Umuthi is a revolutionary healthcare group which combines healthcare and technology in a seamless platform which has been developed by its experienced management team over the past 10 years. This MedTech model is exciting in terms of market trends and leading-edge technology.
Umuthi currently has its main operations in South Africa but is looking to expand organically and by way of acquisition in the regions of Africa and Europe. This is possible due to the low-risk business model being ideal for the current global environment caused by the COVID-19 pandemic.
Whilst operating in a highly regulated environment and as a result of South Africa having clusters of highly developed cities and expansive rural areas, general practitioners (“GP’s) are required to dispense medicines from their consulting rooms. Large pharmaceutical companies are not permitted to transact with client’s directly, therein giving an opportunity for companies such as Umuthi to provide the warehousing and distribution capabilities to client’s.
Objectives & Business Strategy
In 2010 the directors, identified what he believed to be a gap in the market pertaining to the healthcare industry whereby general practitioners and specialists’ consultants in South Africa required assistance with practice management and other financial aspects of their practices.
They established V Professional Services to provide these practice management and financial services, having worked closely with medical practitioners for a number of years, he then became aware of the requirements of such practitioners for a reliable and efficient supply of pharmaceutical products. The directors formed Lems to meet this need.
Lems, which commenced trading in January 2017 and was acquired by Umuthi in January 2019 pursuant to the Share Exchange Agreements, supplies prescription and other medicines to medical practitioners and health centres with onsite dispensaries in rural and non-rural areas of South Africa.
Lems has purchase arrangements with two established pharmaceutical manufacturers and links with networks of clients across South Africa via the VProf Contract and V Professional Services.
The Directors believe that the Group’s strategy reflects anticipated changes to medical environments. Already, a growing number of inpatient health care services are being pushed to the home and outpatient ambulatory facilities; however, many complex and very ill patients will continue to need sub-acute (step down) inpatient services. With ageing infrastructure in some countries and demand for more beds in others, the Group plans to develop its business with a view to improving inpatient and outpatient service connections with consumers and integrating digital technologies into traditional hospital services.
The Group’s aim is to have four principal business segments, which will be:
Current & Proposed Activities
The Group comprises a technology enabled healthcare business, which is principally undertaken by Lems, which delivers medical products to medical practitioners in South Africa. The Group has also entered into certain conditional agreements or letters of intent with third parties with the aim of developing a portfolio of medical centres and offering a range of related services.
The main operating subsidiary, Lems, incorporated in South Africa, supplies prescription and other medicines (known under South African regulations as “schedule 1-6 medicines”) to medical practitioners and health centres with onsite dispensaries in rural and non-rural areas of South Africa. Lems has purchase arrangements with two established pharmaceutical manufacturers and links with networks of clients across the country via the VProf Contract and V Professional Services
The Directors have, among other things, relevant experience in the supply and distribution of pharmaceutical products and medicines in South Africa as well as in pharmaceutical licensing. The business is not subject to seasonal risks and the Directors believe that there will always be the requirement for medical facilities and suppliers of medicines for healthcare professionals.
Under the terms of the VProf Contract, V Professional Services is obligated to give the Group access to its internal database of clients and medical practitioners, refer clients and medical practitioners to the Group and provide relevant sales leads. In addition, V Professional Services will advertise the Group’s services and make the Lems App available on its website.
Supplying pharmaceutical retailers
Lems supplies prescription and other medicines (known as MCC “schedule 1-6” medicines) to medical practitioners and health centres with onsite dispensaries in South Africa. Any medicine classified as schedule 3 or higher is treated as a prescription medicine. Lems purchases medicines from two established pharmaceutical manufacturers (Adcock Ingram and Aspen) and has links with networks of clients across South Africa. Lems leases and operates from a 550 square metre warehouse near Johannesburg, South Africa.
Lems and other medical wholesalers do not compete on price as standard prices for medicines are set by the South African government. Lems therefore makes a set mark-up on each product sold. The gross margin made by Lems on products averages 20%. As a result, quick and efficient product delivery allows Lems to distinguish itself from the competition and reduce costs.
Lems operates in a captive, determinable market where there is a standard confirmed average spend per customer, no seasonal risks and where sales prices are governed by law. This ensures a clear, scalable model for continuous earnings and growth.
Lems, as a result of the VProf Contract and its association with V Professional Services, has access to the medical professionals recognised by this SAMA. Lems therefore benefits from SAMA’s extensive network and the marketing benefits and opportunities that accompany this.
Lems plans to utilise the Lems App which has been designed to enhance its product delivery offering by providing its product catalogue online to customers and enabling them to view their order status and track deliveries. The Lems App is a healthcare platform which combines up to date infrastructure and software with professional medical and laboratory devices. The Lems App was developed by V Professional Services for and on behalf of Lems and V Professional Services assigned all rights and title to Lems along with all future profits to be generated as a result of the utilisation of the Lems App.
This app bypasses traditional distributors and trades directly with healthcare suppliers with a direct-to-market solution. The app has standardized fulfilment and distribution services, which are fully integrated with both multi-channel order management and accounts receivable capabilities. Significant development has gone into the app, inter alia to interface with updated medicine lists, updated weekly on the back-end. General practitioners select the required order in app and attend to payment through technology based payment portals. In a manner not dissimilar to food delivery apps, delivery is outsourced to medical courier companies, ensuring the risks and costs of delivery is not borne by Umuthi.
The interactive nature of the app allows for a seamless onboarding procedure of a client or pharmacy. The app will not only work for urban pharmacies and clients but will also cater directly to rural dispensing clients who currently have to drive far distances to the closest dispensing warehouse which is inefficient and reduces the time that can be spent on seeing patients and increasing revenue. The app also includes an interactive monitoring of minimum stock levels in the client’s dispensary. When minimum stock labels are reached, the app will generate a notification to the client of an order to be placed.
Medical wholesalers are unable to compete on price and, by offering the Lems App, the Directors believe the Group will distinguish itself from competitors as well as enhancing cash flow, as all in-app payments are virtually instantaneous.
Whilst the Lems App has already been made available to certain clients of V Professional Services as part of a soft launch, the Company intends to conduct a formal launch shortly after Admission. This formal launch will include the Lems App being made available on the V Professional Services and SAMA websites (in accordance with the terms of the VProf Contract) and will coincide with the conduct of the marketing campaign.
Market and Competitive Environment
Pharmaceutical demand worldwide was estimated at $1.25 trillion in 2019, of which 22% of that was in emerging markets. It is expected that growth in emerging markets will be driven by three primary trends:
Supply chains of drugs and medical supplies are typically complex, with differing regulatory regimes and licensing laws potentially applying at different stages. In addition, visibility in these supply chains is often low, with little to no prior notice of deliveries. In addition, certain drugs require careful handling within temperature-controlled environments to ensure their safety. A breakdown of the supply chain could lead to such medicines being compromised, and therefore lead to a risk that consumers will receive low quality goods, or that the medicines will be unusable and therefore wasted costs.
Within Africa, the population of approximately 800 million (approximately 12% of global population) is estimated to bear a disproportionately high (estimated to be approximately 24%) of the global disease burden. This includes an estimated 22 million people with HIV, which represents approximately 67% of the global figure, and a high infant mortality death, of approximately 50% of global deaths of children under five years old. (source: IMF, World Bank, African Development Bank)
This is thought to be in part due to the difficulties in ensuring that medication and supplies are provided; the World Health Organisation estimates that more than 6.3 million children under the age of five die every year due to conditions that could be prevented or treated with simple, affordable medical care. Access to this medical care is made more difficult by transportation issues, including the “last mile” problem, which the Group’s proposed drone technology could work to overcome.
African economies are growing faster than the economies of all other continents and approximately one third of the countries are seeing annual GDP growth of more than 6% (source: IMF, World Bank, African Development Bank)
In South Africa the standard sale price of pharmaceuticals is fixed by the South African Medicines Control Council.
The Directors believe that the Group excels in pharmaceutical distribution by ensuring the consistent availability of quality medicines and supplies to pharmacies and clients in South Africa, ensuring that the Group is the preferred supplier of its customers. It also has access to a large pool of potential customers through V Professional Services and SAMA.
Access to groups of clients
The Group has a relationship with V Professional Services, a business owned by one of the Directors, Gerhardus Viljoen, which provides the Group with access to a network of medical practitioners in South Africa, being potentially a large customer base.
V Professional Services is a leading independent provider of accounting, administration and practice management services to independent medical practices in South Africa. Lems and V Professional Services have entered into an agreement whereby the V Professional Services will, amongst other things:
Gerhardus Viljoen is essential to the development of the Group and its business plan due to his vision for the Group’s future and the access to medical professionals that the Group is able to exploit by virtue of Gerhardus Viljoen’s ownership of V Professional Services. The Company is considering engaging a senior medical practitioner as a non-executive director to strengthen the Company’s relationship with the medical community, but no agreements have been reached to date.
In terms of the provisions of regulation 19 of the Medicines Act, the licensee must notify the Registrar of Medicines of any changes to any particulars that was furnished in the application or appearing on the license e.g. change in business address, change in Responsible Pharmacist.