OJSC PHARMSTANDARD REPORTS OUTSTANDING GROWTH IN 1H 2008

Moscow, 27 August, 2008 – Today OJSC Pharmstandard (“Pharmstandard” or the “Company”) published its interim consolidated unaudited IFRS financial statements for the six months ending June 30, 2008 (LSE: PHST LI, RTS: PHST RU). Net profit for the period amounted to RUR1,757 million (US$73[1] million) (1H 2007: RUR 962 million), a 83% increase over 1H 2007.

Other highlights included:

-          Revenue growth of 40%, to RUR 6,198 million (US$259 million)

-          EBITDA margin of 42%[2] to RUR 2,621 million (US$110 million)

-          According to approved plan to acquire minority interests in several subsidiaries, Pharmstandad acquired 5% interest in OJSC “Pharmstandard-Ufavita”, 4% interest in OJSC “Pharmstandard-Octyabr” and 7% interest in OJSC “TZMOI”, resulting in an increase in the Company’s interests in these companies to 99%, 97% and 96%, respectively. Total consideration due for the acquired minority interests was RUR 302,688.

-          Launched 8 new products including Mildronate® preparation in conjunction with Grindex. Sales of Mildronate® in the period was RUR 636 millions, resulting in 14% increase of company’s sales

Commenting on today’s announcement, Igor Krylov, CEO of Pharmstandard said:

“Today’s results showed that Pharmstandard is on the right track in implementing its strategy. Strong sales in our key products together with the launch of eight new products enabled us to grow organically by 26% in first half of the year. Strong growth in revenue and well-managed cost structure increased our EBITDA margin to 42%. 

Being the market leader within the Commercial segment, we are well positioned to take advantage of strong market growth and believe that the outlook for this business is excellent”.

Revenue

Pharmstandard’s sales for the first 6 months of 2008[3] increased by 40% to RUR6,198 million (US$259 million), which represents a gain of RUR1,772 million (US$74 million) compared to RUR4,426 million (US$170 million) reported in first half 2007. Pharmaceutical products sales contributed 92% while medical equipment and disposables sales contributed 8% of total Company sales.

The Company’s sales of pharmaceutical products achieved RUR5 672 million (US$237 million) for the first six months of 2008 and increased by 50% compared to the sales for the same period of 2007,  attributed to the increase in sales of the leading brands of the Company.

The sales of OTC products were RUR4,324 million (US$181 million) and increased by 41% in first half 2008. Increase in OTC products sales generally attributable to increase of sales of the leading OTC branded products such as Arbidol®, Pentalgin®, Complivit®, Flucostat®, Terpincod® and Codelac®.

The Company’s revenue from Prescription products amounted to RUR1,327 million (US$55 million) and increased by 98% compared to the same period of 2007. This increase in Prescription sales was attributed launch of Mildronate® as well as an increase in leading brands sales of Phosphogliv®, Amixin® and Biosulin®. The sales of Mildronate® was RUR636 million (US$26 million) in the first half 2008. The share of Prescription products sales in total pharmaceutical products sales increased from 18% in first half 2007 to 23% in the same period of 2008.

The Company launched 8 new products in the first 6 months of 2008 namely Bloctran®, Influnorm®, Combilipen®, Complivit® ophtalmo, Neipomax®, Neirocomplit®, Octolipen® and Pentalgin® Plus. The sales of the new products in first half 2008 achieved RUR50 million (US$2 million).

The Company reported revenues of RUR526 million (US$22 million) from its medical equipment business, which represents a 19% decline from the prior–year period and generally attributable to the tender sales in first half 2007.

Cost of sales

Cost of sales increased by RUR 657 million (US$27 million) or 35%, to RUR2,548 million (US$106 million) in first six months of 2008 from RUR1,891 million (US$79 million) in the same period a year earlier.

Gross profit

The increase in Pharmstandard’s sales enabled the Company to increase gross profit in first half 2008 by RUR 1,115 million (US$47 million) or 44% to RUR3,650 million (US$153 million) in first six month of 2008 from RUR2,535 million (US$97 million) in the same period a year earlier. As a percentage of revenue, gross profit remained increased to 59% from 57% in first six months of 2007.

Selling and distribution costs

Pharmstandard’s selling and distribution costs were RUR964 million (US$40 million) during the six months ended June 30, 2008, an increase of RUR212 million (US$9 million), or 28% from reported expense of RUR752 million (US$29 million) during the six months ended June 30, 2007.  The increase was due largely to increased advertising costs, as well as increased labour costs due to growing sales force to support a growing portfolio of products. As a percentage of revenue, selling and distribution costs declined to 16% from 17%.

General and administrative expenses

General and administrative expenses were RUR327 million (US$14 million) during the six months ended June 30, 2008, an increase of RUR78 million (US$3 million), or 31% from reported expenses of RUR249 million (US$10 million) during the six months ended June 30, 2007.  The increase was due largely to growing labour costs.  As a percentage of revenue general and administrative expenses decreased by 1 percentage point, from 6% to 5 %, as the Company’s higher revenues allowed for more leveraging of the fixed cost base.

Profit for the period

Profit for the period attributable to the shareholders of the Company increased RUR804 million (US$34 million) or 85% to RUR1,751 million (US$73 million) in 1H 2008 from RUR947 million (US$36 million) in the same period a year earlier. The increase was primarily attributable to the Company’s strong growth in revenue and continued cost effective management of expenses. As a percentage of sales, profit for the period increased to 28% from 22%.

EBITDA[4]

EBITDA increased RUR1,002 million (US$42 million) or 62% to RUR2,621 million (US$110 million) in 1H 2008 from RUR1,619 million (US$62 million) in the same period a year earlier.  As a percentage of revenue, EBITDA increased for 5% and achieved 42% in 1H 2008 due to growth of highly margin branded products sales.

Capital expenditure

In 1H 2008 the Company invested RUR 381 million (US$ 16 million) in property, plant and equipment. These investments were mainly related to production equipment upgrades in Ufa, Kursk and Tomsk.

Market Position

According to Pharmexpert data, Pharmstandard became #2 pharma company overall in Russia by sales value with market share of 4.0% and the leader of the commercial segment in first half of 2008 with market share of 5.3% and 40% growth in revenue for the period. Pharmstandard has 6 brands among top-20 best selling domestic brands in Russia: Arbidol®, Pentalgin®, Complivit®, Terpincod®, Codelac®, Flucostat®. Arbidol® was the largest selling pharmaceutical product, by sales, in the Russian pharmaceutical market with growth rate of 75%, according to Pharmexpert. Arbidol® also has won “Platinovaya Uncia” – a national pharmaceutical award.

The Company’s summary condensed consolidated statement of operations and balance sheet are presented below:

Summary Condensed Consolidated Statement of Operati ons

Summary Condensed Consolidated Balance Sheet

The conference call will take place on:

OJSC “Pharmstandard”
Interim Condensed Consolidated Balance Sheet at 30 June 2008
(in thousands of Russian Roubles)

Interim Condensed Consolidated Statement of Operations 
for the six months ended 30 June 2008
(in thousands of Russian Roubles)

Interim Condensed Consolidated Statement of Cash Flows
for the six months ended 30 June 2008
(in thousands of Russian Roubles)