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Durban - Securing 21% of the state's R3.8bn anti-retroviral (ARV) tender is a feather in the cap for Adcock Ingram, but the healthcare group is not going to make much money out of it.
Speaking to Fin24.com after Adcock's presentation of its maiden financial results to analysts on Tuesday, CEO Jonathan Louw conceded that profit margins on ARVs - a two-year contract worth R633m - were paper thin.
"We don't disclose margins on ARVs to the public, but they are very low, nowhere near the margins we get in other parts of the business," Louw said.
"In fact, if you look at what we spent on research and development and ARV production facilities, we're not yet making a profit."
So why is Adcock, along with the other pharmaceutical groups, chasing this market? "Because it's what we have to do," said Louw. "In South Africa it's a role we must play."
Adcock's rival, Aspen, also conceded it made little, if any, money on ARVs in SA, but said profit margins were better in sales to other African countries.
Louw also commented on the R53.5m fine the group picked up from the Competition Commission for price-fixing in its critical care unit before being unbundled from Tiger Brands.
State-owned firm?
Excluding the fine, headline earnings per share would have increased by 13% instead of the stated 4.6%.
"It was an unfortunate thing that happened. We can never apologise enough for it. But there's now a new board and a new governance strategy, and it's audited every way it can be," said Louw.
"We've felt the effect, our staff go home and have to look their families in the eye. But now we're rebuilding, and hope we can regain the trust we used to have."
Asked about reports the government was investigating setting up its own pharmaceutical company to make ARVs cheaper than it buys on tender, Louw says these rumours surface from time to time.
"There's nothing wrong with more competition in the industry, but as I said margins on ARVs are paper thin. I would challenge them to produce ARVs cheaper." Louw says Adcock won its tender based on a single product, and on price.
He did not believe Dr GN Padayachee, who resigned as a non-executive director of Adcock with effect from Monday to join the Department of Health, had been recruited to start a state-owned pharmaceutical company.
"He's been offered a senior position with the department; that would have represented a conflict of interest if he remained on our board."
- Fin24.com
