Drugmakers face 10-15pct surge in ingredient prices amid US-Iran conflict

KUALA LUMPUR: Active pharmaceutical ingredient costs have climbed 10-15 percent since the US-Iran conflict erupted, according to CIMB Securities Sdn Bhd. This cost surge is putting pressure on drug manufacturers, prompting Duopharma Biotech Bhd to broaden its supply sources and raise inventory. The research firm observed Duopharma holding onto inventory for 4-5 months, up from the previous 3-4 months, and raising prices for private-sector products selectively.

Meanwhile, Duopharma is experiencing weaker public-sector demand, with revenue falling 9 percent year-on-year in the first half of 2026, while private-sector revenue rose 10.6 percent, buoyed by strong demand from private hospitals and general practitioners. CIMB Securities anticipates the trend to persist in the second half of the year, propelled by heightened demand for consumer healthcare products like Flavettes and Champs due to deteriorating air quality.

Although Duopharma recorded lower-than-expected government purchases in July and August as the Health Ministry stockpiled essential medicines to maintain adequate supply amid the conflict, the company may see a rebound in public procurement later in the third quarter as budgets trickle down to state-level Health Ministry units. Duopharma anticipates the ministry's budget to rise marginally in 2027, given its current 2026 budget of RM46.5 billion.

The company's approved product purchase list contract was recently extended, allowing the ministry to continue purchasing its products at 2024 prices. CIMB Securities predicts Duopharma's public-sector revenue growth to slow to 2 percent in 2027 from 3 percent this year, before rebounding to 4 percent in 2028. A potential re-rating catalyst for Duopharma could be a better-priced and expanded APPL at the next renewal in June 2027.

CIMB Securities lowered its 2026 earnings forecast for Duopharma by 8 percent due to weaker public-sector sales and trimmed its 2027 and 2028 estimates by 1 percent each, maintaining a "Buy" rating with a target price of RM1.68, based on a lower 14.5 times 2027 price-to-earnings multiple. The government aimed for RM3.06 billion in savings from the Health Ministry as part of a broader RM10 billion operating expenditure savings plan, but the adjustment was capped at RM500 million.

Health Minister Datuk Seri Dr Dzulkefly Ahmad clarified that the reduction involved unused allocations for unfilled positions, not affecting medicines, consumables, or other essential healthcare services.