The earnings of Pakistan’s listed pharmaceutical companies experienced a significant decline of 42% year-over-year, totaling Rs7.9 billion for the calendar year 2023, according to a report by Topline Securities.

This decrease in profitability is largely due to reduced gross margins and heightened finance costs, despite a revenue increase of 17%, reaching Rs274.5 billion.

The increase in revenue was attributed to a government-approved price hike in May 2023, which allowed pharmaceutical firms to raise the maximum retail prices (MRPs) of essential drugs by up to 70% of the Consumer Price Index (CPI) increase, with a limit of 14%, and non-essential drugs in accordance with the CPI increase, capped at 20%.

This measure was intended to offset the impact of the rupee’s devaluation.

However, the companies struggled to maintain their gross profit margins, which dropped from 30% in 2022 to 26% in 2023.

The sector was adversely affected by a 20% devaluation of the rupee against the US dollar, an average inflation rate of 31%, and a 55% surge in finance costs, which amounted to Rs7.7 billion in 2023.

Additionally, selling and administrative expenses rose by 20% and 17% respectively, aligning with the trend of inflation.

In a recent development, the government approved the deregulation of non-essential drug prices in February 2024.

Topline Securities suggests this move could benefit pharmaceutical companies by allowing them to adjust prices according to cost increases, thus potentially improving margins, particularly for those with a significant portion of non-essential drug sales.