This article first appeared in The Edge Malaysia Weekly on March 24, 2025 - March 30, 2025

A focus on growing revenue has paid off for Duopharma Biotech Bhd (KL:DPHARMA), which reported its highest annual revenue on record last year.

After rising costs and softer demand sent its net profit down 25% in 2023, the country’s largest generic drug manufacturer by market share is back on a growth path. It posted a net profit of RM62.65 million in the financial year ended Dec 31, 2024 (FY2024), up 19% from RM52.65 million in the previous year. The profit boost came amid a 15% year-on-year (y-o-y) rise in revenue to RM813.7 million in FY2024, a record performance.

According to its group managing director (MD) Leonard Ariff Abdul Shatar, the profit rebound was expected and the group is gearing up for another good year in FY2025.

“We had a ‘perfect storm’ thrown at us and we rode it out,” he says, describing the fall in earnings in FY2023 as a “blip”. A variety of factors — from increased borrowing costs to a weakening ringgit, surging electricity prices, an increase in prices of raw materials for essential drugs called active pharmaceutical ingredients (APIs) and weaker-than-expected sales from its consumer healthcare division — had created the “perfect storm” in FY2023.

While these headwinds continued into FY2024, Duopharma Biotech was able to cushion that pressure through a shift in focus to the public sector to drive revenue growth. This was driven by a new approved products purchase list (APPL) contract secured with the government in the second quarter of 2024, which gives it earnings visibility until end-2026. As a result, the group saw revenue contribution from the public sector rise to 50% in FY2024, compared with 44% in FY2023.

It also benefited from the ringgit’s strengthening against the US dollar in the second half of 2024. “Today, the ringgit has more or less stabilised to reach a level of 4.4 to 4.45 against the greenback,” Leonard Ariff says. This is good news for Malaysia’s pharmaceutical industry, which remains heavily dependent on imported raw materials that are predominantly US dollar-denominated.

He notes that the prices of APIs have also declined to pre-Covid-19 pandemic levels last year, boosting the margins of pharmaceutical companies like Duopharma Biotech. In a March 17 report, TA Securities said API prices have dropped by at least 10% y-o-y.

While Leonard Ariff does not think API prices will fall any further,there is a time lag effect before Duopharma Biotech is able to benefit from the lower raw material prices as it holds between three and six months’ worth of stock.

“Even though API prices have started falling since last year, we expect the impact on our financials will be more pronounced in 2025 relative to 2024 due to the lag effect, given that it takes time to exhaust the old raw material inventory,” he tells The Edge in an interview.

Leonard Ariff, who turns 61 this year, says he will not pursue an extension of his term once it concludes at year end.

He says that in September last year, Duopharma Biotech’s board of directors had extended his tenure as group MD for another year “to see through a succession plan that we had planned in the last five years”. The group is also looking for a successor to chief financial officer Chek Wu Kong, who will retire from the group at the end of January next year.

“I have been in this role (group MD) of a government-linked company for 18 years. I think it is time for fresh leadership. We have already laid down the groundwork for the next 10 years as pharmaceuticals is not a short-term business,” Leonard Ariff says.

Permodalan Nasional Bhd is the largest shareholder in Duopharma Biotech, owning 44.1% equity interest, followed by the Employees Provident Fund Board with an 8.74% stake.

Leonard Ariff provides an upbeat outlook for 2025 due to a combination of factors, including higher revenue contribution from the public sector. This is on the back of a first full-year earnings contribution from the renewal of the government’s APPL contract, compared with just three quarters of contribution in FY2024.

“This leads us to be reasonably optimistic that revenue will be maintained, if not improved. The [higher sales from the public sector] is sufficient to manage some of the cost pressures that we are under at the moment,” he says, adding that the public sector’s revenue contribution is likely to exceed 50% this year.

As a result, the private sector’s revenue contribution, including the export segment, may shrink. He points out that this is not because the company is selling fewer products to the private sector but rather that it is growing that sector “at a slower pace” than the public sector.

Despite the increasing dominance of the public sector in the group’s revenue, there is no fear of a concentration risk, says Leonard Ariff.

“The government’s consumption of generic medicines is about 60% of the total market. The public sector accounts for half of our portfolio. So you can argue that we remain under-represented in the government sector. We’re quite comfortable with the current 50% revenue contribution from that sector,” he explains.

However, the group aims to reduce its reliance on the domestic market and is actively expanding its market presence regionally, especially in Indonesia and the Philippines. At present, the export business contributes 7% to Duopharma Biotech’s overall revenue. “We export to about 30 countries, mostly to Asean,” Leonard Ariff says.

Raising the share of the export market also helps create a natural hedge to the US dollar as almost 70% of the group’s raw material costs are denominated in the greenback.

The group is on the lookout for inorganic growth opportunities to expand its export business. This could include the acquisition of peers or health-related companies.

“Our ethical classic (prescription pharmaceutical) products are sold to general practitioners and pharmacies, while the ethical speciality business looks at therapeutic groups such as oncology and renal. We don’t mind looking at acquisitions that fall within these groups. For instance, they could be medical device makers in the oncology area or software companies in the renal area, which will enable us to offer a total solution to our customers,” he says.

There are certain criteria that must be met for any acquisition to happen. For one, the target entity must be able to boost Duopharma Biotech’s top and bottom line growth, says Leonard Ariff.

“We are not prepared to buy a loss-making [entity] because I don’t think our balance sheet can take that. Last year, we looked at 22 potential candidates, both local and regional, and only two went to the stage where we did more detailed analysis,” he reveals.

The group had to abandon its pursuit of the two companies because one was overpriced and the other was only prepared to sell a minority stake, he says. “We will only take a minority stake in a company if it is for technology access but, for purposes of a merger and acquisition, we must have a controlling interest in the company to be able to consolidate its financial results.”

Duopharma Biotech’s cash and equivalents stood at RM264.55 million at end-2024, while borrowings totalled RM512.52 million, leading to a net debt of RM247.97 million. It has a net gearing ratio of 0.35 times.

Leonard Ariff’s upbeat view of the group’s growth prospects in FY2025 also stems from the bottoming out of the slide in its consumer healthcare segment last year.

“During the pandemic, sales from our consumer healthcare segment shot through the roof due to the high demand for our popular vitamin C brands, Champs and Flavettes. This resulted in us building up our vitamin C stock. Then the country shifted to the endemic phase, which caused the demand for vitamin C to drop substantially and we suddenly ended up with a lot of stock,” he recalls.

Nevertheless, 2025 is set to be a year of normalisation for the consumer healthcare segment, with the group having completed a destocking of its Vitamin C last year, he says.

“This year would be a much better year for the consumer healthcare segment in the sense that my stock balance is now well-balanced against my sales and thus there will be less price discounting. Therefore, we’re anticipating both margin and volume growth in consumer healthcare. In fact, we’re looking at price increases for some of our consumer healthcare products.”

Duopharma Biotech plans to unveil five to six new products this year, adding to its product portfolio of 250 stock-keeping units (SKUs).

“The idea is, as we introduce new products to our portfolio, we will also try to rationalise older and underperforming products, that is, potentially stop marketing some of the older products. Refreshing our portfolio is a priority for us. Having said that, we are also cognisant of the fact that the Ministry of Health (MoH) wants Malaysia to have some level of self-sufficiency. So, while some products may be old, it may be products that MoH still wants to use on a continuous basis. As such, we won’t be retiring those products,” says Leonard Ariff.

He adds: “There are some products that MoH and the private sector are not consuming very much and [these] don’t have a major impact on the group, but they consume manufacturing capacity. We will decommission these products. We have been undertaking this [exercise] over the last seven years. So every time you hear about Duopharma Biotech launching five or six products, chances are we have also rationalised five or six products from our portfolio.”

The pandemic has taught the group to diversify its consumer healthcare product portfolio to ensure sustained growth. For starters, it has increased its advertising and promotional spending on its analgesic (pain reliever) brand Uphamol.

“However, we don’t think these two products (vitamin C and analgesic) are sufficient. We need more product ranges. We are also looking at producing energy bars and functional gels as we notice that young people are moving towards healthier lifestyles and food,” Leonard Ariff says.

Meanwhile, he says Duopharma Biotech has no plan to roll out a dividend policy but has consistently paid out a third of its net profit as dividends. The group declared a total dividend of 3 sen per share, equivalent to RM28.86 million, in FY2024 — an increase of 30.4% compared with RM22.13 million in FY2023.

“We don’t have a dividend payout policy but we have a practice of paying out a minimum of 30% of our net profit [as dividends]. That’s because in pharmaceuticals, we have requirements for large capital expenditures every so often. So it’s very difficult to have a fixed policy.” 

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