Overview of the cluster

AfroCentric is a diversified healthcare business with growing exposure across the healthcare value chain in South Africa. The diversified nature of the Company is aptly demonstrated by the fact that the pharmaceutical cluster now generates 28% of the Group’s operating profit.

AfroCentric has a presence across the entire pharmaceutical value chain, which provides risk mitigation due to revenue diversification and enables the Group to deliver on its ambition to reduce the cost of healthcare.

Our performance

The level of uncertainty that accompanied the COVID-19 pandemic and its resultant impact on the economy required the pharma cluster to remain agile and adaptable to constant changes in the market and consumer spending patterns. We did this by growing the customer base, adjusting to changes to market demand and implementing efficiencies to drive down the cost of doing business.

The pharma cluster’s performance during the financial year was supported by a diverse customer base in the private and public sectors. The private sector comprises retail entities, hospitals and open and corporate schemes, whereas the public sector supports the NDoH Project and POLMED

Business performance

Activo Health

Activo Health specialises in importing and marketing pharmaceutical products and trades in all sectors of the pharmaceutical industry.

Activo Health managed to achieve 10% growth in operating profit compared to 2020. This success can be attributed, in part, to the business’s diversified basket of products. Unfortunately, specific product categories suffered due to COVID-19. For example, demand for anti-malaria medicine dropped significantly due to limited travel. Likewise, demand for medicine related to elective surgeries also declined. In contrast, however, demand for other products such as immune boosters increased over this time.

Furthermore, Activo Health concluded its acquisition of Forrester on 1 August 2021 to expand its product offering to the pharmaceutical market. Forrester owns several registered legal rights to manufacture and distribute specific generic medicine (dossiers) and have the right to a substantial pipeline of dossiers in the process of being registered with the South African Health Products Regulatory Authority. The acquisition is consistent with AfroCentric’s growth objectives in the health sector and will strengthen Activo’s product offering to the pharmaceutical market.

Curasana

Curasana is a speciality pharmaceutical wholesaler and distributor to all major wholesalers in Gauteng. The business improved its distribution capability to extend its service offerings within the value chain during the year.

Pharmacy Direct

Pharmacy Direct distributes and delivers chronic medicine to urban and rural areas for medical scheme clients and government’s CCMDD programme. Despite the challenges presented by the COVID-19 environment, the business achieved positive growth in operating profits. We continued to pursue our automation project with the intent to fully automate our private facility, which serves medical scheme members in South Africa, filling approximately 169 000 scripts per month (2020: approximately 155 000 scripts per month). The project was completed on budget, and the intended efficiency gains are being realised.

In addition, initiatives such as building more of our own delivery capacity rather than that of third parties and digital initiatives that enable the business to reduce the cost of dispensing a script, along with other efficiency gains, contributed to positive growth in profitability. The increase in sales was, however, offset by a reduction in revenue per script due to an antiretroviral price decrease.

Our second facility fills approximately 940 000 scripts per month on behalf of government’s CCMDD programme (2020: approximately 700 000 scripts per month). We also went live with an automated packaging and labelling solution for a SKU (Stock Keeping Unit) which comprises 60% plus of all items dispensed. The bulk of the dispensary is operated on a manual basis and automation thereof may be considered in the future.

Within the current context, we were able to assist government in fighting COVID-19 by alleviating congestion in high-risk, public healthcare facilities while also improving treatment compliance and reducing the cost of delivering chronic medicine.

We launched our Pharmacy Direct online shop – available to all our patients and the public. We have several products available and will continue enhancing our offerings and utilising other integration platforms in the Group, such as VirtualCare^TM.

During 2020, special legislation was passed that any script up to schedule four could be automatically renewed for 12 months. This legislation remained relevant and assisted the business in enabling better planning and continued service delivery due to reduced gaps in treatment for these patients. We were therefore, able to focus our efforts on supporting these patients to ensure continuous care.

The business was challenged by disruption in its supply chain due to the COVID-19 related restrictions and delays. As a result, we increased stock levels of specific product categories to ensure we could fill patient scripts. As restrictions eased, stock levels normalised.

Scriptpharm

Scriptpharm manages chronic, oncology and HIV medicine through arrangements with specific schemes, whereby Scriptpharm incentivises efficiency, cost control and preventative care. The Group acquired the remaining 20% of the shares in Scriptpharm Risk Management during the year, effective 1 August 2020. We also established a Retail Pharmacy Network to create an organised, well-coordinated and managed pharmacy network.

MMed

During 2021, MMed – which focuses on the reduction of surgical product costs utilised during hospitalisation – maintained its monthly sales value of R28 million (2020: R28 million). In addition, MMed launched its first medical scheme direct member procurement initiative, whereby the procurement capabilities of MMed are utilised to source and supply cost effective and quality surgical and medical devices directly to medical scheme members to achieve significant savings and prevent out-of-pocket expenses, where possible. The in-hospital component of this sourcing and supply initiative was implemented in the current financial year. As a result of launching several cost effective quality medical products, MMed was able to save members of participating schemes in excess of R5 million for the year in external device costs.

MMed pursued direct sales with schemes regarding surgical devices and other necessary medical equipment and supplying the DENIS Group with dental products. MMED also secured the exclusive rights for a surgical range to be distributed in South Africa and the Southern African Development Community region.

Furthermore, MMed is rolling out a value-based procurement initiative with three focus areas: cardiovascular disease, spinal and cataracts.

Outlook

The outlook for the cluster remains positive for the new financial year. Oncology will be a crucial focus over the next few years across the value chain. We will continue to grow our Pharmacy Direct online offering while MMed’s value-based procurement initiative will remain a focus for the business. The pharmacy cluster will also continue to drive value realisation from various digital projects to position the cluster strategically and enable greater efficiencies within a highly competitive environment. Seeking to secure the new CCMDD contract in the new year will also be an area of critical focus.