The pharmaceutical industry in Nigeria today is unfairly competitive. Ask how? Mr. Nnamdi Okafor,the Managing Director of May & Baker (M&B) Plc,will tell you:  “Those of us manufacturing are having a raw deal.  If we are just importing and marketing, you will be surprised that it is much easier. It is easy to go to India or China and bring in some goods.  And sometimes, what you are bringing in may, sometimes, not be up to the standards you would do if you are operating locally. The ECOWAS Common External Tariff (CET) has made importation rewarding.  It is rewarding importation and punishing local production.”

 

At an interface with the leadership of the  capital market recently in Ota, Ogun State, the M&B boss asked that the CET be scrapped. He also explained why the company’s stock should be in high demand at the Nigerian Stock Exchange.

 

Excerpts:

 

Over 75 per cent of our population are young people and, of course, growing at the rate that is higher than most of the countries in the world. We are the biggest economy in Africa following the rebasing of $510billion.  So everything is going for us  and we believe that, in spite of some of the issues or problems we are having, we have an economy that can really create value if we do the right things.  But one thing that is particularly worrisome to us is the recent trend of our regulators who, we think, are holding us with fines that can send us out of business.  We are really worried that because anybody can just hold you and send you out of business. But apart from that, we think we have a good environment to do business.

 

Pharma space

This company basically competes in two major markets; the pharmaceuticals market and the noodles market. Both markets, I will say, are attractive, growing at double digits.  The noodles market is growing at about 17 percent, and the pharmaceutical market at 11-13 per cent.  So both markets are growing and they are big.  Pharmaceutical market, in particular, holds a lot of potentials because, today, most Nigerians buy their drugs out of pockets. And that is an opportunity for those of us who are targeting private markets. Once the economy is doing well, we can do a lot to add value to the company.

 

A lot of disease issues: a lot of people are very sedentary- they eat the wrong stuff; no exercises- and they can end up with chronic diseases like diabetes, high blood pressure and all of that.  As bad as they may be, they present opportunities for us in this  business.  But, looking at the industry, we would say that it is highly unfairly competitive.  Unfairly in the sense that those of us manufacturing are having a raw deal.  If we were just importing and marketing, you will be surprised that is easier.

 

It is easy to go to India or China and bring in some goods.  And sometimes, what you are bringing in may, sometimes, not be up to the standards of what you would do if you are operating locally.  Then you get some sharp guys to do some advert materials for you.

 

It may be funny. Nigerians want cheap products.  And for some products, even when they do not work, they (Nigerians) do not know that the products are not working.  So, they keep buying them and paying. But, of course, somebody needs to mark marching in Nigeria; somebody needs to create jobs. We have chosen to take that path.  We are not regretting it. We hope that, even with that, we should be able to deliver decent earnings for the shareholders.  One other thing I want to talk about is the new ECOWAS Common External Tariffs (CET). The policy is such that it has made importation rewarding.  It is rewarding importating but it is punishing local production. 

This is an anomaly in the sense that it makes production of drugs in Nigeria more expensive than the imported ones.If you are importing pharmaceuticals into Nigeria, you would pay zero CET. But if you are bringing in raw materials for production, you would pay 20 per cent.  So we have gone to the government, and said this is not in line with what we should be doing when you said you were not earning enough foreign exchange. At a time the government is talking about creating jobs; at the time government’s foreign exchange earnings are dropping and we are struggling to keep the Naira value, it does not make sense, whatsoever, to encourage people who are importing over those who are creating value. But the government is still trying to settle down. When it has settled, something should be done about this. We believe it is an oversight by government at the time it was done.It should be corrected. It is something that has to do with ECOWAS, it is taking time but it will surely be corrected.

 

The company

May & Baker is the oldest pharmaceutical company to be incorporated in Nigeria in 1924 as May & Baker West Africa, which was an outpost of May & Baker UK.  And what the company was doing then was basically the distribution of products that were manufactured overseas by different companies to Nigerian and West African markets. May & Baker was the company that introduced Nigerians to western medicine, being the first to introduce anti-malaria drug.  As at that time, if you had malaria, there was nothing to treat you apart from the local concoctions.  We are also first to introduce anti-infections.  We were also among the first to introduce anti-retroviral drugs, the medicine used to treat HIV/AIDS. And of course, talking about diversification, we were the first to do it in the industry.  We have an industry that is very conservative. For anybody to make the move to do something different was difficult at the time. We were also the first to delve into distribution of vaccines.

 

Today, we are talking about local production of vaccines. We were among the first to get WHO certification and facility in Nigeria.  We got quoted on the Nigerian Stock Exchange (NSE) in 1994; we were 20 years last year. We were the only company, at the Pharma stage, to have won NSE President’s award for Best Performing  Company in the Healthcare sector six times. In 2002, following adverse environment in Nigeria at the time, most multinational companies had to leave Nigeria.  And at that point, our parent company had to leave too.  So we became a wholly indigenous company and we have to restructure our business. We thought it was time to diversify, and we commenced investments in the fast-moving consumer goods segment.  We, first of all, set up a plant to do table water and another plant to do noodles.

 

So looking at our business generally, like I said, food and pharmaceutical business contribute about 70 percent of our revenue and more than 80 per cent of our gross value.  That business is growing at about eight per cent or thereabout.  But for this year, we believe it should be doing double digits.The food business, actually, has a very rapid growth because I think that the noodles segment is big and it is growing.  So it has higher growth rate.  But the problem is that it is very competitive.  And they are all competing based on price.  So the margins are very slim.

 

That actually brings down the overall profitability of the company. If we are operating as a pharma company, we would have made much better margin than we are making with food.

 

Dividend

Lastly, we were able to pay dividend last year, first time in about two or three years.  I think the bad days are over.  I think it can only get better.

 

Recapitalisation

We clearly have plans to recapitalise.  Of course, that is the major thing we need to do to turn the business to the level of profitability that we ‘ll truly be having. In 2013, at the Annual General Meeting (AGM), we got the approval of the shareholders to raise equity of N3.2billion.  We have not been able to activate this because of a couple of constraints or issues.  First of all, our current paid up capital is too low.  So it is a bit difficult looking at the regulatory constraints or limitations to bring in enough money.   We are also concerned about our current shareholders because the current price of our share is so low that selling at this time will really mean diluting them. Sometimes, when I look at the share price, I wonder what is happening. I feel, knowing what I know, that our share deserves a lot more, in terms of pricing and investment, than the present.  I feel that either we do not have investors who are looking at our potentials-who are investing strategically- or that we, as a company, are not keeping them informed of what we are doing here.  It is either of the two.

 

Some of the companies in our category that have higher share price do not have the kind of facilities that we have. And I hope that the movers and shakers of the capital market will pass on the message.  Again, we are talking to see how we can get some kind of agreements to be able to bring in the kind of money we need now.  Of course, we do not just need partners that will bring cash because we already have people within Nigeria who want to throw in money, but we want to have partners that have some technologies to bring because that will complement our strategy to move forward.

 

But we are making some good progress because we have been able toidentify about two or three companies that fit that definition that we are talking to.  I hope that before the end of first half of the year, we should be able to reach a deal.  So, basically, out turnaround strategy is centered around recapitalising the business because once you do that, we believe we will compete more aggressively.

 

We have some very nice brands that we have plans to promote, but we can’t promote them because we don’t have the money. Of course, we have other plans we have to put in abeyance because we do not have resources to activate that plan. We also intend to build international partnerships because we want to get away from the red ocean syndrome; most companies in Nigeria in the pharma space are playing at generic level.  So we want to get away from that and do some specific specialized products.  And to do that, we need to work with partners that have the technical competence. That factory(Pharma Centre) has a lot of potentials to bring in money for us.  We have some donor agencies that bring in money for some diseaseconditions like HIV/AIDS, malaria and tuberculosis.  And every year,in fact, this year, the projection is that  they would bring in a minimum of about $1billion.  So, most of us here are not accessing that money because we do not have WHO pre-qualification.

 

So we believe that with this factory, we should be able to access that money.The sub-Saharan African market is big.  In 2020, it should be about $45billion.  Like I said earlier, any big local player will grab this market.  And the sentiment around now in Africa is that we should patronize our own.

 

Source: Sun