Kumar: Pharmaceuticals in Uganda alive, kicking

The largest pharmaceutical company in East Africa, Quality Chemical Industries Ltd (QCIL), has drawn a lot of attention in 2023 due to a number of factors, including profit warnings, the appointment of a new executive director, a new investor and a steep decline of its share price to lows. 

The company is also trying to stabilise its balance sheet by decreasing a debt that has been owed to it for a long time by the Zambian government from drug sales.

The drug maker recently lost the right to use the name “Cipla” after Cipla India, its previous majority shareholder, sold its 58 percent stake in a $25 million (about Shs95b) deal to a private equity firm last November to focus on bigger markets in Europe. 

The local pharmaceutical has, nonetheless, been undergoing a complete transformation since its chief executive director, Mr Ajay Kumar, assumed the role three years ago. The list of difficulties Mr Kumar has faced in the last year, both self-inflicted and not, is remarkably lengthy. 

The business is dealing with declining revenue, which has prompted it to put roughly Shs15 billion in inventory to revitalise its net profits. This was after the delay of payments from governments and a limited product portfolio, which it is now diversifying, according to data from its 2023 annual report.

The company’s share price has dropped nearly 80 percent since it went public in 2018, from Shs256 to Shs52. In addition, QCIL is aware that its announcement last year that it would not be paying out dividends did not sit well with investors. 

In an interview with Saturday Monitor, Mr Kumar said: “That is something that also concerns us; although it is not under the control of the management. I believe our performance was good in the past years and we continue to build a stronger future for the company.” 

All fall down?
The company’s profits before tax, however, fell, albeit slightly, from Shs18.6 billion in 2022 to Shs17.1 billion in 2023. When the company revealed a new investor, the Mauritius private equity firm Africa Capitalworks SSA3 (ACW SSA3), from the multinational pharmaceutical giant Cipla India, which was shifting its attention to larger markets in Europe, its stock price fell by more than 20 percent to Shs70. 

According to QCIL, the company has a plan that will enable it to grow profitably each year. QCIL hopes this will influence market sentiments and positively reflect on its share price.

It adds that losing the right to use the name “Cipla” will not threaten its international business. This is reportedly because it has solid relationships with its clients abroad and will instead launch a vigorous marketing campaign. 

“As we speak, there is no impact noted because of Cipla’s exit, and we are busy developing our campaign, which will be launched [in 2024],” Mr Kumar told Saturday Monitor. 

“We are a pharmaceutical company, so the revenue stream is still through selling of medicines. However, I believe we have not thoroughly exhausted all the opportunities in revenue generation. The diversification would still be related to sale of pharmaceutical products,” he added. 

Diversification 
The company has begun to diversify its product portfolio by developing new drugs in the private market through a branded generic space, with a particular emphasis on the cardiovascular and diabetic categories. The acquisition of a new majority shareholder slowed the process, but company executives believe it will pick up speed in the coming fiscal year. 

The pharmaceutical company is also in the process of establishing a new facility for the production of oncology and sickle cell medicines. In fact, QCIL informed its shareholders last year that it intends to launch more than 10 products for the Ugandan private sector. 

For the past three years or so, Quality Chemical has been informing its shareholders that its revenues are declining. Before a company discloses its financial results, all listed companies on the Uganda Securities Exchange are required to notify their shareholders if they anticipate a drop in profits of significant magnitude. This allows the shareholders to be informed about the condition of their investments. 

QCIL entered into agreements with governments to supply them medicines on credit. This has seen its revenue plummet. The local drug manufacturer had hoped that agreements like the one it entered into with Zambia would be fulfilled in agreed time, but the longer these payments were delayed, the more its profits and inventories suffered. This ultimately infuriated its shareholders. 

Current business model
The company’s current business model is reliant on large public procurement, and by its nature, price erosion is a significant risk that affects it. Mr Kumar says: “We have learned the lessons from the past on managing credit risk and how to minimise it using various mechanisms, which we have put in place.”

He adds: “I don’t foresee any risk on government business moving forward. This is an important segment because of the range of products we manufacture which are consumed in large volumes and generally procured through public procurement processes.” 

The company had found itself dependent on one customer, National Medical Stores, to supply medicine because it knew what the government wanted and in what quantity prior to each fiscal year. 

“But that is not sustainable for the company, that’s why we are now leveraging technological transfer from our parent company (Cipla India by then) so that we can develop new drugs and reduce patent costs,” Ms Peace Namara, Cipla’s legal and compliance manager said in August last year. 

At the same time, the company was dealing with the fallout from Covid-19, which brought with it challenges in the form of higher expenses, as well as chances for new business. 

“We received one-off orders from sovereigns around Africa boosting our sales by approximately Shs24 billion. On the other hand, costs of raw materials and logistics of shipping escalated, almost neutralising the gains from the additional orders,” Quality Chemical explained to its shareholders. 

But with this new investor holding a majority stake, the company intends to use its influence to boost the healthcare industry in the region and jumpstart growth.

“QCIL has built capability in most of the areas with support of Cipla India to sustain the business. ACW SSA3 have expertise in investment and market dynamics which will complement QCIL market presence and reputation in pharmaceutical landscape and will be beneficial to all stakeholders,” Mr Kumar explained optimistically. 

Since Mr Kumar’s appointment in 2021, notable progress in the pharmaceutical industry has been realised. His management has broadened the company’s product line and created new market niches. He has also had a significant impact on cash flow, a stronger balance sheet, integrated supply chains, and efficient processes. 

Pharmaceutical manufacturing 
Most of the 21 registered pharmaceutical industries in Uganda in 2019 were listed as small scale industries. A notoriously capital-intensive venture known to require quite some bit of financial investment, Quality Chemical Industries Ltd (QCIL) has since its founding on July 10, 2005, been the poster child of pharmaceutical manufacturing in Uganda. Besides manufacturing triple-combination antiretroviral or ARV drugs, the pharmaceutical manufacturing company headquartered in the Kampala suburb of Luzira also makes the antimalarial drug Lumartem as well as Texavir and Zentair, which are Hepatitis B generic medicines.

A 2015 study showed that only 10 percent of drugs on the Uganda pharmaceutical market are manufactured locally. The vast bulk of the medicines are from India and China. 

The African country, much like others on the continent, grapples with substandard/falsified antibiotics and antimalarials, to mention but two. A 2018 study indicated that such falsifications come at an economic impact anywhere between $10 billion and $200 billion. They also threaten the financial blueprint of entities such as QCIL.