Most of the listed pharmaceutical companies in Bangladesh logged lower profits despite higher sales in July-March of the current financial year owing to a spike in the cost of production. 

Of the 25 drug-makers and chemical companies listed with the Dhaka Stock Exchange, eight witnessed higher profits, 13 registered lower profits, and four incurred losses in the first nine months of 2022-23.

The profit situation worsened in the third quarter as the earnings of 22 listed drug makers dropped compared to the identical period a year earlier.

Leading drug-maker Square Pharmaceuticals' profits rose 5 per cent year-on-year to Tk 1,344 crore in the first three quarters of FY23. However, its profits dropped 5.6 per cent to Tk 383 crore in January to March.

Another top drug maker Renata Ltd's profits dipped 33 per cent to Tk 269 crore between July and March.

"Though Renata witnessed higher sales, its profits dropped mainly due to higher raw material prices and other costs," said Jubayer Alam, company secretary of Renata.

Raw material prices rose due to the global inflation driven by the Russia-Ukraine war and increased shipping costs.

"The cost of production also rose through the higher energy bills and borrowing costs," Alam said.

In order to prevent the fast depletion of the foreign currency reserves, the government increased diesel prices by 36.25 per cent and furnace oil prices by 37 per cent in August before cutting it by Tk 5 per litre.

Electricity prices rose 15.71 per cent alone between January and March. In January, gas prices were raised by 150 per cent for large industries and 154.7 per cent for medium industries.

"The income from the investments in fixed deposits also fell. Moreover, the costs of borrowing increased while the foreign exchange losses increased," Alam added.

The situation is almost the same for all of the pharmaceutical companies and the profit of most companies declined, said a top official of a pharmaceuticals company, preferring anonymity.

The fall in exports also pushed down the profits.

Pharma exports have witnessed a downward trend recently due to the global economic crisis as consumers in the western nations tightened their belts for the higher cost of living.

Shipment dropped 9.19 per cent to $132.41 million between July and March, data from the Export Promotion Bureau showed.

The top official said the dollar shortage has hit the pharmaceuticals industry as many companies struggled to import raw materials.

Bangladesh Bank data showed drug-makers opened letters of credit worth $699 million for the imports of raw materials in July-March, down around 23 per cent from a year earlier.

Likewise, the LC opening for capital machinery used in the pharmaceuticals sector declined 40 per cent to $84 million.

Even when they are importing, companies are being compelled to pay more for the higher input prices globally and shipping costs and for the weaker taka. The local currency has lost its value by about 25 per cent against the US dollar in the past one year and 15 per cent between July and March.

Bangladesh needs to import $1.3 billion worth of raw materials annually for the burgeoning pharmaceuticals sector since local firms can at best meet 10 to 15 per cent of the demand for inputs.

The sector meets 98 per cent of the local consumption and also ships products to around 150 countries, including several developed nations.

Drug maker Beximco Pharmaceuticals also logged lower profits. Its profits declined 15 per cent year-on-year to Tk 356 crore in the three quarters.

The pharmaceutical giant blamed the increased cost of production for the decrease in profits.

Beximco Pharmaceuticals earned a net amount of Tk 61.9 crore by distributing Covid-19 vaccines in July-March of 2021-22, under a tripartite agreement with the Serum Institute of India and the government of Bangladesh.

With the expiry of the contract, there had been no income from the source in the reporting period of FY23, it added.

Despite multiple challenges, some companies logged higher profits. Of them, the profits of Acme Laboratories rose 5 per cent to Tk 168 crore between July and March.

A top official of Acme Laboratories said the profit grew mainly as it benefitted from higher inventories.

"As a result, the price hike of raw materials did not impact our profits."

"But the industry is struggling because of the higher costs and these impacted us as well. So, the profit grew at a slower rate than the previous year."

The companies with a strong inventory were in a better position than those without, prompting some major drug makers to boost their stocks of raw materials and finished goods as they don't expect the economic uncertainty at home and abroad to disappear anytime soon.

One of them is Renata, which had Tk 1,138 crore of inventories in March, up from Tk 849 crore in June.

Local companies are not witnessing lower profits alone. In fact, pharmaceutical companies around the world are staring at lower earnings.

According to a Reuters report in February, pharmaceutical companies that made billions from the pandemic over the past two years selling vaccines and treatments are now up against a steep Covid cliff and investor pressure to spend their windfalls wisely.

Company and analyst estimates suggest those sales could fall by nearly two-thirds this year due to built-up product inventories around the world, including in the countries that pay the most.