Nigerian Pharmaceutical firms are embracing mergers as a means to scale up operations and better handle the negative fallout from a recent devaluation of the naira.
Healthcare firms operating in Nigeria were hit by foreign exchange shocks in 2016 and many of them are yet to recover, despite a new Central Bank of Nigeria (CBN) window that aims to make dollars more available in the economy.
“Last year, we bought dollars at whatever rate, as long as it was available. Whether it was above N450, we were every ready to buy to keep up the factory and keep our factory operating,” said Abiola Adebayo, executive director, Fidson Healthcare Plc.
Swiss Pharma was recently acquired a French Company Biogran, after an initial $500,000 investment.
The tough business environment was cited as one reason for Swiss Pharma’s divestment, as the company struggled amid the foreign exchange crisis in 2016, which stifled the imports of raw materials.
Fidson Pharmaceutical is said to be looking to acquire May and Baker Nigeria Plc people familiar with the matter tell BusinessDay.
May & Baker, with a market capitalisation of N1.4 billion, is the best performing Pharma stock on the Nigerian Stock Exchange (NSE) with a 56 percent gain year to date.
Fidson has gained 39.8 percent this year and has a market capitalisation of N2.7 billion.
A merger should be growth positive for the sector which is grappling with higher input costs, counterfeit drugs, lack of meaningful patent legislation on pricing, and a chronically underfunded healthcare sector.
Sales for the five largest listed Pharma firms (Fidson, May & Baker, Glaxo SmithKline Nigeria, Neimeth and Pharma Deko) fell 1 percent in 2016 on a cumulative basis.
All the firms recorded a fall in net income for 2016, apart from GSK whose profits were juiced by a tax credit of N2.19 billion.
GSK also booked unrealised FX losses of N5.99 billion in 2016.
Fidson had total debts of N6.4 billion and cash/cash equivalents of N344 million at the end of 2016, while May & Baker total debts were N2.9 billion with cash position of N946 million.
Fidson Healthcare Plc completed its N9 billion plant at Sango-Otta early in 2016, but the foreign exchange crunch meant the plant was not put to use till July.
According to Adebayo, pharmaceuticals are reeling from Nigeria’s power shortages.
“We have a new plant but we also have six generators. You generate 2.5 kilowatts of electricity for every litre of diesel. We have issues with clean water supply. Dollar access is better than last year when some of us took half salaries to keep our staff,” he said.
The Pharmaceutical industry in Nigeria has spent over $600 million (N120 billion) to attain World Health Organisation (WHO) certification and pre-qualification.
In Africa, only nine drug makers have the WHO Certification and four of these companies– Swiss Pharma, May& Baker, Evans Medicals and Chi Pharmaceuticals—are in Nigeria.
Fidson may be targeting May & Baker for takeover on the back of the firms WHO certification, which places it on a pedestal to supply drugs to international organisations.
There are also prospects for the industry from the rise of non-communicable diseases such as diabetes, hypertension and cancer, as well as the West African common market.
“Some of our members are already exporting drugs to East, West and Central Africa,” said Obi Adigwe, executive secretary of the Pharmaceutical Manufacturers Group of the Manufacturers Association of Nigeria (PMG-MAN).
Companies that have started exploring other markets include Emzor Pharmaceuticals, Juhel Pharmaceuticals, Pharmatex Nigeria Limited, Chi Pharmaceuticals Limited and Evans Medicals, according to BusinessDay findings.
PATRICK ATUANYA, BALA AUGIE & ODINAKA ANUDU
