Companies that leverage technology to improve the quality and efficiency of pharmaceutical supply chains are projected to lead the biggest growth spurt in Nigeria’s healthcare sector in 2024.
They are seen outpacing year-on-year margins raked in from drug production, hospitals, diagnostic services and health insurance largely due to a dollarised investment pool previously secured and key government partnerships targeted at digitised inventory management solutions.
For most health-tech companies currently dominating the pharmaceutical supply chain, the naira devaluation blues that has led to the exit of multinational drug makers will amount to increased availability of expansion funds in naira terms, analysts say.
“We should see the most revenue growth year-on-year in these areas because these companies have done well to raise funding. They have been able to use that funding to improve their top line and they have been responsible with their investments and expenses,” Oluwafemi Olaleye, head of health banking at FSDH Merchant Bank, told BusinessDay.
“Moreover, they move products and they can offer their retailers and distributors better credit terms than traditional suppliers.”
For instance, Remedial Health has raised a total funding of $13.5 million over the past three years mainly through institutional and angel investors.
Its largest investment round was an $8 million series A equity funding led last year by QED Investors, a US-based venture capital firm, and Ventures Platform, a Nigerian investment firm.
MPharma, another key player in the health supply chain, has so far secured $90 million in funding and is currently pursuing an expansion of its online pharmacy platform, Mutti across Africa.
Figorr, a Nigerian-based startup focused on cold-chain supply, also raised $1.5 million last year in a bid to expand its capacity to track temperature-sensitive products.
According to an intelligence report by Salient Advisory, Nigeria is becoming a crucial market for track and trace innovators, with the backing of the National Agency for Food and Drug Administration and Control.
In the past few years, more Nigerian health technology companies have secured a significant chunk of a $160 million surge in external funding raised by innovators in West Africa as 69 percent of 122 African innovators are Nigerian.
As innovators develop more technology-driven models, analysts believe more opportunities to test these solutions at scale will also sprout, leaving health tech as a hotspot of foreign investment.
Players such as Kensington Global Synergy and Mpharma are expected to grow their influence with distribution to more retail pharmacies while Mpharma should add more independent pharmacies to their lineup.
“Revenues are growing as more startups realise a fit and market relevance. And of course, investors are still seeking viable ventures and more startups in health tech can show viable models,” said Abimbola Adebakin, founder and CEO of Advantage Health Africa, a $1 million healthcare supply chain, delivering vital medicines directly to patients’ doors.
Drug manufacturing
In the drug-making space, the growth expected is marginal and it’s seen occurring among the leading players: MeCure Industries, Fidson Healthcare Plc, and May & Baker.
This is attributed to Nigeria’s rising cost of doing business, occasioned by hyperinflation and foreign exchange scarcity.
These challenges contributed significantly to the exit of GlaxoSmithKline Consumer Nigeria Plc, a major pharmaceutical giant that couldn’t access a sufficient amount of FX officially, impacting product availability.
Similarly, Sanofi-Aventis Nigeria Ltd, a major supplier of polio vaccines, also announced its exit from the Nigerian market and transition to a third-party distribution model.
Meristem, a financial service provider, said in its 2024 outlook that it anticipates a further increase in production costs and operational expenses, stemming from transportation and energy costs and sustained high inflation.
Given the pharmaceutical industry’s reliance on imports for its critical raw materials such as active pharmaceutical ingredients (API), Meristem projects that the naira’s continuous depreciation is poised to spur the industry’s import bills, leading to a marginal improvement in earnings for players in the sector.
“Most likely, they will increase the unit prices of their products to mitigate against the naira devaluation. The challenge will be with their margins. It will either remain the same or increase marginally,” Olaleye of FSDH Merchant Bank added.
He also noted that they could make a killing with the gap left by multinationals’ exit if they increase their production.
However, if the challenges persist in the long run, it will also haunt existing companies looking to take the opportunity.
Sammy Ogunjimi, founder of Codix Group, a company that manufactures blood glucose meters and strips, said: “As long as what is happening in the dollar environment is still happening, companies will continue to leave and for the ones that stay, the selling value of the product will continue to rise because the dollar is being changed at exorbitant black market rate because you are not getting from the bank.”
Hospitals
For service-based companies such as hospitals, analysts believe the enormous cost of providing care services and the economic headwinds that have seen more Nigerians fall into poverty will pare down growth. Mergers and acquisitions led by health investment funds are expected to take over legacy hospitals, similar to the Iwosan Investment acquisition of Lagoon Hospitals.
“We have quite several hospitals struggling because of the high cost of operation, with foreign exchange, fuel and energy cost and cost of living pushing them to increase their administrative cost and reducing margins,” Olaleye said. “Most hospitals including the big names are running at a loss.”
Between 2020 and 2021, the hospital industry saw the entry of big players as a result of investments in big health funds that pumped capital into the hospital space.
Hospitals that did not have enough in terms of equity and cheap debt were not able to compete. They lost revenue as patients moved to bigger hospitals with adequate funding and branding.
Another limitation cited in the way of hospital growth is the skyrocketing out-of-pocket health expenses and low health insurance coverage.
The challenges with the economy mean hospital visits are more expensive for people who already lack enough free cash flow.
According to the Nigeria Deposit Insurance Corporation, 98 percent of Nigerians have less than N500,000 ($1,250) in their accounts. The poorest Nigerians are unbanked.
On average, nearly 60 percent of a Nigerian’s income is spent on food. Nigeria is one of the ‘World Bank red zones’ where GDP per capita, an indicator of individual share of wealth, has fallen steadily over the past 20 years.
Providers have begun to raise the alarm about the late presentation of cases as people prefer to choose alternatives such as traditional solutions.
“With the top brands who command the higher population of HMO numbers, I expect 10 to 15 percent growth in their revenue. Apart from that, others will either maintain 2023 figures or marginally increase it. Or worse still reduce it,” Olaleye said.
Diagnostics
At the moment, the diagnostics centres doing well are those that are part of a larger group such as MeCure. They operate an ecosystem where one part feeds the other.
Diagnosatics centres set up by hospitals are also doing well and as such, the diagnostics space is expected to fare as much as the hospital space because they are both service-based.
