Mon, 30 Mar 2020

The suspension of just one cough syrup containing codeine caused a significant dent on Adcock's over-the-counter sales in the six months ended in December, exacerbating an already difficult trading environment, where medicine price increases have been below inflation for a while and consumers' buying power is being eroded.

The pharmaceuticals group, in which Bidvest acquired a controlling stake last year, has an extensive range of codeine-containing medicines. It said it had already, on its own, implemented extensive measures to control the distribution of codeine-containing products and curb abuse last year. This included a temporary voluntary sales suspension of BronCleer, one of the codeine-containing cough syrups that was widely available without prescription.

Proposed up-scheduling of codeine

The suspension of BronCleer was Adcock's own initiative, but now that the South African Health Products Authority (SAHPRA) is considering "up-scheduling" codeine medicines in SA, Adcock's other codeine-containing products could be affected too.

In its financial results report, the pharma group said it supports the responsible use of all its medicines but warned against the proposed changes in the scheduling of codeine.

"We do not believe that up-scheduling of codeine-containing medicines in a country burdened by lack of access to healthcare is a suitable outcome, and are in full support of strict enforcement of controls throughout the supply chain, extending to the point-of-sale," wrote the company in its results booklet.

READ| Adcock predicts 27% jump in Heps

Adcock added that more drugs may be in line for up-scheduling, as SAHPRA has communicated to the industry that it is reviewing the scheduling status of meprobamate and meprobamate-containing medicines because of misuse concerns too.

Meprobamate is used to treat anxiety.

The 7.8% decline in Adcock's OTC sales to R940 million was also caused by inventory supply challenges emanating from its Clayville facility in Johannesburg, as well as "the difficult trading environment", the company said.

Drug prices

This difficult trading environment included the department of health's decision to cap the price increases of medicine and scheduled substances at 4.53%. This was higher than the 3.78% price increase cap in 2019 and the 1.26% in 2018. Still, Adcock said this was not enough as the its input costs, including that of active ingredients, labour, transport and utilities rose much faster.

"While this adjustment is in line with CPI, it does not compensate for current production inflation, particularly in wages and utilities," said the pharmaceutical group.

The group's said its utility costs increased by 11.4% in the period under review and wages by 7%. As for its ingredients costs, a weaker Rand resulted in the weighted cost of imported raw materials and finished products, increasing by 6.1%.

Mixed results

The combination of these challenges saw Adcock increase its turnover by 1% to R3.6 billion, and its gross profit for the six months by just 0.4% to R1.4 billion. The group's margin declined slightly from 38.7% to 38.4%. On a positive note, the company record a 3.8% average drug price increase, which mainly came from its consumer segment and it benefited from the on-boarding of additional Leo Pharma dermatology brands which almost entirely offset by a volume decline in its OTC division.

The Prescription division's turnover increased by 4.4% to R1.4 billion. The Consumer unit's turnover increased by 7.3% to R422 million, and Hospital business's turnover jumped 8% to R825.6 million as new products contributed to the bottom line. Adock's Rest of Africa operations achieved a trading profit R2.6 million.

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