Business as usual for local pharmaceutical players

It is business as usual for local pharmaceutical players despite the change in Federal Government and the pending reintroduction of SST, according to the research arm of MIDF Research in its healthcare sector update.

KUCHING: It is business as usual for local pharmaceutical players despite the change in Federal Government and the pending reintroduction of sales and services tax (SST), according to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) in its healthcare sector update.

MIDF Research recalled that under the goods and services tax (GST) system, 2,900 drug brands listed in National Essential Medicine List (NEML) were exempted from GST.

“This only make up about 25 per cent out of 12,000 drugs brands registered in Malaysia where the balance 75 per cent is still subjected to GST.

“With the reintroduction of SST, prices of drugs are expected to increase depending on the quantum of the SST.

“That said, the generic drug manufacturers in Malaysia expect minimal impact on earnings,” the research arm said.

MIDF Research noted that for the two largest generic drug manufacturer in Malaysia, Pharmaniaga Bhd (Pharmaniaga) and CCM Duopharma Biotech Bhd (CCMD), the largest buyer of generic drugs (70 per cent of the country’s total medicine) is Malaysia’s MoH.

“Currently, the sales to MoH make up 90 per cent and up to 60 per cent of Pharmaniaga and CCMD’s revenue respectively.”

Therefore, the research arm opined that the revenue coming from the government will potentially remain intact with a potential increase due to the re-introduction of SST.

With regards to the concession agreement Pharmaniaga has with MoH, MIDF Research did not expect any major changes to the current agreement but the research arm did not discount the potential revision of prices for drugs supplied by the company in light of the recent government financial position.

“That said, we take comfort in the fact that the government has announced that it will relook into increasing the annual budget allocation to the MoH as this would potentially mean more business for the local pharmaceutical players.

“However, how much of the expected 2.5 per cent increase in annual budget, from 4.5 per cent currently, will flow to the pharmaceutical business remains uncertain.

“For 2018, spending on drugs and medical consumables are allocated at RM4.1 billion or 15 per cent of the total RM26.5 billion healthcare budget.”

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