Wednesday, February 9, 2011

Adcock expands in West Africa

Adcock Ingram planned to expand into west Africa this year, a move analysts said could be very lucrative because of the region’s population and growing economy.

South Africa’s second-largest drug firm already has a presence in Ghana through its 66.2 percent acquisition of Ayrton Drug Manufacturing, which was concluded last year.

Chief executive Jonathan Louw said the group had already transferred a local employee to join the management team led by Ayrton managing director Samuel Adjepong.

“He has been of great (help) in the successful conclusion of the acquisition and subsequent integration of the business with Adcock,” Louw said in the company’s 2010 annual report.

“A substantial pipeline of products has been submitted to Ghanaian regulatory authorities and (we) anticipate several approvals in coming months.”

Adcock currently has 183 product registrations in the rest of Africa. This year the group anticipates registering 59 products and this is projected to reach 500 by 2015.

Ishe Zingoni, an analyst at Frost & Sullivan, said west Africa had the largest regional population in Africa and was the key contributor to much of the continent’s enviable economic prospects.

“Ghana, precisely where Adcock is regionally based, is poised to become the fastest-growing economy in Africa this year. Growth in incomes, an expanding middle class and changing demographics are all resulting in the rapid development of pharmaceutical markets in west Africa,” Zingoni said.

Nazeem Hendricks, a portfolio manager at Argon Asset Management, said it was key for the company to find new markets because the local one was mature.

“Having said that, companies with a lot of cash like Adcock must make acquisitions that are well considered. Despite all the positives, Africa has always been a risky proposition but potentially, it could be very lucrative,” he said.

As of September 2010, cash on hand was R1.4 billion. The company will also spread its footprint over the continent through marketing and distribution deals signed with MSD, Lilly, Novartis and Roche.

The five-year strategic collaboration with MSD South Africa, a local subsidiary of US-based Merck has been extended to sub-Saharan Africa.

Two years ago, it set up Adcock East Africa through a sales office in Kenya.

Adcock said that growth in pharmaceuticals, its largest unit, was driven by double-digit volume growth in government tenders, antiretrovirals and the rest of Africa while over-the-counter (OTC) drugs experienced a decline in volume.

Mark Ansley, a portfolio manager at Cadiz Asset Management said OTC was more competitive now with a lot of players, including Tiger Brands, which previously did not compete with Adcock as it was its parent company before the unbundling.

“Private labels such as Dis-Chem and Clicks are growing to the detriment of traditional players. There is also competition from Pick n Pay, Shoprite and Spar,” said Ansley.

Hendricks attributed the slump to struggling consumers.

Adcock is planning to obtain international accreditation for its facilities.

Source: Business Report