Last Thursday, GlaxoSmithKline (GSK) announced plans to discontinue operations in Nigeria, ending its 51-year existence in the country after the company’s first office was opened in Lagos on July 1, 1972.
The British multinational pharmaceutical and
biotechnology company is best known for household brands like Panadol and
Sensodyne.
In a corporate filing, the pharmaceutical
giant said it would now adopt a distributor-led model to supply the country
with its products.
GSK Nigeria said it was working with its
advisers to determine the next steps and intends to submit a scheme of
arrangement to the Securities and Exchange Commission (SEC) for the possible
return of capital to its local shareholders.
“In our published Q2 results we disclosed
that the GSK UK Group has informed GlaxoSmithKline Consumer Nigeria PLC of its
strategic intent to cease commercialisation of its prescription medicines and
vaccines in Nigeria through the GSK local operating companies and transition to
a third-party direct distribution model for its pharmaceutical products,” the
firm said.
“The Haleon Group has also separately
informed the board of its intent to terminate its distribution agreement in the
coming months and to appoint a third-party distributor in Nigeria for the
supply of its consumer healthcare products.
“For the above reasons, and having, together
with GSK UK, evaluated various other options, the board of GlaxoSmithKline
Consumer Nigeria Plc has concluded that there is no alternative but to cease
operations.”
The company further advised shareholders to
seek professional advice and continue to exercise caution when dealing its
shares until a further announcement is made.
While GSK did not speak on reasons for the
move, speculations abound regarding the factors that led to this drastic
action.
TheCable will attempt a response based on
interviews and the facts we have about the company’s challenges.
FOREIGN
EXCHANGE CRUNCH
GSK Nigeria’s sales in the first half (H1) of
2023 dropped to N7.75 billion from N14.8 billion in the same period a year ago.
In its 2023 H1 report, the company lamented
that the business environment continued to be very challenging with foreign
exchange (FX) availability affecting its ability to settle foreign
currency-denominated trade payables with product suppliers.
“As a result, it remained difficult to
maintain consistent supply to the market,” GSK Nigeria added.
TheCable Index analysis of the company’s
financial results within the six-month period found that the firm made more
money (N5.25 billion) from the sale of its consumer healthcare brands than its
pharmaceutical brands (N2.49 billion).
Between January and June 2022, the company
generated a revenue of N10.59 billion from the sale of its pharmaceutical
brands while it made N4.21 billion from its consumer healthcare brands.
Last year, at the 52nd annual general meeting
(AGM) of GSK Nigeria, Edmund Onuzo, chairman of the board of directors, spoke
of the impact of FX scarcity on their operations.
He said the company’s ability to secure
essential foreign currency for importing products had been severely
compromised.
“While we expect sustained economic growth in
2023, we cannot overlook some factors which must be duly considered in this
quest for economic growth and development in Nigeria. The factors include
foreign exchange availability for businesses, insecurity, unemployment, and
high cost of doing business, coupled with the uncertainty around fuel subsidy
removal,” Onuzo had said.
“The challenges ahead are quite significant,
as some of you may have read reports from a few media houses regarding the
supply constraints on GSK drugs in the market, we must mention that it
continues to be very challenging with foreign exchange non-availability
affecting our ability to settle foreign currency-denominated trade payables
with product suppliers.”
Recently, drug manufacturers appealed to the
government to address the issue of FX scarcity as it could lead to drug
shortages in the county.
INCREASED
COMPETITION FROM LOCAL FIRMS AND GLOBAL IMPORTS
In addition to FX, TheCable understands that
GSK faced increased competition from local companies and imports from India and
China.
Ade Popoola, the managing director of Reals
Pharmaceuticals, told TheCable that GSK exited the country due to the
increasing crowding out of its products by competition from mostly India.
“It’s like being in the middle of an
expressway. When you have too much traffic, the rate at which you will progress
will be difficult no matter how good your car is,” Popoola explained.
“The look-alike from India crowded them out.
You find out that if you have been selling 250,000 units per year, when cheaper
alternatives come in, it will first of all reduce to 200,000, and subsequently
to 150,000, and 100,000.
“Later you will find yourself struggling to
sell 50,000 because the hospital buying from you prefers alternatives because
the other companies too may be quality. Once they crowd you out, you find it
difficult to maintain your volume, and when you can’t maintain your volume, you
cannot pay your cost.
“The Indian will sell at 20 percent of your
price. It has happened to me, so I know what I am saying.”
GSK’S
STRATEGIC SHIFT IN AFRICA
In 2018, GSK made headlines when Emma Walmsley,
its chief executive officer (CEO), unveiled plans to scale back operations in
Africa as part of the company’s strategic realignment.
Walmsley said the company would no longer
market medicines to healthcare professionals in 29 sub-Saharan African markets
and instead adopt a distributor-led model.
She said GSK would continue to run local
operations in Kenya and Nigeria while retaining representative offices in Cote
d’Ivoire and Ghana.
However, in 2022, GSK announced that it would
adopt a third-party distribution model for its drugs and vaccines in Kenya from
next year (2023).
While the cessation of operations in Nigeria
may come as a shock to many, it aligns with the firm’s overall goals for the
African region.
SHAREHOLDERS
REACT TO GSK NIGERIA’S EXIT
Speaking on the development, Bisi Bakare, the
national coordinator of Pragmatic Shareholders Association, said the scarcity
of forex has made things difficult for GSK in the country, thus prompting the
move to stop operations.
She also expressed her unhappiness at the
impact the exit would have on unemployment in the country.
“We are not happy about it. We feel very bad.
But when you look at the challenges the company is also going through, we know
we can’t force them to stay. Shortage of forex is really affecting their
business even though the problem is not peculiar to them,” Bakare said.
“Our children and elderly people working with
them will also have to leave their jobs. Jobs are scarce now. Their decision to
leave Nigeria will add to unemployment in the country.”
On his part, Godwin Anono, president of
Standard Shareholders Association, said the lack of a conducive environment for
doing business prompted GSK’s departure from Nigeria.
”A foreign company cannot be prevented from
leaving if they have made up their mind. Nigeria will remain Nigeria. For
shareholders, if the value of a share is N3, then with our interest, they pay
us N5, we will collect it and move on,” Anono said.
[TheCable]
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