Nigerian pharmaceutical industry is witnessing a resurgence. A combination of strategic corporate initiatives and supportive government’s fiscal stance appears to provide much-needed boost for the most active domestic pharma industry in the West African region. Deputy Group Business Editor, Taofik Salako, reports that investors are warming up to healthcare stocks as highlighted by the steady share price recovery.
The Nigerian pharmaceutical industry recorded an average income growth of more than 70 per cent in the first half. Increased sales, improved operating efficiency and optimization of capacity utilization are heralding a visible and significant rebound in the pharmaceutical industry. Global outlook for the pharma industry and favourable domestic environment support a positive trajectory for the pharmaceutical industry. The global pharma market had risen by more than $100 billion to N1.6 trillion in 2023. The African pharma market, where Nigeria occupies a more active space, is projected to rise to $111 billion over the decade. While the highly fragmented nature of the Nigerian pharma industry presents a mix of opportunities and challenges, the large-cap indigenous companies such as Neimeth International Pharmaceuticals are closing the gap left by the exit of some multinationals with new projects aimed at increased capacity and global competitiveness.
There is still significant headroom for growth in the pharma sector. The federal government recently introduced several recent fiscal measures targeted at boosting the domestic the pharmaceutical sector. The Executive Order aimed at supporting the healthcare industry removed import duties, value added tax (VAT), Excise duty on pharmaceutical raw materials, intermediate products, medical diagnostic equipment and machineries. The fiscal policy measures are expected to further enhance domestic production of pharmaceutical products at relatively lower costs, translating to onward reduction in cost of medications. Affordability is a well-known catalyst for increased adoption, thus a steady top-line growth should form a baseline for the profitability of the pharma industry going forward. While the impact of the fiscal policy stance is expected to become more pronounced in the period ahead, pharmaceutical companies are showing appreciable growth in sales and profitability.
The performance of Neimeth International Pharmaceuticals, one of the three largest and oldest pharma companies in Nigeria, illustrates the renewal in the pharma sector. Incorporated in August 1957, Neimeth has undergone several transformations. In May 1997, it became an indigenous company after Pfizer Inc. NY divested from the company through a management buyout.
Facts of operations
Neimeth is making an average of N12 profit per unit now where it used to make average loss of more than N47. This underlines the significant recovery of the company’s operations, which has seen Neimeth as one of the best-performing stocks at the stock market in recent period.
Key extracts of the interim report and accounts of Neimeth for the six-month period ended June 30, 2024, released at the Nigerian Exchange (NGX), showed strong growth outlook, underpinned by fundamental changes in the company’s business operations. Management’s focus on cost management and route-to-market were evident in growing margins and sales. Both actual figures and underlying ratios showed appreciable improvements, with a stronger balance sheet supporting the renewed profitability.
Total sales rose by 73 per cent to N1.66 billion in first half 2024 as against N957.4 million in 2023. Gross profit jumped by 211 per cent from N300.56 million to N933.86 million. Operating profit recovered by 142 per cent to N198.27 million in first half 2024, as against loss of N475.38 million in corresponding period of 2023. Profit before tax recovered from a loss of N452.56 million to a profit of N198.23 million. After taxes, net profit stood at N120.57 million in first half 2024 as against net loss of N452.56 million in first half 2023. From net loss per share of 11 kobo in first half 2023, earning per share closed first half 2024 at 5.0 kobo, an increase of 144 per cent.
The balance sheet of the company also emerged stronger during the period, with total assets rising from N8.94 billion by December 2023 to N9.56 billion by June 2024. Shareholders’ funds rose from N1.47 billion to N1.67 billion.
Underlying performance ratios, which measure the depth of structural improvement and intrinsic value creation, were all positive, underlining the fact that the actual figures were driven by substantial changes in the fundamentals of the company. Gross profit margin improved from 31.4 per cent in first half 2023 to 56.4 per cent in first half 2024, showing the gain from top-line cost management. Operating profit margin recovered from -49.7 per cent in first half 2023 to 11.9 per cent in first half 2024, showing the return of the company’s core business operations to profitability. Pre-tax profit margin recovered from -47.3 per cent to 12 per cent, implying that whereas the company used to make average loss of N47 per every N100 worth of sales in the previous period, it has recovered to average profit of N12 per unit of sales in the latest results. Return on equities (ROE) recovered from -30.79 per cent to 7.22 per cent, while return on assets (ROA) improved from -5.06 per cent to 1.26 per cent; both underlining the recovery in shareholders’ value creation.
The strong fundamental performance has also seen Neimeth’s share price on a major rebound in recent period as investors reassess the healthcare company on the basis of emerging results. With a 22 per cent capital gain in July 2024, Neimeth has been one of the contrarian stocks at the stock market, defying the lull that has characterised overall share pricing trend in recent period.
Growth plans
Neimeth’s exceptional performance not only headlined the recovery in the industry, it underlined the individuality of each company’s ability to harness emerging opportunities. Neimeth’s first half results came on the back of an aggressive growth plan being driven by Pharm Valentine Okelu, who was appointed the Managing Director in 2023. The strategic growth plan aims at doubling revenue and delivering significant returns to shareholders.
Addressing shareholders recently at the company’s annual general meeting in Lagos, Okelu outlined that the company would grow its revenue by about 128 per cent from N2.2 billion in 2023 to N5 billion in the current business year ending December 2024. It was estimated that the company would build up its profitability from a modest N211 million in 2024 to as high as N700 million by 2029. The first half results indicated that the company could surpass its projection as the momentum of recovery is expected to remain steady throughout the second half.
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Neimeth, which successfully raised N3.67 billion from its existing shareholders after its rights issue recorded full subscription in 2023, is implementing a multi-faceted growth plan that includes optimizing existing production and research capabilities and developing new facilities. Beyond securing leadership in the buoyant Nigerian healthcare market, Neimeth plans to take further advantage of regional and continental free trades to expand its market share.
The company is constructing a world-class factory compliant to World Health Organisation (WHO) current Standards of Good Manufacturing Practice (cGMP) at Amawbia in Anambra State. It has also upgraded its facility at Oregun factory. The completion of Oregun plant has added additional 300 per cent to the company’s production capacity.
Okelu said the company’s ambitious targets signal a bold step towards solidifying the company’s position as a leading healthcare provider in Africa.
He noted that despite operating challenges in recent years, Neimeth has remained undeterred in its pursuit of growth.
He said the company is growing its production capacity to effectively meet demand of the market noting that after the factory upgrade, the company is on capacity upgrade to increase production and further improve market share.
Okelu said the plan was to continue driving sales northwards to a level where losses would be contained and profit achieved in 2024.
He expressed optimism that despite the challenges in the economy, investment in pharmaceutical manufacturing in Nigeria is a good and viable business decision.
He said the Nigerian pharmaceutical industry is projected to worth $1.7 billion by 2024 with an annual growth rate of 8.08 per cent, thus there is a wide room from which Neimeth could tap.
With the multi-billion naira WHO- standard factory in Anambra under construction, Neimeth’s growth plan centres around aggressive sales growth, diversification of product portfolio and competitive returns to shareholders. In pursuit of its corporate vision to be the leading innovative healthcare provider out of Africa, the company is pioneering research and development of African home-grown solutions to various diseases. A symbolic partnership that bridged the town and gown birthed a local formula for sickle cell anaemia. Already, it has many therapeutic formulations that will provide solutions to various human and animal diseases on the continent.
Neimeth is also partnering with overseas pharmaceutical companies to formulate medicaments for various common ailments on the continent. Currently, it has several human pharmaceutical lines undergoing registration with the National Agency for Food and Drug Administration and Control (NAFDAC) while veterinary products are underway. Many other human pharmaceutical products are scheduled to be submitted to the National Agency for Food and Drug Administration and Control (NAFDAC) for registration soon. Most of these products are expected to be introduced into the market in the current business year, thus expanding the company’s product portfolio.
Investors’ response to the company’s performance has also been positive. Neimeth’s share price rose from N1.60 on the first trading day of July 2024 to close the month at N1.95, 21.9 per cent capital gain. Many analysts believe that Neimeth’s is set for higher momentum.
For the pharmaceutical sector, there is much prospects in the home market and beyond. The African Continental Free Trade Area (AfCFTA) holds enormous promises for Nigerian pharmaceutical companies to expand and diversify sales, cushioning the volatility that comes with a huge national concentration. Commitment to global standards, as seen in the emerging WHO-compliant factories, will enable Nigerian companies to scale up into the big-ticket health transactions across the regions.