Ghanaian startup is buying Kenya’s second-largest pharmacy chain

Ghanaian startup that manag­es prescription drug inventory for pharmacies and their sup­pliers, is buying Kenya’s sec­ond-largest pharmacy chain, Haltons, in an unprecedented deal for the African startup ecosystem.

The transaction, which sees mPharma enter the East Af­rica regional market for the first time, means the young company will take control of the 20 Haltons stores spilt be­tween Nairobi and Mombasa.

The deal, which is still sub­ject to regulatory approval, comes as mPharma works on completing a $12m Series B funding round led by 4DX Ventures, an Accra/San Fran­cisco venture capital firm, and Nairobi-based Novastar Ven­tures.

So far it has confirmed $9.7m and the full round is expected to be completed in a couple of weeks with other investors, including Unbound Ventures, the VC arm of In­dia’s Bharti Mittal Family office; early Facebook inves­tor Jim Breyer and former Novartis chief executive Dan­iel Vasella, who has joined MPharma’s board.

The startup raised $6.6m in November 2017 after raising a seed round of $5m in 2015.

MPharma was founded by

Greg Rockson to significantly improve the efficiency of phar­maceutical supply chains in Af­rican countries. Its proprietary Vendor Management Invento­ry (VMI) system is already be­ing used in over 250 pharma­cies in Ghana, Nigeria, Zambia and Zimbabwe.

Typically, young startups are more likely to be acquired by traditional or established busi­nesses rather than the other way round. Rockson said the unusual deal came about as part of conversations to mar­ket its VMI platform to the chain, but realised there was an opportunity to prove just how much the efficiencies of managing both front end and back end could help African pharmacies drive down their biggest costs: inventory.

“We’ve not always been able to control the customer experi­ence and fully address the issue of drug affordability with our pharmacy clients, particularly because they manage their profit margins,” says Rockson.

The best manifestation of that strategy has been its QualityRx franchise model, which replicates similar fea­tures seen with co-operative retailers in the US and Europe employing common branding, inventory systems and col­lective purchasing.“Through our QualityRx service, we’re starting to invest in improv­ing the customer experience and pricing that patients get from pharmacies,” says Rock­son. “Haltons will serve as test­ing ground for us to develop patient-centred services we can provide to our franchise pharmacies. This way we can encourage lower margins and pass the savings on to the cus­tomers.”

The startup is taking control of Haltons from Fanisi Capi­tal, a Mauritius-based private equity firm, but senior man­agement at Haltons will retain a stake in the business.

Mary Ngige, Haltons’ man­aging director, said the attrac­tion to the deal was about im­proving efficiency within the pharmacy’s supply chain using better inventory management software which ultimately aligned with Halton’s own mission to improve drug acces­sibility and affordability.

“This is a volume business and their technology will help us fine-tune our model and improve competitively,” she said.

While terms of the deal are not public, it is believed mPharma has paid under $5m

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for the chain. Last year, Hal­tons did around $1.5m in rev­enue, according to Ngige.

Haltons was at one point the biggest pharmacy chain in Kenya with more than 50 stores, but under Ngige’s watch it has slimmed down, closing unprofitable stores and working on improving its ser­vice delivery.

Ngige says its new owner­ship and better systems could see it start to expand again in the near future.

In Kenya it is up against the much bigger Goodlife Phar­macy which has 47 stores and is owned by South African in­vestor Leapfrog Investments, which invested $22m in 2016.

In the near term, mPharma’s team is focused on expanding its VMI and QualityRx plat­forms to over 14,000 com­munity pharmacies in Ghana, Nigeria and Kenya.

The company’s core strategy is to use those platforms to leverage more market power with pharmaceutical compa­nies and also use its “just-in-time” inventory management to lower prices for its retail customers.

In the longer term, Rock­son is considering working with African governments to help improve drug availability through better centralised sys­tems.

-Quartz