THE pharmaceutical sector bubble at the stock market burst last week after reports emerged that the new drug pricing policy submitted to the prime minister’s office by the National Health Services suggested freezing drug prices at 2013 levels until June 2016.

The strong anticipation of an increase in drug prices on the basis of ‘average’ or ‘reference pricing’ mechanism had shot stock prices of listed pharmaceuticals through the roof. Most sector watchers believe that since the draft new pricing policy is unacceptable to the industry, it would cross swords with the National Health Services (NHS) yet again in a drawn out dispute.

In a span of just five weeks, from the end of November to last Thursday, the stock price of Ferozsons Laboratories surged by as much as 30 pc, going from Rs435 to Rs572 per share.

However, that had less to do with the anticipation of the drug price increase and more with a development that investors see as a major revenue booster for the company. Ferozsons — the sixth-largest publicly listed pharmaceutical company (in terms of sales) — announced that it had entered into an agreement with an American company, Gilead Sciences, which would allow it to market and distribute the new Hepatitis-C treatment drug ‘Sovaldi’ in Pakistan. The agreement has been endorsed by the Drug Regulatory Authority of Pakistan (DRAP).

Ferozsons has entered into an agreement with an American company that would allow it to market and distribute a new Hepatitis-C treatment drug

Reports suggested that the complete treatment would cost Rs330,000 per patient, said BMA Capital Management analyst Jehanzaib Zafar.

Research analysts at Arif Habib Limited stated that “despite the success, the drug has caused intense debate in the US, as the selling price in that country is a mind-boggling $1,000 per pill. However, Gilead has been providing the generic version of the drug at significantly lower prices to companies based in countries with lower purchasing power, such as Egypt (highest Hepatitis C death rate), India and Pakistan, while collecting royalty fees on sales from each manufacturer”.

Zafar said “as per WHO’s reports, 5pc of Pakistan’s population, or 9m individuals, is carrying the disease, and roughly 250,000 new patients join the list every year. Our preliminary analysis shows that if 30,000 patients take the new treatment, the annualised impact on the company’s bottom line would be Rs33 per share”. That would mean a huge addition to the company’s profitability.

Ferozsons Laboratories Limited was converted into a public limited company on September 8, 1960, and has its registered office in Rawalpindi and the factory in Nowshera, Khyber Pakhtunkhwa. It is primarily engaged in manufacturing and selling pharmaceutical products.

According to industry sources, there are 564 pharmaceutical manufacturers in the country. The 50 leading producers, including Ferozsons, command 85pc of the market share. The company’s total assets stood at Rs3.262bn by September 30, 2014. Against its paid up capital of Rs302m, it had retained (accumulated) profit of Rs2.136bn, and surplus on revaluation of property, plant and equity amounting to Rs373m. According to Arif Habib Ltd, the company’s market capitalisation stands at $158.3m; it has 30.2m outstanding shares, or 35pc free float.

By end-September, the company carried long-term investments of Rs229m on its balance sheet, including a Rs77m investment in 98pc shares of ‘Farmacia’ — a subsidiary partnership registered under the Partnership Act, 1932 and engaged in operating retail pharmacies.

The company also had Rs152m in a long-term investment in 15.2m shares of ‘BF Biosciences Limited’. BF Biosciences was set up to establish a biotech production plant to mainly manufacture cancer and Hepatitis medicines. The company holds 80pc equity of the subsidiary, while the remaining 20pc is held by Laboratorios Bago S.A., Argentina.

For the quarter ending September 30, Ferozsons posted an after-tax profit of Rs126.8m, up from Rs106m in the corresponding period of the previous year.

“The quarter under review was marked by political disturbances in the country, which led to a weakening of an otherwise improving economy,” said Mrs Akhter Khalid Waheed, the chairperson and CEO of Ferozsons, in the company’s quarterly report. She asserted that the resulting erosion in confidence had reduced inflows into the country, leading to a depressed consumer sentiment and a weakened rupee.

“Paralysis in decision-making at the government level also meant that tenders for purchase of medical devices as well as medicines were largely deferred, impacting the quarter’s sales, particularly those of the company’s medical device division and institutional sales of its subsidiary, BF Biosciences Limited. This impacted both the topline growth and the bottom line.

“The standalone net sales of the company grew by 11pc in the quarter over the same quarter of the previous year. How­ever, at the group level, there was no significant change in consolidated net sales over the same period,” she wrote.

Published in Dawn, Economic & Business, January 6th, 2015

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