Two years after its R822-million buyout of Cosme Pharma Laboratories and several impairments later, JSE-listed Adcock Ingram on Wednesday announced plans to dispose of the India-based pharmaceutical company after a continuing disappointing performance.

The group, which bought the firm in January 2013 to build a solid growth base in India as part of expansion plans into new territories and emerging markets, would start a “formal sales process” in due course.

Adcock’s acquisition of the mid-sized pharmaceuticals company was justified at the time by the growth prospects of a pharmaceutical sales and distribution business with a wide-ranging portfolio of good-quality, good-margin products in several therapeutic classes, such as gynaecology, gastrointestinal, dermatology and orthopaedic, in a vast high-growth market.

Cosme’s 27-State distribution capability, with access to over 150 000 physicians, had been expected to provide Adcock with a strong platform for new product launches and eventual exposure to its own brands.

However, two years in, Cosme was failing to perform to expectations, with Adcock’s perceived growth potential requiring significant investment to gain traction.

“As time has evolved, management has recognised the difficulties of operating an enterprise in such a competitive pharmaceutical market, which, in relative terms, is sub-scale, requiring inter-alia, significant further investment,” the company said on Wednesday.

Cosme’s overhead-to-sales ratios remained the principal challenge, while the company faced significant competition in a market that had over 5 000 registered pharmaceutical companies when Adcock first agreed to buy the company in 2012.

The widening trading loss of R56.8-million during the 12 months to June 30, led to an impairment of R74.4-million.

This followed a R278-million impairment of the Indian company in the 2014 financial year.

Adcock would continue to manage and maintain Cosme’s value, while its sought out a buyer.

BACK IN BLACK
Meanwhile, Adcock emerged out of the red in the year to June, swinging from headline losses of R170-million in 2014 to headline earnings of R270.4-million.

This translated into headline earnings a share of 160.1c, a drastic shift from the headline loss a share of 100.8c recorded in the prior financial year.

Adcock achieved basic earnings a share of 117.2c during the year under review, compared with the basic loss a share of 493.7c reported in 2014.

The group, which embarked on a general business restructure in 2014, showed a strong turnaround from losses of R828.7-million in 2014 to a profit of R198.8-million.

“Apart from the financial implications arising from the review process, the group's comparative 2014 performance unfortunately includes the adverse consequences of certain internal issues and judgments during that period, the consequences of an unforgiving market and, generally, a volatile and challenging South African economy,” the company pointed out.

Increased throughput, improved factory efficiencies, cost engineering applications and savings on raw material cost resulted in an increase in Adcock’s gross profit percentage from 33% in 2014 to 38% in the year under review.

Adcock’s R5.5-billion turnover for 2015 was up 6.5% on the R5.1-billion reported in the prior year, while revenue increased from R5.2-billion in 2014 to R5.6-billion in the year under review.

Adcock declared a final dividend of 81c a share for the year ended June 30.