Finnfund invested in pharmaceuticals expansion in Kenya
Finnfund invested in pharmaceuticals expansion in Kenya
11/11/2005
Pharmaceuticals company Universal Corporation is concentrating on making off-patent generic drugs, including those for treating AIDS, malaria and tuberculosis. Number of drugs and employees as well as the size of production area will be doubled by the end of next year. Finnfund’s participation is in the form of an investment loan and equity.
Pentti Keskitalo is an engineer with more than 30 years experience around the world in project exports of pharmaceuticals plants. Now he is putting his solid skills to use in his own pharmaceutical company in Kenya.
Universal Corporation, established by Keskitalo and two Kenyan partners, Palu and Raju Dhanan, has its production plant in the small town of Kikuyu near Nairobi. They chose a bankrupt match factory for their site and have been gradually erecting new buildings there.
In addition to its equity capital, the company has received finance from a Kenyan bank. It took a big step forward in May this year, when Finnfund decided to invest in the plant and become a shareholder in the company with a 10% stake.
“Finnfund’s participation is in the form of an investment loan and equity. This long-term commitment will be also used to finance the company’s environmental investments and to upgrade the production facilities and processes towards WHO prequalification,” explains Finnfund investment manager Sari Nikka.
“Universal Corporation is the first project Finnfund has implemented in Kenya.”
Doubling products and employees
Since last year, the pharmaceuticals plant has been producing oral infusions. This year production has expanded to tablets and capsules. Production lines for the injectables and ointments are currently under construction, Keskitalo notes.
He says that the expansion will increase the production area from its present 5 thousand square meters to about 10 thousand. The number of employees will grow from 142 now to nearly 300 by the end of next year.
“We also intend to double the number of drugs to be produced during the course of next year. At present we produce 140.”
Universal Corporation is concentrating on making off-patent generic drugs, including those for treating AIDS, malaria and tuberculosis. Keskitalo is confident in the good growth prospects of African pharmaceuticals markets.
“Drugs are always needed whatever the economic conditions or the political climate.”
Attractive East African markets
The main market area for Universal Corporation’s products is Kenya. Keskitalo believes that exports to neighbouring countries will become the company’s second cornerstone in the years ahead.
“We’ve already made a start in Uganda, Somalia, Malawi, Rwanda and the island of Zanzibar. Other potential markets for us are Ethiopia, Sudan and neighbouring areas,” he explains.
On the domestic front the company’s principal customers are wholesalers and private pharmacists. It has been wary of public procurement because tendering competitions are hard to win in a country rife with bureaucracy and corruption.
In future Keskitalo hopes to supply the Global Fund, supported by international donors to combat HIV/AIDS, tuberculosis and malaria, particularly in Africa. Participation in Global Fund programmes requires prequalification by the World Health Organization.
“It is not easy to get their prequalification. I think we will achieve it in the next few years, but we will have to improve personnel training, among other things, before we can be certified.”
Start-up with modest investment
Until now Universal Corporation has invested about 3 million euros in its production plant in Kikuyu. It has held investment spending in check by buying building materials from local suppliers and using second-hand equipment. In fact, many of the machines needed by the plant have been obtained by Keskitalo from his former employer Orion, which has closed production plants in Finland.
He expects his company’s results to show a slight profit for the first time this year.
Kenyans buy pharmaceuticals worth 200-250 million dollars each year. Generic drugs account for over 90% of the market.
Universal Corporation has half a dozen serious local competitors and also faces competition from Indian and Chinese makers of generic brands. The large western drugs companies compete in a different league because their products are more expensive.
“Competition on the generic market is distorted by the subsidy granted by Asian governments. What they are doing is dumping.”
A reliable partner vital in Africa
Keskitalo is responsible for factory planning and production. The Dhanan brothers, who are members of Kenya’s minority Indian community, concentrate on marketing and raw material supply channels.
The partners have known each other for more than a decade. The Dhanans acted as Orion’s representatives in Kenya in the 1990s. Keskitalo says that without a reliable and experienced partner it is almost impossible to succeed in Africa.
“He must be someone who knows the market and the channels for raw material procurement. In other words the partner must already be well connected in this sector. For example, in getting the permits needed for drugs, local knowledge and connections are essential.”
Kenya is a better place for doing business than it is reputed to be, Keskitalo says. The biggest problem faced by the pharmaceuticals industry is to find competent employees.
“Actually there are plenty of trained pharmacists who understand the theory,” he admits. “But the training is of little use for the practical work required by a pharmaceutical company.”
For further information at Finnfund please contact Ms Sari Nikka, tel. +358 9 3484 3304 or by email firstname.lastname@finnfund.fi
