Decisions that cost something first

Bidding at full cost in Vietnam's 2021 procurement round

In 2021 Vietnam ran a central procurement round for a list of high-volume generic medicines. Nine of its lots had been supplied for several years by our Binh Duong plant: metformin, amlodipine, losartan and six other oral solids, worth about S$46 million a year and roughly 40 per cent of the plant's output. We expected new bidders to come in 30 to 40 per cent below the previous round's prices.

Tran Minh Khoa, who led our Vietnam business, proposed bidding at variable cost on all nine lots. His argument was serious. Binh Duong's fixed costs would not fall if we lost the volume, losing lots would idle a shift, and hospitals that switched supplier might not come back. Our chief financial officer agreed with him. I did not. At variable cost we would have committed the plant for two years to supply that paid for none of its laboratory, its maintenance or the registrations behind each product, and the losses would have arrived as quiet cuts in exactly those places.

I asked the bid committee to price every lot at full cost plus a 6 per cent margin. We won three and lost six, about S$31 million of annual revenue, and Binh Duong's volume fell 24 per cent in 2022. We did not renew 90 temporary contracts. We moved capacity to Vietnam's private pharmacy channel, to exports for Cambodia and the Philippines, and to contract manufacturing for a Japanese consumer-health company, which together replaced about S$22 million of the lost revenue within eighteen months.

Within a year two of the winning suppliers had fallen behind on deliveries in four lots, and hospitals bought the shortfall through local procurement, much of it from us at prices close to the old ones. Vietnam revenue was S$128 million in 2023 and S$142 million in 2025, and Binh Duong's EBITDA margin has held near 15 per cent. One lot, amlodipine, never came back.

The board then made the floor standing policy; there have been four written exceptions since.

I would change the order of explanation. Our sales teams learnt the policy from the result, and two senior hospital account managers resigned believing we had abandoned their customers. I would explain the floor, and why, to the people who face the hospitals before the bids go in.

Buying PT Sindhara Farmasi and leaving its licences in Indonesia

By 2021 Indonesia was the largest market in the region in which Lumaren barely sold. Its national health insurance scheme buys a large share of the country's generic medicines, public procurement scores local manufacture, and in practice the country expects most medicines sold there to be made there. Exporting from Johor would never have given us more than a niche. In 2022 we agreed to buy 92 per cent of PT Sindhara Farmasi, a family-owned manufacturer in Cikarang with revenue of about Rp 2.1 trillion, roughly S$188 million, and about 310 registered products. The enterprise value was S$365 million, funded by a S$220 million term loan and new equity from the family and Calderwick in proportion to their holdings. The selling family, the Kusumawardhanis, kept 8 per cent.

Our investment paper assumed S$24 million of annual savings by the second year: Sindhara on our enterprise system within twelve months, 280 roles removed, and about forty of its products moved to Pasir Gudang to fill spare capacity. Gideon Fairlow, one of Calderwick's directors on our board, wanted that plan delivered as written. After completion I recommended abandoning its largest element. Moving Indonesian products to a Malaysian plant would have meant fresh registrations as imported medicines, a weaker position in public purchasing and, for some products, no realistic route at all.

We reversed the flow. Sindhara kept its president director, Retno Kusumawardhani, and her management team, and its registrations stayed with the Indonesian company. We moved 22 Lumaren products into Cikarang, each registered as a locally made medicine, and postponed the enterprise system by eighteen months so that the two quality systems were aligned first. We gave up about S$9 million of savings over the first two years.

By 2025 Sindhara's revenue was S$236 million. Eighteen of the 22 transferred products had been approved and listed for public purchase, and annual savings had reached S$15 million rather than S$24 million. We lost three of 41 senior managers.

I would change the price, not the plan. We paid for synergies that only a regulator could release. I should have proposed part of the price as deferred consideration, payable as the transferred products were approved, so that the sellers shared a timetable risk we carried alone.

Closing the founder's first factory instead of rebuilding it

Seah Kim Hock opened Lumaren's first factory in Jurong in 1983. By 2020 it made 74 liquid and cream products for eight markets, employed 140 people, many with more than twenty years' service, and was the oldest site in our network. A Health Sciences Authority inspection that year accepted the site but recorded major observations on the water system and on the layout of shared production areas, which had grown piece by piece over four decades. We had to decide how to answer them.

Our engineers costed two routes. Rebuilding in place would cost S$48 million and require partial shutdowns over about two years. Transferring the products to a new liquids and creams suite at Pasir Gudang would cost S$21 million, but each product would need a change of manufacturing site approved in every market where it was registered: about 420 variation filings across eight regulators. The chairman wanted to rebuild. It was his first factory, and its people had built the company with him. Seah Hui Wen, who represents the family on our board, and Calderwick's two directors favoured the transfer. I recommended it as well, and asked the board to decide only after the chairman and I had walked the site together and met the longest-serving staff.

The board approved the transfer in early 2021. Every Jurong employee was offered a role at our Singapore office, at the Johor plant, or at the regional warehouse and quality-control laboratory we kept on part of the Jurong site. Sixty-one accepted, 52 took enhanced severance and 27 retired. The chairman announced the closure himself, in his own words.

Sixty-eight products had been approved for Pasir Gudang by the end of 2023. We dropped six, worth S$3.8 million a year, where variations in small markets would never have paid back. The unit cost of liquids and creams fell by 19 per cent, and the Jurong water system has left our risk register.

I would have made the stability batches earlier. Several regulators wanted data from batches made at the new site before approving the change, and that added five months we could have saved by manufacturing those batches while the filings were still being drafted.

Separating the family council from the board

When I became chief executive in 2019, the Seah family's role in Lumaren was settled mostly by habit. The founder was executive chairman. Seven family members worked in the company, three in roles created for them. Family directors and managers sometimes gave instructions to my colleagues without telling me, and those colleagues reasonably assumed that a Seah outranked me. The founder's son, Seah Jun Kiat, managing director of our Malaysian business, had been told years earlier that he would one day run the group. Calderwick's shareholder agreement, meanwhile, gave the investor consent rights over any appointment of a chief executive. At least three parties believed the choice of my successor was theirs.

In 2020 I proposed three changes: a family charter describing how the family would act as owners, a family council separate from the board, and a rule that any family member joining the company must meet the criteria an outside candidate would face, including three years' experience elsewhere. I also proposed that the founder become non-executive chairman, and that a Nominating and Remuneration Committee chaired by an independent director run succession, considering family candidates on the same terms as anyone else.

Jun Kiat opposed the employment rule and told me he read it as a way of blocking him. Gideon Fairlow, for Calderwick, wanted to go further and remove family members from the board altogether. I disagreed with him, because the family's long horizon is one of our advantages. For my part, I accepted a fixed-term contract running to December 2027 and a written succession plan naming internal candidates, Jun Kiat among them.

Eleven family members signed the charter in 2021, and Seah Hui Wen chairs the family council. The founder became non-executive chairman in October 2021. Jun Kiat now leads our consumer-health division, created in 2022, which earned S$64 million in 2025, under a development plan the committee reviews each year. Two family members left the company; one has since returned after three years elsewhere.

I wrote the first draft of the charter myself, and that was a mistake. A family's charter drafted by its hired chief executive looks like a manager protecting his position, whatever it says. I would bring in an independent facilitator from the first meeting.