Govt to merge state pharmaceutical firms

Rendi A. Witular, The Jakarta Post/Jakarta

The Office of the State Minister of State Enterprises is preparing a new merger plan for state-owned pharmaceutical companies as part of a restructuring drive to increase their value ahead of their privatization, a senior government official said.

Ferdinand Nainggolan, deputy for logistics and tourism at the office said the government was in the process of finalizing a merger of ailing PT Indofarma with healthier PT Kimia Farma and PT Phapros.

"We are planning to restructure all state pharmaceutical companies to create higher value and improve efficiency as their lines of business are more or less the same. There is no need to have so many state pharmaceutical companies that compete with one another," said Ferdinand recently.

Ferdinand explained that the new company resulting from the merger would be able to become a local market leader as its scope would range from manufacturing to distribution.

At present, publicly listed Indofarma is stronger in the field of drug manufacturing, but has a poor distribution chain, while publicly listed Kimia Farma has a distribution chain through its drugstores that are spread throughout the country.

Meanwhile, non-listed Phapros specializes in branded products and healthcare equipment. The Semarang-based Phapros is 51 percent owned by state-owned PT Rajawali Nusantara Indonesia, a holding company engaged in plantations, property, pharmaceutical and trading businesses.

Ferdinand said the merger was expected to create higher value for the state pharmaceutical company ahead of its planned privatization by selling the shares in the combined entity possibly to public investors via the stock market.

"Until now, we haven't decided which company will become the surviving entity for the merger. There is also a plan to give the merged company a new name," said Ferdinand, adding that the merger were expected to be conducted mid next year.

Mergers or acquisitions are currently being entered into by pharmaceutical companies worldwide in a bid to cut marketing and research costs, enabling them to cope with stiffer global competition.

The government controls 81 percent of Indofarma, the largest generic drug producer, and 90 percent of Kimia Farma. The remaining shares in the two companies are held by the investing public.

Of the three companies, Indofarma has shown the weakest performance as it recorded losses in two consecutive years due to mismanagement.

In the first half of this year, Indofarma booked a loss of Rp 12 billion (some US$1.3 million), down from Rp 34 billion in the same period last year. Indofarma has assets valued at Rp 538 billion, compared to Kimia Farma at Rp 1.07 trillion.