Moscow, 1 September, 2010 – JSC Pharmstandard (LSE: PHST LI, RTS: PHST RU) announces its unaudited 1H2010 IFRS results. Net profit of the Company 
for the first six months of 2010 amounted to RUR 2,766 an increase of 7% over 1H2009.

Financial highlights for 1H 2010 includes:
- Revenue growth +15%; total revenue 11,543 mln RUR
- Gross profit growth +6.7%;  gross profit RUR 5,028.7million or 44.5% of total sales
- EBIDTA¹   RUR 3,876 million  or 34% of sales.
- Net profit growth + 7%; net profit RUR 2,765.6 million or 24.0% of total sales.       

Key events of the first half of 2010:

Pharmstandard became №1 among all pharmaceutical companies represented on commercial market in Russia. Market share of Pharmstandard reached 4, 99%² in the first half of 2010.

Arbidol became №1 among all best selling products of retail sales in Russia like in the previous year as before. For the first 6 months of 2010 market share of Arbidol came to 1.38% in the total volume of retail sales through Russia and demonstrating increase in sales for 29%².

In April 2010, the Group acquired 1,090,844 ordinary shares representing 11.38 percent of share capital of the JSC “Grindeks AS” (the “Grindeks”), a company registered under the laws of Republic of Latvia, for cash consideration of EURO 12,210 thousand (RR 481,065).

In February 2010, «NauchTechStroy+» LLC («NTS+») was registered in the Russian Federation as a joint venture, Pharmstandard holds 50% interest in NTS+. Main purpose of "NTS +" is to build and launch into operation a research and development center  in Vladimir region of Russia specialized in bioengineering medical products and universal diagnostic researches. 

As of 30.06.10 the sum total of the investments of company Pharmstandard into this project amount 
240 mln RUR, of which 150 mln RUR introduced as contribution to charter capital of «NTS+».

Performance

The table below introduces an overview of the Company’s performance, comparing the key figures for the 6 month ended 30 June, 2010 and 2009, in absolute values and percentage to sales.

Third parties products include sales of branded pharmaceutical products manufactured by other pharmaceutical companies. The purpose of such analytics is a more detailed reflection of specific business features. It should be noted that such a portfolio structuring principle has no effect on the results of sales of pharmaceutical products.

Sales of products

The Сompany’s core business is production and wholesale of pharmaceutical products,  API  and  medical equipment and disposables. Sales of pharmaceutical products and medical equipment and disposables accounted for  97.8% and 2.2% of the total sales, respectively. Pharmaceutical products and medical equipment and disposables are mainly sold under direct delivery contracts with wholesale distributors and/or medical institutions. For the 6 months 2010,  total sales amounted to RUR 11,543.4 million, which is 14.7% above the corresponding period of 2009 figure (RUR 10,061.9 million).

Pharmstandard successfully registered prices of 86 pharmaceuticals products, which are included  in the list of vital and essential drugs (VED) in accordance to the adoption of the Prescript of the Government of Russian Federation dated 08.08.2009 N 654 "On improvement of State regulation of prices of vitally necessary and most important drugs".  Sales of VED products for the 6 months 2010 amounted to RUR 6 485.0 mln, or 56.2% of  the Company`s total sales.

For the 6 months 2010 total sales of pharmaceutical products increased by 15.4%, organic sales increased by 13.6%. 

For the 6 months 2010  sales of third parties products amounted to RUR 3,956.3 million or 35.0% of the Company’s  pharma sales in comparison to  RUR 3,333.6 million or 34.1% for the same period of the 2009. Of all third parties products sales 91.1% related to Velcade®, Coagil VII, Mildronate® and Pulmozyme^® .

The substantial change appeared in the main point of cooperation in respect of Velcade®. The Company launched packaging of this product by own facilities since April 2010 . Meanwhile, in 2009, the Company distributed consumption ready Velcade® in Russian Federation. For the 6 months 2010 sales of Velcade ® amounted to RUR1,649.6 million compared to RUR2,278.1 million for the same period of 2009.

Pharmaceutical products (excluding TPP)

Sales of ОТС products  increased by RUR 254.7 million or 4.7% from RUR 5,422.2 million for the half-year 2009 to RUR 5,676.6 million for the 6 months 2010. Sales of the leading products were: Arbidol® RUR 1,610.2 million,  Pentalgin® RUR876.9 million, Complivit® RUR471.6 million, Flucostat® RUR301.3 million, Afobazol® RUR244.2 million and Amixin® RUR221.1 million.
The sales growth of OTC drugs is mainly provided by the best selling cough and cold products and vitamins. Higher revenues in the pharmaceutical segment are usually expected in cold seasons of th e year when flu and cold epidemics are most prevalent.

Sales of prescription drugs (Rx) increased by RUR598.1million or 60.4%, from RUR990.0 million for the 6 months 2009 to RUR1,588.1 million for the 6 months 2010.  The best selling products of this category were Phosfphogliv® RUR318.4 million,  Rastan® RUR301.0 million, Biosulin® RUR160.7 million, Combilipen®RUR116.9 million,  Cocarboxylase Hydrochloride RUR110.8 million.

Medical equipment and  disposables

Sales of medical equipment and disposables declined by RUR 21.5 million (7.9%) from UR273.3 million for the 6 months  2009 to RUR251.8 million for the 6 months 2010. Such decline in sales was caused by cuts in budget financing of state medical institutions that are primary consumers of products manufactured by Tyumen Medical Equipment and Instruments Plant (TZMOI). 

Cost of Sales

Cost of sales grew by RUR1,163.0 million (22.0%) from RUR5,287.2 million for the 6 months 2009 to RUR6,450 million for the 6 months 2010.

The considerable rise in cost of sales was due to the increased costs for materials and components from RUR1,685.8 million for the 6 months 2009  to RUR 2,458.0 million for the 6 months 2010 (45.8%). This resulted from increase in API prices and also from increase of production.

The ‘organic’ changes in sales and cost of sales, excluding third party products sales, can be summarized as follows:

For the 6 months 2010, cost of sales excluding of  TPP in relation to the respective sales  was 42.6% which is 6.2% higher than the corresponding 2009 figure primarily due to increase in costs for  materials and components   resulted from the higher API  currency- prices  and  from devaluation of the Russian Ruble against US dollar and Euro.  

Since the time period between purchases of API and sales of finished goods  is 3-4 months on the average, we should like to note that the prime costs of products sold in the first half of 2010 reflect the effect of cheaper raw materials purchased in 2008 as reserve. The  2010 cost of sales included API  purchased in 2009 and 2010 at higher prices, because of increase in prices denominated in foreign currencies and of changes of foreign currency exchange rates due to  the global financial crisis.

Also, cost of sales of  TPP  increased by RUR 382.6 million or 13.5%, from RUR2,837.3 million for the 6 months 2009 to RUR3,219.9 million for the 6 months  2010  due to the growth sales of TPP.

The table below shows separately the changes in revenues and cost of sales of third parties products.

Gross Profit

For the 6 months  2010 the Company`s gross profit increased by RUR318.5 million or 6.7% from RUR 4,774.7 million to  RUR5,093.2 million. In relation to sales total gross profit decreased from 47.5% for  the 6 months 2009 to 44.1% for the 6 months 2010. 

For the 6 months 2010 gross profit of Company`s pharmaceutical products segment  was RUR 5,028.7million or 44.5% of pharmaceutical sales in comparison to RUR4,710.0 million or 49% for the same period of 2009.

A review of the Company’s sales of own products (i.e. excluding third parties products sales) shows that gross profit for the 6 month 2010 is RUR4,356.7 million, which is higher than the same period of 2009 RUR4,278.4 million by RUR78.3 million, or 1.8%.

Gross profit from the Company’s sales of own products decreased from 63.6%  for the 6 month 2009 to 57.4%  for the same period of 2010 primarily due to change in cost structure as mentioned above.

In relation to sales of TPP gross profit of this category increased by 3.7%from 14.9% for the 6 months 2009 to 18.6% for the 6 months 2010.

For the 6 months 2010 in medical equipment and disposables segment gross profit amounted to RUR64.5 million, or 25.6% of this segment sales as related to the figures RUR 64.2 million or 23.5% for the same period of 2009.

Operating Expenses

Operating expenses (S&D and G&A) increased by RUR319.7 million (25.3%) from RUR 1,264.3 million for the 6 months 2009 to RUR 1,584.0 million for the 6 months 2010. In relation to sales the operating expenses increased from 12.6% for the 6 months 2009 to 13.7% for the 6 months 2010.

Growth of this figure can be explained  by the marketing activity expansion, in particular, by an increase of  advertising expenses. Also,  growth of operating  expenses was due to  an increase in headcount of medical representatives  and an overall increase in payroll rates to administrative personnel .

An increase the operating expenses in relation to sales for the 6 months 2010  compared to the operating expenses for the same period of previous year can be explained by the policy of cost containment in the context of unstable situation on the market caused by the global financial crisis.

Selling and distribution costs (S&D) show a growth of RUR 225.6 million, or 23.9% against the same period of 2009 and amounted to RUR1,168.8 million for 6 months 2010 in comparison to RUR943.2 million for the 6 months 2009.   In relation to sales these figures are  10.1% and 9.4%, respectively . 

The organic S&D (i.e. excluding TPP expenses) in relation to the respective sales increased from 13.0% for the 6 months 2009 to 14.2% for the 6 months 2010.

Marketing, advertising and promotion expenses accounted for 46.1% of the total S&D costs, amounting to RUR 538.5 million, which exceeded the same period of previous year amount (RUR 441.3 million) by RUR 97.2 million (22.0%). In relation to the total sales S&D expenses increased from 4.4% for the 6 months 2009 to 4.7% for the 6 months 2010.

Other S&D expenses increased by RUR28.3 million or 12.6% and achieved RUR253.3million (21.7% of total S&D costs). This change was mainly due to increase in personnel trainings, consulting services, certification expenses and rent.   

General and administrative expenses (G&A)  increased by RUR 94.1 million, or 29.3%  from RUR321.1 million for 6 months 2009  to RUR415.2 million for the 6 months 2010.   In relation to total sales G&A expenses increased from 3.2% to 3.6%. 
The organic G&A expenses  in relation to the respective  sales increased from 4.3% for the 6 months 2009 to 4.8% for the 6 months 2010. This increase was primarily due to increase in headcount and payroll rates.

Labor costs accounted for 64.9%of the total G&A expenses, amounting to RUR269.5 million, which exceeded the same period of previous year amount (RUR202.5 million) by RUR67.0 million (33.10%).  It can be explained by an increase in headcount of administrative personnel and an overall increase in payroll rates.

Materials and maintenance expenses show a growth from RUR 25.6 million for the 6 months 2009 to RUR 36.3 million for the same period of 2010 due to an increase of administrative facilities.

Operating Profit

For the 6 month 2010 the operation profit has remained at the same level and amounted to RUR 3.509,2 millions  in comparison to RUR3,510.4 million for the 6 months 2009.  In relation to the total sales our operation profit decreased from 34.9% for the 6 month 2009 to 30.4% for the same period of 2010.

In relation to respective sales organic operating profit (excluding TPP)  accounted for 38.5% for the 6 months 2010 against 46.3% for the similar period of 2009.

We attribute this decrease in profitability mainly to an increase of material and components costs caused by the increase in API costs, to the changes in cost structure, to an  increase  of operating expenses, in particular, of  advertising costs, to  an  increase in headcount and an  increase in payroll rates.

OTHER EXPENSES 

For  the 6 months  2010, other expenses amounted to RUR 112.4 million compared to RUR 186.0  million for the 6 months  2009. This change is primarily explained by the reduction in exchange loss by RUR 212.2 due to stabilization of the Ruble to US$ exchange rate. In 2010, the Company also incurred certain expenditures on financing construction of various objects in new joint venture “NTS+”presented as other expenses in an amount of RUR48.5 million.

FINANCIAL INCOME AND FINANCIAL EXPENSE

Our financial expense decreased by RUR65.3million (70.3%) from RUR 92.9 million for the 6 month 2009 to RUR 27.6 million for the 6 month 2010. This decrease results primarily from decrease in the balance of the Citibank loan in accordance with its repayment schedule. Financial income growth for the 6 months 2010 by  RUR 76.8 million. This increase was due to the increase in interest income from cash deposits and also due to 2010 gain from change in fair value of interest rate swap.

INCOME TAX EXPENSE

The Company’s tax expenses for the 6 months 2010  were equal to RUR 723.4 million and effective tax rate was 20.7% as compared to RUR 686.5 million and 21.0%, respectively, for the same period of  2009.

Profit for the year

The Company’s profit for the period  grew by RUR 177.6  million (7%) from RUR 2,588.0 million for the 6 months 2009 to RUR 2,765.6  million for the 6 months 2010. In relation to total sales these figures were 25.7% and 24.0% for the respective periods. For the 6 months 2010, profit for the period attributable to the equity holders of the Parent of the Company was RUR 2,762.3 million. Earnings per share attributable to the equity holders of the Company increased by 4.6 Russian Rubles from 68.4 Russian Rubles for the 6 months 2009 to73.0 Russian Rubles for the 6 months 2010.

1. Excluding foreign exchange gain or loss
2. Source: “Pharmexpert” Market Research Centre (MRC) analytical research INPHARMACIA 7-8 (83)2010

Conference Call

Pharmstandard is pleased to invite the investment community to a results conference call with the management of the company followed by a Q&A session.

Wednesday, September 1, 2010

09:00 New York

14:00 London

17:00 Moscow

International Call-in Number:  +44 (0)20 7162 0025

US Call-in Number: +1 334 323 6201

Conference call participants can register in advance using the link below:

https://eventreg1.conferencing.com/webportal3/reg.html?Acc=097741&Conf=174424

We recommend that participants start dialling in 5-10 minutes prior to ensure a timely start to the conference call.

Pharmstandard will be represented by:

Igor Krylov, CEO

Elena Arkhangelskaya, CFO

Ilya Krylov, IR

Conference call presentation will be available on Wednesday, 1 September 2010 on Company’s web-site: http://www.pharmstd.ru/investors_en/investor/p2/

The conference call replay will be available through 6 September, 2010

International Replay Number: +44 (0) 20 7031 4064

Replay Access Code: 874225

Contacts:

JSC Pharmstandard

Ilya Krylov

Tel: +7 495 970 0030 ext 2416

E-mail: ir@pharmstd.ru

www.pharmstd.ru

***

Pharmstandard is the leader of Russian pharmaceutical industry in R&D and production of the medicinal products. The Company is the leader measured by sales in the whole Russian pharmaceutical market in the year 2009. Since 2007 Pharmstandard keeps its leading position in commercial segment and remains strong leader among the domestic pharmaceutical company-manufacturers, having increased it’s market share from 18,9% in 2008 up to 20%¹ in 2009. During the tenth anniversary of «Platinum Ounce 2009», the open competition among professionals of pharma business, Pharmstandard was awarded in the nominations for «The Company of the Year - the Russian pharmaceutical products manufacturer» and «The Company of Decade - the Russian pharmaceutical products manufacturer».

Pharmstandard operates three modern pharmaceutical manufacturing facilities: JSC “Pharmstandard-Leksredstva” in Kursk, JSC “Pharmstandard-UfaVITA” in Ufa, JSC “Pharmstandard-Tomskhimpharm“  in Tomsk and medical equipment factory JSC “TZMOI” in Tyumen.

The Company has invested approximately RUR 3 billion RUR in modernization and development of production capacities reaching more than 1,35 bln units per year. All the production facilities fully comply with Russian manufacturing standards. Six production lines of JSC «Pharmstandard-Leksredstva» meet EU GMP requirements.

Pharmstandard portfolio includes over 200 products used in the treatment of diabetes, growth hormone deficiency, cardiovascular diseases, gastroenterological and neurological disorders, infectious diseases, cancer, etc. 86 products offered by Pharmstandard are included in the List of Vital and Essential Pharmaceuticals.

Among our market-leading brands are Arbidol®, Complivit®, Pentalgin®, Flucostat®, Phosphogliv®, Amixin® and Afobazol®. Antiviral product «Arbidol» was awarded for «Platinum ounce 2009» in the nominations «OTC Product of the Year» and «OTC Product of Decade». Pentalgin® has been granted “BRAND #1 IN RUSSIA” award for 2009 in analgesics category.

In 2004–2009, we developed and introduced over 40 new pharmaceutical products in close collaboration with the leading scientific centers of Russia.  Pharmstandard is the partner of the joint venture biotechnological project “Generium” in order to develop and manufacture innovative biological products within the state program of import substitution.

Pharmstandard holds 11,3% of shares of the company Grindeks AS, Latvia and keeps strategic partnership on distribution and promotion of Mildronate®.

Pharmstandard became a public company in 2007 by offering to the public 27.6% of its share capital in the form of GDR on the London Stock Exchange (LSE) and 18.1% of its share capital in the form of ordinary shares on two local stock exchanges (RTS, MICEX). Approximately 54.3%of voting shares of OJSC “Pharmstandard” are held by “Augment Investments Limited”.             
                                                                                                                                                 

www.pharmstd.ru

1.Pharmexpert (CMR) 2009 market data