Govt to merge state pharmaceutical firms

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.