CEO: Behind the scenes at Pharmaniaga

“The provision of RM552mil was made for 14 million doses of the Sinovac vaccine. We are talking with a big company to offtake half of the stock or seven million doses to be sold overseas. We expect to sign the agreement soon," said Zulkarnain.

ALMOST RM216mil or 38% of Pharmaniaga Bhd’s market capitalisation was wiped off in just a week, after a RM552mil vaccine provision sparked a panic among investors in the stock.

The pharmaceutical player had to make the provision for “slow-moving stocks of Covid-19 vaccines”, in accordance with accounting standards. This pulled the company into the red with a net loss of RM607.32mil in the financial year ended Dec 31, 2022 (FY22).

Some industry observers reckon that there is very little chance for Pharmaniaga to clear its vaccine inventories.

“If they could have sold them, they would have done so by now to avoid getting into the Practice Note 17 (PN17) category.

“The increasing disinterest among the public to get vaccinated and the fact that these vaccines have an expiry date will make it harder to dispose of the vaccines,” an observer says.

However, Pharmaniaga chief executive officer Datuk Zulkarnain Md Eusope strongly disagrees, adding that the company is already in the midst of clearing the stocks.

“The provision of RM552mil was made for 14 million doses of the Sinovac vaccine. We are talking with a big company to offtake half of the stock or seven million doses to be sold overseas.

“We expect to sign the agreement soon.

“As for the remaining stock, we are talking to several African nations such as Sudan, Kenya and Zimbabwe, as well as the East African Community which consists of seven countries.

“But, in these countries, they need the last-mile services such as logistics and storages together with the vaccines, so we are talking to a last-mile service provider to jointly serve these countries,” he tells StarBizWeek.

Pharmaniaga Bhd is the sole distributor of its Covid-19 vaccine in Malaysia – both in fill-and-finish and finished forms.

Zulkarnain also points out that the possibility of Pharmaniaga’s Sinovac vaccines to be used for foreign workers’ booster shots.

“Health Minister Dr Zaliha Mustafa said the government is studying the possibility of requiring foreign workers to take booster shots.

“But, this will be finalised once the White Paper on vaccine procurement is tabled in Parliament.

“The good news is that the only vaccine available to be purchased by the employers is Sinovac,” according to Zulkarnain.

Pharmaniaga estimates that about three to four million doses will be required for the booster shots of foreign workers.

Zulkarnain also allayed fear on the shelf-life of Pharmaniaga’s unsold 14 million vaccine doses.

“The expiry for our first batch is only in June 2024 and the final batch is in October 2024. This give us ample time to clear the stocks, expectedly by end-2023,” he adds.

Once the 14 million vaccine doses have been sold, which Zulkarnain says will be priced “only slightly higher than cost price” to cover the distribution costs, Pharmaniaga would be able to write back the provision of RM552mil made earlier.

This would make the company “cash-rich”, according to him.

In a note this week, Hong Leong Investment Bank Research also points out the possibility of a reversal in the impairment provision, should Pharmaniaga be able to sell more of its existing Covid-19 stockpile.

“Currently, the group is engaging with various parties including the Islamic Development Bank and the Health Ministry to sell its stockpile,” it says.

However, the research house downgraded its view on Pharmaniaga to “sell” and reduced the target price to 31 sen per share.

MIDF Research, however, has a higher target price of 48 sen, despite reducing it from 77 sen.

“Stripping the impairment, the group made about RM15mil in core net profit in FY22,” it says.

Looking ahead, Zulkarnain does not expect any more provision for impairment to be made.

He was also asked why Pharmaniaga failed to clear its Covid-19 stocks.

In response, Zulkarnain says that the government’s decision to allow “mixing of Covid-19 vaccines” back in 2021 was partly a big reason for the slower take-up of Sinovac vaccines. He explains that back in 2021, Pharmaniaga had to procure ready-to-fill Covid-19 vaccines fast enough as Malaysia ramped up its inoculation drive nationwide.

“For us, protecting the nation comes first and we had to order a bigger volume from China due to lack of vaccines in Malaysia.

“But, when the then government allowed mixing of vaccines, it disrupted our plans and left us with the current inventories,” he says.

Zulkarnain also explains that Pharmaniaga had to request for Sinovac Biotech Ltd’s approval before selling its vaccines abroad, back in 2021 and 2022.

“This is because we were only authorised to sell in Malaysia.

“There were only a few countries that we were allowed to sell to back then such as Myanmar, which we did.

“But now, Sinovac has given us the green light to sell the vaccines to any other countries without Sinovac’s approval. We received the green light about two months ago.

“We would need Sinovac’s approval only if we want to sell to Turkey, Chile, Brazil and Egypt, which manufacture the Sinovac vaccines,” he says.

Moving forward, Zulkarnain says Pharmaniaga remains financially healthy, despite the stock being classified as a PN17 company recently.

He also notes that Pharmaniaga’s revenue remains higher than pre-pandemic levels.

“In 2020, our revenue was about RM2.7bil and in 2022, it touched RM3.5bil and this is without the Covid-19 vaccines (contribution).

“We are expanding fast in Indonesia and we hope to grow our sales in the country by three times.

By 2025, our insulin and vaccine plants (currently under development) will be up and running and we target to grow our revenue to RM5bil by 2025,” he says.