Pharma families

Britain's pharmaceutical distribution industry has become the stamping ground of half a dozen Asian entrepreneurs whose families were expelled from East Africa 35 years ago. It's a story of enterprise overcoming adversity. Nils Pratley examines the phenomenon. Every entrepreneur is supposed to have a different story to tell, but it's not true in the case of the British pharmaceutical distribution industry. The astonishing fact is that six of the most successful companies supplying medicines to Britain's pharmacies and hospitals are owned and managed by Kenyan Asians in their early fifties.

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Last Updated: 31 Aug 2010

All came to Britain in the late 1960s and early '70s, having been raised in relative - and in some cases extreme - poverty in Kenya. They achieved pharmacy qualifications in Britain generally by supporting themselves through college with menial part-time jobs. All then established their own retail pharmacy businesses before building much larger wholesaling operations. Now all are multi-millionaires, some worth more than £100 million individually.

You couldn't call them a Kenyan rat pack - for a start, most are far too shy of publicity - but they do see each other socially. They are all based in or near London and in the past have traded with each other; for the most part, though, they compete for the same customers.

There is no simple explanation for the phenomenon, except a shared cultural specialism in medicine, says Bharat Shah, whose Sigma Pharmaceuticals turned over £190 million last year.

'All of us have one thing in common - we are all from Kenya. When we were young and doing our O-levels in Kenya, everybody in the Asian community tended to do the same things. So if one person went into pharmacy, everybody did. The majority of East African Asians are not engineers or teachers; they are pharmacists or accountants.'

Shah adds that 'we all learned from each other and talked about failures and mistakes', which is understandable: they are leaders of an industry that often finds itself in conflict with the big pharmaceutical giants.

It deals in generics - copycat versions of a drug produced after the expiry of a patent - and in parallel imports.

The latter is more controversial, as it includes the latest patented medicines. A British parallel importer will buy the drugs in countries such as Spain, where wholesale prices are much lower, and repackage them for the home market. It's the same chemical compound, usually produced in the same factory; only the price is different.

Both categories are not only highly regulated but officially encouraged.

The Government, after all, hardly wants to deter anybody who promises to reduce the NHS's drugs bill. It's the pharmaceutical giants that complain.

They defend their patents until the last possible moment and argue that parallel importing diverts cash from the British science base. But they have never succeeded in eliminating the entrepreneurial opportunities.

'If I could have my time again, this is the business I would have gone into,' confesses one executive of a British pharmaceutical giant.

Navin Engineer's story demonstrates the possibilities, even though his firm, Chemidex, is one of the few generic specialists that has not also expanded into parallel importing.

He was sent to London in 1969 at the age of 16 to live with his aunt, with £75 in his pocket. He worked in the Wimpy burger restaurant on Oxford Street in the evening and at weekends to support himself through sixth form and then the London School of Pharmacy.

On graduation, he took a job as a pharmacist with Boots. Already feeling the company was 'a little bit like the civil service', he was infuriated by the demand of a visiting area manager for a cup of tea at a moment when he was busy dispensing prescriptions. 'I made the cup of tea, but that night I went home and wrote a letter of resignation,' says Engineer. 'It was the best thing that ever happened to me.'

He set up his own pharmacy in Chertsey, Surrey, on the site of a former grocery store. He opened long hours, including Sundays, on the principle that 'your body doesn't decide to be ill when the shops are open'.

He expanded the business, even buying a former Boots store in Addlestone, near Weybridge. By 1999, he had 14 pharmacies and their value had increased after the government acted to prevent a free-for-all in the market by restricting the grant of new pharmacy licences. German group GEHE - one of three companies trying to consolidate the pharmacy market - came knocking.

'They kept on increasing their offer until it was irresistible,' he says.

The final price was a cool £12 million.

Engineer chose to invest much of the proceeds in his much smaller wholesale business. He bought some small branded pharmaceuticals from big pharma companies, typically medicines turning over £2 million or less, and made instant savings by switching production to established factories in eastern Europe and the Far East.

Then he moved into generics, an area that requires specialist knowledge and a willingness to take calculated risks. Engineer reckons it costs between £200,000 and £250,000 and takes two or three years to develop a generic pharmaceutical. The first step is to identify the patent that is about to expire and then to make sure you do not infringe it as you develop a copy-cat version.

A patent lawyer alone can cost £50,000. 'You have to make sure you are on firm ground,' he says. 'I would rather spend £50,000 doing that than get a writ from somebody saying: "You have infringed my patent", and then you could get into a legal battle that could cost £500,000 or £1 million.'

There is also product insurance to be paid, plus the costs of proving the efficacy of the drug. 'If it doesn't work in the biostudy, then you have to start again,' he says. 'The regulatory authorities don't have half-measures. The regulations are so controlled that generic products are of a very high standard.'

The hurdles may be high, but Chemidex now has 42 generics. They include treatments for gout and depression, an antibiotic for anthrax and even a generic version of the famous Prozac. They all contributed to profits last year of £9 million - not bad for a wholesaling business that was originally subordinate to Engineer's retail pharmacies.

Most of the other Kenyan Asians made the switch from retailing to wholesaling much earlier. Shah sold two of his three pharmacies in 1980 and set up Sigma two years later in the back of his remaining shop in Watford. The big boost for the generic market came in the mid-80s, he says, when the government effectively banned the NHS from prescribing famous drugs such as Valium and Benylin, and insisted that it use cheaper generic versions.

General practitioners were encouraged to switch their systems to prescribe drugs by their generic medical name rather than the brand name.

The effect on prices when generics appear can be swift. A few years ago, Zocor, a statin for lowering cholesterol, was reputed to account for £250 million of the annual NHS drugs bill. In its branded, patented form, the drug cost more than £30 per prescription. When generics started to appear, the NHS immediately halved the price it was willing to pay. With the arrival of more generics, the price has at least halved again. It is an industry where the costs of production are low and getting lower.

By the mid-90s, Shah was moving further up the supply chain. 'It got very competitive,' he says. 'We decided not to be just a trader, but to go into manufacturing. We got licences for popular generics and got the products manufactured outside western Europe - places like Turkey, the Middle East and India, where the cost bases are very low.

'The big problem was that most of the factories were not approved for Europe, so we did a fair amount of work to get two or three approved for the UK. That was the big breakthrough - we could compete with the market.'

Sigma now has access to about 100 generic licences, with products ranging from antibiotics to cardiac treatments.

After an early legal scare, Shah was wary of getting into parallel importing.

'We were taken to court by Glaxo in 1986, but we were much too small to fight a multinational like that and we backed off,' he says. 'Indeed, we backed off to such an extent that we didn't go back into parallel importing until 1993-94, when that market was expanding so much.'

It has been boom time ever since for parallel importers. It is an industry that operates on the simple principle of buying a medicine in a country where it is sold cheaply and selling it in a country where it costs much more. Spain and Greece are prime examples of cheap countries; Britain, France and Germany are expensive. Transport costs are usually tiny - most parallel importers just use an overnight freight service. Then there is the relatively straightforward process of repackaging for the British market, which usually means little more than translating the patient information into English.

The Medicines & Healthcare Regulatory Authority, the successor to the Medicines Control Agency, acts as regulator, overseeing the licences to assemble in English.

'Prescription drugs in some European countries can be as much as 80% cheaper than they are in Britain, or as little as 15% to 20% cheaper,' explains Shah. 'Pricing is a minefield that only the multinational pharmaceutical firms understand.'

Minefield is the right word. The bottom line is probably this: the drug firms recoup their research costs where they can and from whoever can afford it. Prices of patented drugs in the US are the highest in the world.

The pharma giants still lobby furiously to stop cross-border trading, but they are losing the fight.

In Britain, a trade body of the largest parallel importers called the British Association of European Pharmaceutical Distributors handles the legal battles on behalf of its members. Five of its 13 members are companies that are owned by Kenyan Asians, and Ravi Karia of Chemilines and Bhikhu Patel of Waymade sit on its council.

'Parallel imports and generics have helped the NHS,' insists Shah. 'When the NHS talk to us, they like us and support us. They realise that the generics boys have done a sterling job in terms of reducing the NHS drugs bill. And parallel importing saves them about 10% on their drugs bill.'

For the future, Sigma plans to enter the French market - 'France is where Britain was in 1985,' he says. At Waymade Healthcare, the largest of the Kenyan Asian firms, Vijay Patel is even making a tentative push into drug development. It seems that the extraordinary growth story of these six companies has a long way to run yet.

'I don't think I ever envisaged that our family business would ever get to be this big,' confesses Shah. 'It's in the Asian blood that we would work all hours of the day if it gives us the return, so it grew by default, really.'

BHARAT SHAH - SIGMA PHARMACEUTICALS

Bharat Shah says the support of his family has helped him build Sigma from a single pharmacy in Watford to a company concentrated on wholesaling that made profits of £4.8 million on turnover of £190 million.

Two of his brothers work in the business - Manish, an accountant, and Kamal, who works in operations. And now his son Halul (far right) runs retail pharmacies. 'It's an Asian way of working,' says Shah. 'We are all focused on what we are doing and we are working for succession. It's all in the family. We are not growing the business for an exit route.' Of the success of so many Kenyan Asians in the same field, he says: 'We all had one thing in common - we came to a country where we had to make it and our families supported us. My wife didn't mind me working 14 hours a day on the business and not being home to read the children bedtime stories. But we had, and still have, a good relationship. We have no regrets.'

RAVI KARIA - CHEMILINES

Founded 18 years ago, Chemilines consistently makes the top ranks of surveys of Britain's fastest-growing companies - profits for 2003 are expected to be £4 million on sales of £60 million. It was founded by Ravi Karia, who has day-to-day control of operations, while brother Jagdish heads the sales team. In March this year, the company opened a new 90,000 sq ft repackaging and warehouse facility in Wembley.

VIJAY & BIKHU PATEL - WAYMADE HEALTHCARE

The rise of the Patels is an original rags-to-riches tale. Vijay and Bikhu were brought up in poverty in Eldoret in the western highlands of Kenya; they now own and run a business with 700 employees and a turnover of £280 million. Vijay (near right) came to Britain at the age of 16 with £5 and some O-levels. He took menial jobs to pay his way through sixth form and the College of Pharmacy in Leicester. A loan from an uncle allowed him to open his first pharmacy in Leigh-on-Sea in Essex in 1975. The company took off when it entered the wholesaling and distribution market in 1984 and started to supply hospitals and other pharmacies. Vijay's brother Bikhu (far right), who had trained as an architect, joined Waymade and the pace of growth has been exceptional - profits were £1.4 million in 1995, £9.8 million in '98 and about £22 million last year. The Patels rank among the richest Asians in Britain. Vijay has long spoken of his ambition for Waymade to become a mini-Glaxo. Last year, the brothers launched Amdipharm to develop medicines that are too small for the big pharmaceutical firms. Palliative care and the relief of post-operative pain are two early areas of concentration. An Aston Martin has been one of Vijay's few luxury indulgences, but the Waymade millions have also funded a school in Kenya and regular medical camps in India. 'I never want to go back to living in poverty,' Vijay says. 'That has been the biggest stimulus for me to get on in life and to succeed. I knew I couldn't get any lower than where I have been.'

BHARAT & KETAN MEHTA - Necessity Supplies

Brothers Bharat, 52, and Ketan, 46, came to Britain from the Kenyan capital Mombassa. They founded Necessity Supplies in Uxbridge, Middlesex, in 1986. Much of its growth has been driven by parallel importing, and in 2002 the company made profits of £15.3 million on sales of £144 million. They keep a low profile. Almost their only public utterance has been about succession - a worry that their children may not wish to run the firm. 'All they think of is computers,' says Bharat Mehta.

NAVIN ENGINEER - CHEMIDEX

When Navin Engineer (right), now 51, arrived in Britain in 1969, he was driven by a burning desire to work for himself, in contrast to his father, who worked for years in the Kenyan civil service. 'I believed in working hard and wanted to be rewarded for what I did,' he says. He founded Chemidex with his wife Varsha. 'None of this would have been possible without her,' he says. 'She gave 100% support in running the shops and the pharmacies. You need a rock.' They have two children, both of whom are studying medicine. Having sold its pharmacies, Chemidex is now a wholesaler of both branded and generic medicines, but not parallel-imported drugs. Engineer is in no doubt that growth in cheaper generic medicines has contributed to a more efficient healthcare market. 'Wearing my hat when I am selling brands, I would say we need new molecules and new discoveries and we need to pump money into that,' he says. 'Fifty years ago, people were dying of tuberculosis and high cholesterol and we couldn't transplant organs or, if we could, we didn't have the drugs to make sure that rejection didn't take place. But now we have drugs to do all these things and because of the budgetary pressures on the NHS, it has to look to save money.'

NARESH SHAH - JUMBOGATE

Naresh Shah and his wife Shweta founded Jumbogate in 1982 and the business is firmly rooted in wholesaling - its retail chemists generated less than 0.5% of the group's £97 million of sales last year. But it is rather harder to work out what is happening in the rest of the business - and Shah refuses to talk to the press. The accounts for the 12 months to 31 March 2003 show that Jumbogate fell from a £7.77 million pre-tax profit to a loss of £5.46 million. That doesn't tell the whole story, though, because the biggest contributor to the swing was a £15 million jump in employment costs. Some £6 million of that went to Shah himself - shown as the sole director during the year. It may be a simple case of an entrepreneur taking some cash out of a successful business.

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