This article first appeared in The Edge Malaysia Weekly on August 14, 2023 - August 20, 2023

WHEN Pharmaniaga Bhd announced in February an impairment amounting to a staggering RM552.3 million, brought about by unsold Covid-19 vaccines, many questions were asked.

A key enquiry was whether Pharmaniaga had procured the large number of vaccines at the instruction of the government as it held a concession to supply medication to the government, and if there were any issues with the procurement process.

The impact of the impairment on Pharmaniaga and its shareholders was huge — the group fell into cash-strapped Practice Note 17 (PN17) status and suffered its largest-ever quarterly net loss of RM664.39 million in the final quarter of its financial year ended Dec 31, 2022. Its stock shed about 52% of its value as market capitalisation fell by almost RM390 million to RM360.3 million, from RM749.42 million.

In a recent wide-ranging interview with The Edge, former health minister Khairy Jamaluddin sought to clear the air on the matter. He says that the vaccination programme for Covid-19, which is perhaps one of the biggest procurement programmes ever, had been investigated by a number of entities, including the Public Accounts Committee, the Malaysian Anti-Corruption Commission (MACC) as well as the Audit Department. Then, a white paper on the procurement process was presented to the cabinet by the Ministry of Health.

“Until today [there has been] nothing [untoward revealed], because I followed the internal processes,” Khairy says. 

He adds, “Their (Pharmaniaga’s) huge impairment was because they bought too much (vaccines) thinking they could sell to the private market.”

On whether the acquisition by Pharmaniaga was on an instruction by the government, Khairy says, “No, no, no. I told them that this is the amount I want, that’s it. If you buy more than this [you will be left to your own devices], I’ve got enough, meaning the government’s got enough vaccines for the national vaccination programme, because we’d ordered from Pfizer and a few other people, so if you (Pharmaniaga) buy more than that, then it’s [for the] private market.

“I said you also have to think about the private market because everyone will be vaccinated already in Malaysia. So, they (Pharmaniaga) did say they were thinking of exporting it, selling it to other countries, but that was their judgement call … they kept on pushing to buy more and more and more, I said ‘no, that’s all I need’.

“I suppose one can argue that maybe opportunistically, they thought, we’ll have inventory [on] standby, in case Pfizer doesn’t fulfil their order, but I did tell them up front this is what we have ordered from Pfizer and they were always watching whether Pfizer was going to deliver — I always knew Pfizer was going to deliver. So that’s what happened,” he explains.

The miscalculation in acquiring vaccines is just one of a number of odd occurrences at Pharmaniaga in a span of a few months.

Pharmaniaga had also incurred capital expenditure, looking to make hay while the sun was shining, and in May last year announced the setting up of a RM300 million halal insulin and vaccine plant in Puchong, Selangor, slated for completion at the end of 2023. The plan was to make Covid-19 and other vaccines as well as insulin with a production capacity of 100 million to 300 million doses annually.

After the many missteps, Pharmaniaga’s former CEO Datuk Zulkarnain Md Eusope seems to have taken the fall for the issues with the Covid-19 vaccine. In mid-March, about two weeks after the huge impairment was announced and the company fell into PN17 clasification, Zulkarnain resigned “to pursue other interests”. A number of Pharmaniaga’s board members have stepped down as well.

In the meantime, armed forces fund Lembaga Tabung Angkatan Tentera (LTAT) and its wholly-owned Boustead Holdings Bhd, which as at end-March held 60.44% equity interest in Pharmaniaga, seem to be strengthening their grip on the company. For instance, Boustead Holdings CEO Izaddeen Daud was appointed non-executive chairman.

Questions were also raised as Pharmaniaga’s vaccine woes and entry into PN17, and Boustead Holding’s privatisation by LTAT, all happened at about the same time. To recap, Boustead Holdings’ offer of 85.5 sen per share, which was deemed “not fair but reasonable” by independent adviser Kenanga Investment Bank Bhd, was at a discount of between 45.3% and 51.7% to the sum-of-parts valuation of Boustead Holdings of RM1.56 to RM1.75 per share. However, the privatisation was successful and Boustead Holdings has since been delisted from the Bursa Malaysia.

There has also been talk of a new shareholder emerging at Pharmaniaga, buying into the company in a clandestine manner. In mid-July, Minister of Defence Datuk Seri Mohamad Hasan at the launch of LTAT’s strategy for 2023-2025, said that the fund was on the verge of losing control of Pharmaniaga after some well-connected individuals sought to acquire the company for a song.

“Somebody made a bid through the highest leadership, wanting to buy our company (Pharmaniaga) at a discounted price; but I said no, over my dead body,” Mohamad Hasan is reported to have said. Who this well-connected individual is, has not been revealed.

While all the drama was unfolding at Pharmaniaga, in mid-July it announced a seven-year concession agreement to provide medical supply logistics services to the Ministry of Health. This came about after a six-month extension of its concession expired in June. Also in mid-April, the health ministry extended Pharmaniaga’s concession agreement by a 10-year quantum, to provide medicine and medical supplies to the ministry’s facilities.

This extension came as a surprise given Pharmaniaga’s cash-strapped PN17 status.  Earlier this month, Pharmaniaga’s planned private placement of 144.12 million shares, or 10% of its share base, to LTAT was thwarted by Bursa Malaysia. This placement was the second the company had planned to raise funds.

“Bursa Securities is unable to consider the proposed private placement II as a second fundraising exercise on a stand-alone basis,” Pharmaniaga announced.

Pharmaniaga is appealing the decision. Last Friday, Pharmaniaga issued a statement on its plans to undertake a restructuring exercise as part of its recovery plan. Chairman Izadeen said, “The group is undertaking a comprehensive review of its position in all business segments … It will be a challenging and bumpy period for the group.”

In 1HFY2023, Pharmaniaga chalked up a net profit of RM4.61 million on the back of RM1.73 billion in revenue. In the previous corresponding period, it managed to rake in RM28.46 million in net profit on a turnover of RM1.72 billion. As at end-June this year, it had deposits, cash and bank balances of RM27.77 million, lower than RM52.85 million six months earlier. Its short-term borrowings stood at RM914.61 million and long-term debt commitments at RM221.29 million.

The company had accumulated losses of RM292.16 million, and negative shareholders’ funds of RM137.92 million. It ended trading last Friday at 42 sen, giving it a market capitalisation of RM605.3 million.  

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