Can local pharmaceutical players sail through Covid-19?

KUALA LUMPUR (March 26): As the Covid-19 pandemic rages on, many industries around the world have been adversely affected by the ensuing economic devastation, and the local pharmaceutical industry has not been spared from its effects.

Tree Med Sdn Bhd managing director Khairul Anuar Danial said the virus’ destructive capacity is unprecedented, adding that the company could be faced with losses for the financial year ending Dec 31, 2020 (FY2020).

This has been a very tough year, as we are an importer of pharmaceutical products, thus there is a possibility that we might not be profitable this year due to the weakening foreign exchange rate,” he toldBernama.

Tree Med is an importer of pharmaceutical goods, with blood bank products being its core business offering.

At the opening bell today, the ringgit has dropped 295 basis points or 7.22% against the US dollar to 4.3800/3950, from 4.0850/0900 on Jan 2, 2020.

Weakening ringgit, cash flow woes

Echoing Khairul Anuar, Duopharma Biotech Bhd group managing director Leonard Ariff Abdul Shatar said the exchange rate’s impact on the company’s imports of raw materials is a matter of concern.
“As about 50 per cent to 60 per cent of our manufacturing costs are denominated in the US dollar, its movement would have some impact on the production, operational costs and consequently, margins,” he said.

Fortunately, he said, the company’s export business could somewhat cushion the foreign exchange impact, adding that the company has expanded to ASEAN countries, Ghana, South Africa, Oman and Qatar.

However, Leonard Ariff noted that cash flow has also emerged as one of the major risks faced by the company, similar to many other companies.

“We may be able to weather through a short-term disruption, but a prolonged three to four months of similar restrictions or worse, a full lockdown, will have a sustained impact on our ability to deliver our products to our customers.

“As such, collection of receivables and uninterrupted ability to supply to our customers are important,” he added.

Supply-chain disruption?

On concerns over supply-chain disruptions, Leonard Ariff said the company has yet to face any problems.

“However, things can change rapidly depending on many factors, such as further restrictions imposed by countries which supply our raw and packaging materials,” he said.

He added that some raw materials are imported from China and India, where movement restrictions have been imposed following the Covid-19 pandemic.

Consequently, he believes the overall pharmaceutical industry may face some supply-chain disruption.

“Fortunately, China has reportedly moved beyond the peak of the current Covid-19 cycle. We hope this news could mitigate the disruptions anticipated in the supply chains,” he added.

Leonard Ariff said the company would continue supplying medicines to the health ministry under its pre-existing contracts.

“It is important to remember that although we are in the midst of a pandemic, there are many patients with pre-existing chronic conditions out, there who remain in need of continuous treatments,” he said.

Meanwhile, Khairul Anuar foresees a possible supply disruption in the near future, as many countries have imposed movement restrictions to curb the spread of Covid-19.

“Our products are mainly sourced from the United States, Europe, Taiwan, China and Australia.

“Due to the transportation problems following the restricted movement orders in the respective countries, there is a possibility of supply disruption,” he said.

Currently, Tree Med supplies its pharmaceutical products to about 1,000 pharmacies in the country.

Covid-19’s implications on business

With blood bank products being its core business offering, Three Med’s blood bank segment accounts for 60% of its sales, said Khairul Anuar.

As such, he expressed concerns that the blood supply to the national blood bank would be affected by the reduction in the number of blood donors following the movement control order (MCO), effective March 18-April 14.

“We supply equipment and consumables that are needed for blood tests. Every year, about 800,000 blood tests would be collected.

“With less blood donors coming forward due to the MCO, this will lead to a drop in our blood bank business, which would subsequently affect our income,” he added.

Overall, he anticipates that the company’s total sales would fall by 20% this year, but added that the effect would be mitigated by the sales of hand sanitizers.

As for Duopharma, Leonard Ariff said for FY2020 ending Dec 31, 2020, the company expects to face a series of challenges including the volatility of the ringgit, upward pressure on raw material prices, attracting the right talents into the company, as well as a possible fallout attributed to the continuing US-China trade war.

“While we have experienced some impact from the Covid-19 pandemic, we remain optimistic that any supply chain challenges will be rapidly overcome,” he said.

Covid-19 versus SARS, H1N1

Khairul Anuar said there is a notable difference with regards to the impact of Covid-19 on businesses, compared with the Severe Acute Respiratory Syndrome (SARS) outbreak in 2003 and H1N1 in 2009.

“There were no movement restrictions during SARS and H1N1 outbreaks, so we were still making a profit previously.

“Now people cannot go out and factories cannot operate, this is a totally different situation and we cannot make comparisons,” he said.
Similarly, Leonard Ariff said local companies experienced less disruptions during the SARS and H1N1 outbreaks.

“What is remarkable this time around is the speed of the spread of the virus, which has led to shutdowns or reduced operations for many institutions and companies.

“Another major difference is that the earlier outbreaks were localised to regions as opposed to being a pandemic like this,” he said.

However, he said since there are signs of Covid-19 recovery in China, Duopharma is expecting its performance to remain on track this year.

In FY19, the country’s leading pharmaceutical company saw its net profit rising[email protected]year-on-year (y-o-y) to RM55.27 million from RM47.64 million earlier, backed by higher revenue of RM576.46 million from RM498.72 million in FY2018.

Challenges in sourcing face masks

With face masks becoming one of the most sought-after items during the Covid-19 pandemic, both Khairul Anuar and Leonard Ariff agreed that it is indeed a challenge for them to acquire the product.

Khairul Anuar’s search for suppliers of the protective gear has come to no avail, as countries like China, India and Taiwan halted their face mask exports from as early as January 2020.

“When China banned the export of face masks in January, they had not only banned exports of the finished product but also the raw materials for it, which has affected the local manufacturing industry,” he said.

To solve the problem, Khairul Anuar suggested for the government to look into making the pharmaceutical industry an open market for players.

“I think this is a wake-up call for the government that we should not continue to do what we have been doing all this while,” he said.

Instead of being solely dependent on products supplied by Pharmaniaga, he said, the government should look into developing local manufacturers and roll out some policies to ensure the survivability of the local manufacturers.

On the price of face masks, Khairul Anuar opined the government should first ensure the product’s availability in the market.

“How are you going to fix the price, when the product is not available?” he said, adding that the protective gear should be given free to the people in these critical times.

Meanwhile, Leonard Ariff also said Duopharma also faced delays in receiving some non-essential services from vendors and suppliers, such as printing materials.