Earnings of Pakistan’s listed pharmaceutical sector were down 42% YoY to Rs7.9 billion in calendar year 2023, a report from brokerage house Topline Securities stated on Friday.

“This decline is primarily attributed to decrease in gross margins and increase in finance cost,” it added.

The report said despite higher revenue (up 17%) that clocked in at Rs274.5 billion in 2023, mainly on account of increase in drug prices, companies were “unable to sustain gross margins”.

“To recall, in May-2023, the government allowed one-time dispensation, enabling pharmaceutical companies to increase their existing Maximum Retail Price (MRPs) of essential drugs equal to 70% increase in CPI (with a cap of 14%) and MRP of all other non essential up-to increase in CPI (with a cap of 20%) to mitigate the impact of rupee devaluation,” added Topline Securities.

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“Despite the rise in prices, companies were unable to sustain gross margins, with the gross profit margin falling to 26% in 2023 from 30% in 2022.”

The report added that a 20% devaluation of the rupee against the USdollar, average inflation of 31%, and the significant increase in finance costs rising by 55% to Rs7.7 billion in 2023 took their toll on earnings.

“Selling and administrative expenses increased by 20% and 17%, respectively, in 2023, which is in line with inflation trend.”

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The report added that recently in February 2024, the government has approved deregulation of non-essential drug prices which Topline believes will improve the margins of pharmaceutical companies, especially those with a higher mix of non-essential categories.

“They will be able to increase their prices in line with the increase incosts, rather than being subject to any cap on pricing.”