From Russia with drugs

Russian pharmaceutical giant Pharmstandard extends global reach with Bever acquisition

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MOSCOW—While Russia's largest pharmaceutical firm,Pharmstandard, is ranked third among 30 leading generic manufacturers inGlobalData's PharmaLeaders in Russia, its presence outside of Europe isvirtually unknown. Pharmaceutical analysts speculate the company's recentannouncement of its intended acquisition of Singapore-based Bever Pharmaceuticalmay be an attempt to use its operations in the high-growth Singapore pharmamarket to launch operations in the rest of Asia and elsewhere.
Pharmstandard held a 3.4-percent share of Russia's$24.9-billion pharmaceutical market last year, putting it behind Swissdrugmaker Novartis AG and French pharma Sanofi. The Bever transaction couldprovide a portal to the Russian market, where foreign drugmakers have beenlimited by the government, according to various sources.
Apparently in a growth mode, Pharmstandard acquired twocompanies in 2012, according to Igor Krylov, CEO, at a press conference on July25. In November 2012, the company acquired Lekko CJSC, a Russian innovationcompany focused on the research, development, production and marketing of high-efficacydrugs, as well as Pharmapark LLC Biomed. Krylov added that first-half salesgrew 2 percent annually, while sales excluding third-party products grew 25percent. Pharmaceutical products and medical equipment accounted for 97.2percent and 2.8 percent of the company's total sales in the first half of 2013,respectively, he says.
On July 5, Pharmstandard's board of directors announced ashareholder meeting to discuss the potential acquisition of 100-percent sharecapital of Bever for $630 million. 
Beverholds exclusive rights for the supply of active pharmaceutical ingredients forthe production of Arbidol and Aphobazolum, two Pharmstandard products, at afixed price.
After the proposed acquisition, the company would decreaseits procurement costs.
Pharmstandard also plans to spin off its business that makesbranded, non-prescription drugs. Shares in the over-the-counter drug unit willbe distributed proportionally to Pharmstandard stockholders. Pharmstandard hasbeen considering selling the over-the-counter unit, which may be valued atabout $2.5 billion. Citigroup Inc. was helping organize the sale process forthe over-the-counter unit.
According to financial analysts, Pharmstandard is minimallyleveraged. Thus, its decision to spin off its over-the-counter businesssegment, rather than selling it, and acquiring Bever, may put some strain onits working capital. The decision is pending a shareholders' meeting slated forSept. 27, after which the company could still opt to sell its over-the-counterbusiness segment, rather than spinning it off.
Pharmstandard develops and manufactures more than 250pharmaceutical products, including drugs for treatment of cardiovasculardiseases, diabetes, growth hormone deficiency, gastroenterological conditions,neurological diseases, contagious diseases, metabolic disorders, cancer andother diseases. The most popular Pharmstandard products today are Arbidol,Complivit, Pentalgin, Flucostat, Phosphoglive, Amixin, Afobazol, Rastan andBiosulin. As of 2004, Pharmstandard developed more than 60 new pharmaceuticalproducts in co-operation with Russia's leading scientific centers. The companyis a member of a joint bioengineering project, Generium, whose main objectiveis "to develop socially significant pharmaceutical products within theframework of the import substitution state program," according to thePharmstandard website.
The company has eight pharmaceutical production plants. Allplants are going to be converted to European GMP standards by 2014, accordingto the schedule approved by the company's management. 

Last year, Pharmstandard's over-the-counter drug sales fell4.5 percent to 14.8 billion rubles ($445 million), accounting for 29 percent ofthe company's revenue. Its sales growth came from the prescription-drug unit,with revenue rising 33 percent.
Pharmstandard's revenue from third-party over-the-counterproducts also climbed 30 percent to 28.3 billion rubles. Global depositaryreceipts fell 1.2 percent to close at $20.10 in London. In addition, Pharmstandardis listed on Moscow's Micex exchange.Little is known about Bever, which does not even have awebsite. Pharmstandard says Bever "develops and produces pharmaceuticalingredients essential for the manufacture of medications."

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