Middle East Pharmaceutical Industries Company, Avalon Pharma, announces its intention to float on the Saudi Exchange’s main market

Middle East Pharmaceutical Industries Company (“Avalon Pharma” or the “Company”, or the “Issuer”),  one of the fastest growing home-grown pharmaceutical manufacturing companies in the Kingdom of Saudi Arabia (“KSA” or the “Kingdom”), today announces its intention to proceed with an initial public offering (“IPO” or the “Offering”) and the listing of its ordinary shares (“Shares”) on the Main Market of the Saudi Exchange.

On 6 December 2023, the Capital Market Authority (“CMA”) approved the Company’s application for the offering of 6,000,000 shares (the “Offer Shares”), representing 30% of the Company’s issued share capital, by way of a sale of existing shares by selling shareholders. The final offer price of the Offer Shares will be determined at the end of the book-building period, which will commence on Sunday 14 January 2024 until Thursday 18 January 2024.

Offering overview

• The Shares will be listed on the Saudi Exchange’s Main Market following the completion of the IPO and listing formalities with the CMA and the Saudi Exchange.

• The IPO of Avalon Pharma consists of an offer of 6,000,000 ordinary shares, representing 30% of the Company’s issued share capital of 20,000,000 shares.

• The Offer Shares will be offered for subscription to Participating Parties and Individual Investors. The number of Offer Shares to be initially allocated to Participating Parties is 6,000,000 Offer Shares representing 100% of the total Offer Shares. In the event that there is sufficient demand by Individual Investors, the number of shares initially allocated to Participating Parties will be reduced to 5,400,000 shares, representing 90% of the total Offer Shares.

• The final Offer Price will be determined at the end of the book-building process, and before the beginning of the subscription period for Individual Investors.

Company Overview

• Avalon Pharma is a Saudi joint-stock company that began operations in 1998. The Company’s main business activities are the development, manufacturing, and marketing of a wide range of unique consumer health and beauty brands as well as generic prescription medicines.

• Headquartered in Riyadh, Saudi Arabia, the Company exports its products to over 10 countries across the Middle East and North Africa and is one of the fastest growing consumer pharma companies in Saudi Arabia.

• With over 70 brands and 250 SKUs, Avalon Pharma offers a wide range of product categories, with special focus on dermatologicals, respiratory, neurology, and musculoskeletal.

• Avalon Pharma is the market leader in the market of dermatological products, medicines and skin care products, a fast-growing category in Saudi Arabia, with an 8.9% market share.

• Avalon Pharma is one of the top four manufacturers in Respiratory therapeutic category, with a 9.1% market share.

• The Company has a large manufacturing capacity of over 5,000 square metres as well as a warehouse network across Saudi Arabia, with three manufacturing and R&D facilities and four warehouses within the Kingdom.

• The Company recently completed a major expansion by doubling its manufacturing capacity which is expected to start production by the second quarter of 2024.

• Avalon Pharma has a clear 2027 growth strategy to introduce new product ranges to target additional sub-segments of the Company’s key therapeutic categories and manufacture different forms of complex and high-tech medications such as Oncology & General Injectables.

• The Company intends to expand its export market, a fast-growing channel for Avalon Pharma, including the introduction of new sub-distribution partnerships in key countries.

Commenting on the Intention to Float, Ahmed Tabbaa, Founder and Chairman of Avalon Pharma said:

“When I look back on the journey of our business over the last 25 years, I am delighted with the progress that we have made in becoming a leading consumer pharmaceutical company in the Kingdom of Saudi Arabia. We are a true success story within the Kingdom, having developed and expanded significantly during this time, venturing into new areas and products as we have adapted to, and anticipated, market demand. In listing on the Saudi Exchange, we are now able to capture future growth and provide an opportunity for a greater number of stakeholders to share in our success.”

Mohammed Maher AlGhannam, MD & CEO of Avalon Pharma, added:

“Since its foundation, the Company has built a reputation through the quality of its products and as one of the fastest growing pharmaceutical companies in Saudi Arabia. The market within the Kingdom is changing rapidly and we are well placed to capture future growth across the region as we have shown over the years through our ability to address the market needs.”

KEY INVESTMENT HIGHLIGHTS

1. Favourable market dynamics and regulatory framework

• The total medicine and medical supplements sector in KSA are anticipated to increase at a CAGR of 5% to reach SAR44 billion during by 2027.[1]KSA has a young, growing population, many of whom are consumers within Avalon Pharma’s current and target segments including skin care and other derma, hair-loss, topical analgesic, and oral care.
• The Saudi pharma market currently relies heavily on imports, however through Vision 2030, the Government is targeting to increase the share of local production to 40%.
• The Government in KSA is encouraging the development and use of generics, which directly benefits consumers from a cost perspective as well as encouraging growth in local manufacturing.

1. A leading manufacturer in KSA, with a proven track record of launching leading products

• The Company is the market leader in dermatological category, a fast-growing category in Saudi Arabia, with an 8.9% market share1. The recent growth in dermatologicals in Saudi Arabia was fuelled by an increasing demand for aesthetic products, growing number of healthcare professionals treating dermatological diseases as well as increasing access to dermatologists in rural areas.
• Avalon Pharma is one of the top four manufacturers in Respiratory therapeutic category, with a 9.1% market share.1 Over the last three years, the category grew at a CAGR of 4.9% between 2018 and 2022, reaching SAR 3.1 billion in 20221.
• Over the years, Avalon Pharma has demonstrated a proven track record of launching leading products and consumer brands in other therapeutic categories including PRILA and AVOCAINE in local anesthetics, AvalonActiv, a topical analgesic and AVOHEX mouthwash.
• Avalon Pharma’s focus on consumer pharmaceuticals is a differentiator compared with its competitors, which are facing price pressure on their branded generic products. Avalon Pharma has a current manufacturing capacity for 41 million creams, 3 million cosmetics, 15 million antiseptics, 35 million oral solids, and 30 million pharma products.

1. Comprehensive geographical and distribution channels reach

• Avalon Pharma has a strong network including large retailers, pharmacy chains, international sub-distributors and tenders.
• Avalon Pharma enjoys a widespread retail distribution network across all distribution channels in Saudi Arabia, across major cities including Riyadh, Madinah, Qasim, Jeddah and Dammam.
• The Company’s public tender business has been growing in recent years, underscoring the Saudi Government’s preference for local pharmaceutical manufacturers. Since 2019, Avalon Pharma has submitted 160+ public tender bids, with a 45% win rate and a total value of SAR 133 million.
• Avalon Pharma’s main government client is NUPCO, the leading company in Saudi Arabia in procurement, logistics and supply chain management for pharmaceutical, medical devices and supplies for governmental hospitals.
• Avalon Pharma exports outside of the Kingdom of Saudi Arabia to over 10 countries, through a network of sub-distributors, including Kuwait, UAE, Jordan, Iraq, Yemen, Bahrain, Lebanon, Egypt, Sudan, and Libya.

1. Strong leadership and experienced management team

• The Company has a seasoned management team with strong operational, technical, and financial expertise, and a long-term commitment to the group.
• In recent years, the Company has worked on its corporate governance frameworks, and has adopted best practice policies and governance charters resulting in an independent and professional management team with defined roles and responsibilities.
• The Group employs 541 employees, of which 30% are dedicated to the sales and marketing function and 28% to the manufacturing function.

1. Consistent revenue growth, high profit margins and healthy balance sheet

• Avalon Pharma is one of the leading players in the medicines and medicinal supplement market in Saudi Arabia, with a total net revenue of SAR276.67 million in 2022.
• As one of the fastest growing pharmaceutical manufacturers in Saudi Arabia, Avalon Pharma grew at a revenue CAGR of 9% from 2019-2022.
• The Company experienced exceptionally high revenue in 2020, due to the increasing demand of antiseptic products to fight Covid-19.
• Customers within the retail channel, which includes pharmacy chains, hospitals, independent pharmacies, polyclinics, subagents, and hypermarkets account for 69% of Group revenue.
• Avalon Pharma enjoys strong profit margins across all channels, with consistent EBITDA and Net Income margins of 30% and 23-24% respectively between 2019-2021.

1. Solid growth prospects, underpinned by clear strategic vision

• Headquartered in Riyadh, Avalon Pharma has 3 well equipped manufacturing and R&D facilities covering a wide spectrum of pharmaceutical product administrations. The combined facilities are over 5,000 square metres and are further supported by 1 owned central warehouse and 3 further storage facilities throughout the Kingdom.

• The Company’s manufacturing and R&D facilities cover a wide spectrum of pharmaceutical products, at each distinct facility:

  • Avalon 1: Manufactures topical preparations, oral tablets and capsules
  • Avalon 2: Fully equipped R&D center, manufacturing creams and pharma products
  • Avalon 3: Produces disinfectants, sanitizers, mouthwashes, and large volume hygiene products

• The Company has a clear vision to become a leading consumer healthcare company in Saudi Arabia and the Arabian Gulf, by:

  • Introducing new products within current key therapeutic categories
  • Expanding the offering of existing flagship brands
  • Introducing niche products in select secondary categories
  • Increasing production capacity in the future
  • Increase territorial coverage in Saudi Arabia and deepen relationships
  • Increase the tender business
  • Expand the fast-growing export business

BACKGROUND TO THE OFFERING

• With respect to the Offering, the Company has appointed Aldukheil Financial Group “Aldukheil” to act as Financial Advisor and Bookrunner (“Financial Advisor and Bookrunner”).

• Alinma Investment has been appointed as Lead Manager (“Lead Manager”), and Alinma Bank and SNB have been appointed as receiving agents (collectively, the “Receiving Agents”).

• The CMA and Saudi Exchange approvals have been obtained for the offering and listing as outlined below:

• Avalon Pharma to register its shares and offer of 6,000,000 Ordinary Shares representing 30% of the Company’s issued share capital of 20,000,000 shares by way of a sale by the current shareholders.

• The Shares will be listed on the Main Market of the Saudi Exchange following the completion of the Offering and listing formalities with the CMA and Saudi Exchange.

• The Current Shareholders are subject to a lock-up period of six months, which will begin from commencement of trading of the Shares on the Saudi Exchange.

The Offer Shares will be offered for subscription to two tranches of investors:

Tranche A: Participating Parties: this tranche comprises of investors eligible to participate in the book-building process in accordance with instructions for Book-building Process and Allocation Method in Initial Public Offerings as issued by the Capital Market Authority (“CMA”). The number of shares to be provisionally allocated to the Participating Parties is 6,000,000 shares, representing 100% of the total number of Offer Shares. The final allocation will take place after the end of the Individual Investors’ (as defined in Tranche B below) subscription period. In case of sufficient demand and in the case that Individual Investors subscribe to all of the Offer Shares allocated thereto, the Bookrunner shall have the right to reduce the number of Offer Shares allocated to Participating Parties to a minimum of 5,400,000 shares, representing ninety percent 90% of the total Offer Shares. The number and percentage of the Offer Shares allocated to the Participating Parties shall be determined by the Financial Advisor in consultation with the Company, using the discretionary allocation mechanism.

Tranche B: Individual Investors: this tranche comprises of Saudi Arabian natural persons, including Saudi female divorcees or widows with minor children from a marriage to a non-Saudi person who can subscribe for her own benefit or for the benefit of her minor children, provided she proves that she is divorced or widowed and the mother of her minor children, as well as any non-Saudi natural person residing in the Kingdom, or citizens of GCC states who have a bank account with one of the Receiving Agents and are entitled to open an investment account with a Capital Market Institution. Any subscription of a person for the benefit of their divorcee shall be deemed null and void and if it is proven that a transaction of this nature has occurred, the law shall be applied against the applicant. If a duplicate subscription is made, only one of the subscriptions will be considered. A maximum of 600,000 Offer Shares shall be allocated to Individual Investors, equivalent to 10% of the total Offer Shares. If Individual Investors do not subscribe to the full number of Offer Shares allocated thereto, the Bookrunner has the right to reduce the number of shares allocated to Individual Investors in accordance with the number of shares subscribed for by them.