceutical manufacturing facility in Africa, puts us on the path to attaining WHO certification. Fidson is one of five pharmaceutical companies that were shortlisted for WHO certification in Nigeria. The new plant is equipped to produce six distinct product lines-tablets, capsules, oral liquids, creams and ointments, dry powder and intravenous infusions to meet the nation’s medicine needs and proffer opportunities for future exports

“Achieving WHO certification would enable us tender for WHO sponsored programmes, which is only accorded to WHO prequalified companies. Local pharmaceutical manufacturers in Nigeria currently lose out to foreign companies in these tenders because we are not certified. This would also allow us to export medicines.”

 

What to expect from the new ultra-modern WHO-compliant plant

 

“The new manufacturing plant will contribute meaningfully to the achievement of the Millennium Development Goals (MDG) of the Federal Government through job creation and reduction in infant mortality and maternal death. In terms of job creation, the plant when fully operational is expected to employ an additional 300 persons, besides more than 500 staff Fidson currently employs. This will cut across unskilled workers such as cleaners and packaging hands to highly skilled staff such as biochemists and pharmacists. Unskilled labour will make up a substantial part of the workforce, and this will no doubt contribute to the achievement of the first millennium goal of eradicating extreme hunger and poverty. Women would also be significantly represented in the additional workforce in order to enable women empowerment.

 

“In the area of reduction in infant mortality and maternal death, another key goal of the MDG, some products from the Biotech plant will address this. Among products to be manufactured from this plant is Zinc + ORS – a WHO-recommended medicine for the prevention and treatment of diarrhea, a cause of 24 per cent of child deaths in Nigeria.

 

Affordability of new products

 

Our new WHO cGMP plant will affords us opportunity to enjoy economies of scale, thus the benefit of lowering our unit product cost. The capacity of the new plant is more than twice the capacity of our current plant. In addition, we are employing the use of gas generators at the new plant, which will see the cost of energy fall drastically over time. To put things in perspective, energy cost accounts for up to 25 per cent of our factory overhead and our ability to reduce this will lead to some cost savings that would eventually be passed unto consumers.”

 

Access to finance

 

“I can only speak from our experience at Fidson and thus far, our relationships with Nigerian banks has been somewhat favourable. We have relationships with a number of banks and, although, we are extended credit facilities, they are usually at very high costs. This is not unlike most industries in Nigeria. However, with an already very high cost profile, the increasing cost of borrowing is inimical to the growth of our sector and business alike.

 

“On one hand, costs are very high while on the other hand, prices have to be low in other to remain competitive. Cheap and substandard variants imported into Nigeria mean that local manufacturers are almost unable to compete on pricing. It is against this background that we have continued to propose that the government urgently considers the provision of a Local Pharmaceutical Manufacturers’ intervention fund. The fund will enable the local industry raise capacity to global standards and compete fairly with imports.”

 

Operating environment

 

“As a company, this last year has been one of the most difficult years in our existence with operations disrupted by the elections, some policies that were disruptive to the pharmaceutical industry and access to essential medicines, specifically the National Drug Distribution Guideline, and recently foreign exchange issues. We took a dip in revenue as a result of interruptions to our business. The year 2016 has started off very much the same, however, we are optimistic that with the introduction of a new product line at our new WHO cGMP compliant factory and the government’s focus on promoting local manufacturing, we will return to growth.

 

“Generally, the Nigerian pharmaceutical manufacturer is faced with many challenges from the incidence of fake and counterfeit drugs especially in the rural areas to low capacity utilisation and deteriorating infrastructure. With a population estimated at over 174 million, access to quality medicines is still very poor in Nigeria. Our industry, relative to population, is one of the smallest; we ranked 13th out of 14 countries, ahead of only Zimbabwe.

“The average capacity utilisation of the pharmaceutical industry is less than 40 per cent, largely due to the influx of cheap imports and the lack of protection and incentive from successive governments. In spite of National Drug Policy that stipulates that 70 per cent of the drugs purchased by the government should be from the local industry, many local manufacturers are still not receiving the support of the government in this area. This situation is further compounded by non-payment for supplies by the Federal Ministry of Health.

 

“There is also a need to further strengthen the present regulatory environment to protect the local pharmaceutical manufacturing industry and related activities. A case in point is the ECOWAS Common External Tariff (CET) whose implementation commenced last year. This policy in its current form is inimical to the growth of local pharmaceutical manufacturing. A major issue with the CET implementation on medicines is the reduction of import duty tariff on finished pharmaceutical products to zero per cent compared with five to 20 per cent duty on raw and packaging materials respectively. This scenario hugely favours importation to the detriment of local manufacturing. We are currently engaged with the government to correct this because if things continue this way local manufacturers, who are already at a cost-disadvantage due to poor infrastructure, will be out of business.

 

Energy remains a major challenge to manufacturers in Nigeria. The cost of energy is a major part of overhead and increase in this cost further reduces the little margins on products. While most manufacturers are switching to the use of gas for energy supply to save cost, availability of gas has been a problem.

 

“Also, the increased cost of foreign exchange (forex) for the importation of essential materials to production has led to an increase of over 50 per cent to the cost of forex and transfers. This has ultimately impacted on the cost of sales for locally manufactured products, thus reducing gross profit margin. Creditor days-overseas have also increased due to the delay in accessing forex to settle most creditors as at when due. Most of these costs cannot be passed on to the consumer in order not to further jolt a struggling industry.

 

“But I will say the future of the industry looks bright given the current government drive to encourage the real sector and the special focus on healthcare. The campaign against counterfeit medicines, led by National Agency for Food and Drug Administration and Control (NAFDAC) and other industry players, has been fairly successful.”

 

The occurrences of substandard products has reduced, which is a testament to this. However, despite the laudable efforts in this fight, the circulation of counterfeit pharmaceuticals remains a key challenge. Cooperation of other government institutions, the police force and customs will further strengthen the fight against counterfeit. The growth of the local manufacturing industry will also help to reduce the incidence of faking because the origin of every medicine produced can be traced. We believe that a well-developed and sophisticated local pharmaceutical manufacturing sector will play a critical role in addressing the malaise of counterfeits and complement the commendable efforts of NAFDAC. Fidson, along with our colleagues within PMG MAN, is actively involved in advocacy to drive change within the industry. However, some of the issues mentioned above; reliance on importation, drug faking, lack of favourable financing and poor infrastructure among others could still pose a threat to the future survival of the industry if not addressed.

 

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