Pharma Part3

Pharma Distribution M&A Opportunity

 

Having unlocked the next case study of this Theme Vitrine , here is the deal:

 

Mongolia

Mongolia’s land area is roughly equivalent to that of the countries of western and central Europe” and it is surrounded by other giants in the form of China, Russia and Kazakhstan. Yet it has only 3.3 million people and 4x the sheep heads.

Its main economic activity and driver is mining with a share of almost a quarter of the GDP. For example: “Oyu Tolgoi is one of the largest known copper and gold deposits in the world”It is largely an export-import-dependent nation with the bulk of its exports sold to China in the form of coal and copper, both having negative direct land & indirect health effects from excavation.By contrast, health and education have been focal to every government in Mongolia (all democratically elected since the 90s!), with the healthcare expenditure rising to over $500 per capita.Despite state-owned health facilities being a regular occurrence in Mongolia, the private sector has grown in importance. So for example, even the former state incumbent distributor MEIC (Mongol Em Impex Concern established in 1923) was privatized to Bishrelt Holding in 2006. 

Mongolian pharma market is formed by:

40 local producers

Local production mainly consists of small producers producing old generics, traditional medicines & vitamins, with Monos and some foreign JVs being exceptions rather than a rule

120 wholesalers

Top 10 wholesale pharma distributors / importers take over 80% of the market: MEIC, Monos, Asiapharma, Ento, Europharma, Munkhiin Tun, Dakalpharma, Ombol, Monpha Trade, Tsahiur Tomor

1,300 retailers

250 outlets within state-owned hospitals, 250 pharmacies part of a chain/retail network such as Monos, and the rest independent outlets licensed by individual pharmacists

60 source-countries of imports

Russia, Germany, Slovenia, Hungary, India, Bulgaria, France, Austria, S.Korea, China… (most of the raw material comes from China and S.Korea)

 

An estimated 15-20% of pharma products are sold illegally in the country, a similar estimate to that of Kyrgyzstan pharma market.

Photo:BH

Mongolia’s pharmaceuticals sector has doubled over the last decade, from about $60mil to about $100mil, depending on the definition. This translates to +/-$30 per capita, still leaving a significant upside to catch up to comparable peers. So for example this in line where neighbouring Kazakhstan @ $32/cap was 12 years ago.

All in line with pharma consumption being very much related to increasing living standards, whereby health consciousness translates to a stronger demand for preventive medicine, food supplements and vitamins.

Currently, Mongolian drug consumption is still very much a developing world type, with the top five categories being antibiotics, digestives, cardiovascular, neurotropic & respiratory medicines.

There are seven government bodies or agencies involved in the pharma market regulation, which can be viewed as relatively lenient compared to some peer countries. The following functions and/or periodic (re)licensing / review / approval: licensing of manufacturing, licensing of importation, licensing of wholesale, licensing of retail, product assessment and registration, GMP Inspection, inspection of distribution channels, import control, quality control of products, control of medicines promotion& advertising, price control for the essential list, generic substitution, control of prescribing, technical elements (standards, norms, guidelines, procedures).

Monos is a family business started by brother and sister Luvsan in 1990, as a small pharma & cosmetics workshop producing skin treatment creams, powders and solutions for respiratory diseases using local herbal ingredients.

Being a pharmacologist by training, educated in the former USSR, the brother was an industry insider having worked for the Pharmaceuticals Institute and MEIC, a former state import & distribution monopoly.

It has diversified into other sectors over the last decade but with pharmaceuticals still at its heart. With 1,600 employees and 30 businesses, the group as a whole is a significant contributor to employment and state taxes.

Photo:BB

Monos operates a nationwide wholesale & distribution network, and a pharmacy chain (mainly in Ulaanbaatar and Central Mongolia). It also has a number of drug-, cosmetic- & health-foods-making facilities, which manufacture approx.100 types of medicines including 30 own brands. The retail chain has 90 pharmacy stores, a roughly equivalent amount to the incumbent competitor.

Mr. Luvsan / Monos won a number of state awards including for scientific research on kidneys and immune booster development. Given that the country relies on 80% of its drug consumption from imports, a rare event is that its own brand Nefromon is exported to Russia since 2014. Today the business has a pharma academy and medical research centres for bolstering innovation and future growth. 

Production technology, WHO GMP-compliant and financed by the EBRD, allows for manufacturing of plain tablets, coated tablets, galen, capsules, powder, pills, cream, talcum powder, liquid, extract & syrup.

Monos’ pharmaceutical market share is probably at about a third of what is estimated to be just about a $100mil total pharma market, depending on the definition. Whereby being a straight-out leader in local production, which in total accounts for less than 20% of pharmaceutical demand in the country; a joint co-leader in wholesale with the sate MEIC; and a top player in the fragmented retail space.

Probably operating at a consolidated pharma EBITDA of 15-20%, where profitability from better to worse goes from own production to drug wholesale to retail outlets.

Given Mongolia’s landlocked status & relative isolation, its harsh winters with related seasonality, and high import dependence coupled with relative unfavourable supplier terms given the size of the production & overall significance in world markets- pharma business should have a longer asset conversion cycle than some comparable peer countries.

Managing working capital where a lot of cash is tied up, and in particular inventory turnover, is of great importance for its distribution units. At perceived volumes, modernised facilities and installed ERP, inventory days-on-hand should probably aim at (+/-): 100 days for the main warehouse, with logistics sub-points & city outlets at around 25 days, while areas outside Ulaanbaatar should be allowed up to 75 days.

The company should be well bankable (strong fixed asset base, reasonable net debt, predictable & growing cash flow, etc.), if it did not get too playful with the non-core businesses, and should be easily able to organically operate solely with the local financial institutions. It also does not look like that Monos has potential problems with succession, as it remains largely an extended family affair. On the other hand, it could have going public potential.!?

 

Theme Contribution

Madina Umarova

Experienced consultant with a demonstrated history of working in the industry. Skilled in commercial and nonprofit activity. Strong in business development, HR, marketing and administration. 

Madina also is:

  • Vice president, head of economic group (CIS), Coordinating Council of Russian compatriots in Croatia
  • Founder of the Russian culture club in Croatia
  • Teacher of Russian language and literature (& business comm)

And was:

  • KPMG senior office administrator
  • Professor at Law university
  • Club administrator
  • Cello instructor

go2em

Discuss a deal?  or  Read more

Theme Related Tracker

  • Bayer receives U.S. FDA Breakthrough Therapy designation for BAY 2927088 for non-small cell lung cancer harboring HER2 activating mutations
    on February 27, 2024

    Bayer announced that the U.S. Food and Drug Administration (FDA) has granted Breakthrough Therapy designation for BAY 2927088 for the treatment of adult patients with unresectable or metastatic non-small cell lung cancer (NSCLC) whose tumors have activating HER2 (ERBB2) mutations, and who have received a prior systemic therapy. BAY 2927088 is an oral, reversible tyrosine kinase inhibitor (TKI) that potently inhibits mutant human epidermal growth factor receptors 2 (HER2),

  • Innovative chemotherapy approach shows promise against lung cancer
    on February 26, 2024

    Lung cancer is not the most common form of cancer, but it is by far the deadliest. Despite treatments such as surgery, radiation therapy and chemotherapy, only about a quarter of all people with the disease will live more than five years after diagnosis, and lung cancer kills more than 1.8 million people worldwide each year, according to the World Health Organization.

  • European Commission approves Pfizer's VELSIPITY® for patients with moderately to severely Active ulcerative colitis
    on February 23, 2024

    Pfizer Inc. (NYSE: PFE) announced that the European Commission (EC) has granted marketing authorization for VELSIPITY® (etrasimod) in the European Union to treat patients 16 years of age and older with moderately to severely active ulcerative colitis (UC) who have had an inadequate response, lost response, or were intolerant to either conventional therapy, or a biological agent.

  • Researchers find possible solutions to reverse Alzheimer's Disease impact
    on February 22, 2024

    University of North Carolina at Chapel Hill researchers have developed a new drug delivery platform that harnesses helical amyloid fibers designed to untwist and release drugs in response to body temperatures. A new research paper published on Jan. 26 in Nature Communications reveals groundbreaking structural details into how diseases form much like Alzheimer's disease.

  • Researchers use machine learning to predict how ingested drugs will interact with transport proteins
    on February 21, 2024

    Before orally administered drugs can make their way throughout the body, they must first bind to membrane proteins called drug transporters, which carry compounds across the intestinal tract and help them reach their intended targets. But because one drug can bind to several different drug transporters, they may struggle to get past this gut barrier, potentially leading to decreased drug absorption and efficacy.

  • New model identifies drugs that shouldn’t be taken together
    on February 20, 2024

    Any drug that is taken orally must pass through the lining of the digestive tract. Transporter proteins found on cells that line the GI tract help with this process, but for many drugs, it’s unknown which of those transporters they use to exit the digestive tract. Identifying the transporters used by specific drugs could help to improve patient treatment because if two drugs rely on the same transporter, they can interfere with each other and should not be prescribed together.

  • Acquisition of Icosavax completed
    on February 19, 2024

    AstraZeneca announced today the successful completion of the acquisition of Icosavax, Inc., a US-based clinical-stage biopharmaceutical company focused on developing differentiated, high-potential vaccines using an innovative, protein virus-like particle (VLP) platform. As a result of the acquisition, Icosavax has become a subsidiary of AstraZeneca, with operations in Seattle, US.

  • UIC research helps create new antibiotic that evades bacterial resistance
    on February 16, 2024

    Scientists at the University of Illinois Chicago and Harvard University have developed an antibiotic that could give medicine a new weapon to fight drug-resistant bacteria and the diseases they cause. The antibiotic, cresomycin, described in Science, effectively suppresses pathogenic bacteria that have become resistant to many commonly prescribed antimicrobial drugs.

  • First patient randomized in AskBio Phase II gene therapy trial for congestive heart failure
    on February 15, 2024

    Bayer AG and Asklepios BioPharmaceutical, Inc. (AskBio), a gene therapy company wholly owned and independently operated as a subsidiary of Bayer AG, announced that the first patient has been randomized in GenePHIT (Gene PHosphatase Inhibition Therapy), a Phase II trial of AB-1002 (also known as NAN-101) for the treatment of congestive heart failure (CHF).

  • Clinical trial shows rheumatoid arthritis drug could prevent disease
    on February 14, 2024

    A drug used to treat rheumatoid arthritis could also prevent the disease in individuals deemed to be at risk. Results from a Phase 2b clinical trial, published in The Lancet by researchers led by King's College London, provides hope for arthritis sufferers after it was shown that the biologic drug abatacept reduces progression to this agonising chronic inflammatory disease.

 

Leave a Reply

Your email address will not be published. Required fields are marked *