Adcock looks to AIDS tender to boost Wadeville plant

SA’s second-biggest pharmaceutical manufacturer Adcock Ingram expects its new AIDS drug contract with the state to improve the fortunes of its loss-making Wadeville plant, CEO Andy Hall said on Thursday as the company released its interim results to end-December.

Adcock Ingram announced a 16% increase in headline earnings per share (HEPS) to R217.20, due to matching growth in turnover, which rose 16% to R3.6bn. Profit for the six months rose 12% to R361m. Adcock Ingram sells generic prescription medicines and over-the-counter products that include popular painkillers Panado and the cold and flu medicine Corenza-C.

The Treasury announced the results of the government’s next three-year AIDS drug tender, which begins on July 1, last week. Adcock Ingram was awarded 12% of the contract, giving it about R1.8bn worth of business before VAT. It won an eighth of the supply contract for a new triple combination pill containing dolutegravir that is set to become the backbone of treatment for state patients, as well as several smaller contracts to supply other antiretrovirals (ARVs).

While margins on ARVS supplied to the state are thinner than on other medicines, they are nevertheless profitable and can help companies achieve economies of scale in their production facilities. “We would not be in the tender if there was no money in it. We simply can’t afford to do unprofitable business as a listed company,” said Hall. “There are other benefits. The Wadeville factory doesn’t do enough throughput to recover all of its costs. Any ARV business we can put in there helps the bottom line,” he said in an interview with Business Day.  

The Wadeville factory is primarily an ARV tableting facility, but has not achieved the throughput Adcock Ingram anticipated because its fortunes have swung sharply with government tenders. In 2010, it got just 4% the AIDS drug tender, despite having won 21% of the 2008 award. While pharmaceutical companies recognised the government’s need to negotiate the best possible prices, local manufacturers would prefer longer contracts to offset some of the risks of investing in the sector, he said.

Adcock said each of its four business units had delivered a solid performance during the period under review. It declared an interim dividend of 100c per share, an increase of 16% compared to the corresponding period last year.

Looking ahead, Hall said trading conditions were likely to remain tough in the face of constrained consumer spending and limited scope to raise prices for private-sector medicine sales, which are tightly controlled by the state.

kahnt@businesslive.co.za