Moscow, 27 April, 2012 – JSC Pharmstandard (LSE: PHST IL, RTS: PHST RU) reports 2011 audited Financial Results in compliance with IFRS and 1Q 2012 Sales Results.

2011 key financial highlights

Revenue grew by 43.7% and amounted to RUR 42,653.9 million;

Gross profit increased by 22.6% and amounted to RUR 15,925.5 million, or 37.3% of sales;

EBITDA grew by 23.2% and amounted to RUR 11,928.8 million, or 28.0% of sales;

Net profit grew by 23.3% and amounted to RUR 8,832.6 million, or 20.7% of sales.

2011 financial results

In 2011, total sales amounted to RUR 42,653.9 million, which is 43.7% (RUR 12,967.3 million) above the corresponding 2010 figure (RUR 29, 686.6 million). Sales of pharmaceutical products and medical equipment account for 98.2% and 1.8% of total sales, respectively. The data for 2011 in the table includes financial performance of Ukrainian pharmaceutical company PJSC Pharmstandard-Biolik located in the city of Kharkiv. It manufactures immonubiological products, vaccines, serums, diagnostics products, nutrient mediums, blood products, hormonal, antiviral, antibacterial and enzymatic products. During 2011, Biolik was successfully integrated in the structure of the group of companies Pharmstandard.

Sales of pharmaceutical products 

In 2011, total sales of the Company's pharmaceutical products in value terms amounted to RUR 41,350.2 million, an increase of RUR 12,294.1 million or 42.3% vs 2010 (RUR 29,056.1 million).

In the structure of pharmaceutical sales, organic sales comprise 47.5% and Third Party Products (TPP) account for 52.5%. Growth of organic pharmaceutical product sales (excluding TPP) amounted to 2.4% or RUR 461.9 million in absolute terms. Total sales of organic pharmaceutical products in 2011 amounted to RUR 19,624.2 million vs RUR 19,162.3 million in 2010.

It should be noted that the main reason for the slower rate of growth of organic sales was a reduction in consumption of anti-viral and immunological products, including Arbidol®, due to the stable epidemiological situation in Russia, according to Rospotrebnadzor (Federal Service on Customers' Rights, Protections and Human Well-Being Surveillance).

In the structure of organic pharmaceutical sales (excluding TPP), OTC sales comprise 78.7% and RX account for 19.4%.

Sales of OTC products in 2011 remained virtually at the level of 2010 and amounted to RUR 15,438.9 million as compared to RUR 15,581.1 million, or -0.9% (-RUR 142.2 million). The OTC portfolio sales in 2011, without taking into account the contribution of Arbidol®, were RUR 11,428.1 million, representing an increase of 14.4% or RUR 1,436.4 million vs the previous year (RUR 9,991.7 million). Sales of only branded products on the same basis would have amounted, in 2011, to RUR 9,259.6 million vs RUR 7,749.5 million in 2010 (+19.5%). This increase was primarily driven by Pentalgin® RUR 2,375.0 million (+19.4%),Complivit® RUR 1,458.5 million (+18.7%), Codelac® RUR 872.3 million (+26.1%), Afobazol® RUR 771.9 million (+27.1%).

Sales of Rx products in 2011 grew by 504 million or 15.3% and achieved RUR 3,798.2 million vs RUR 3,294.2 million in 2010. In monetary terms, the sales leaders were Phosphogliv® (RUR 924.6 million), Biosulin® (RUR 409.2 million), Combilipen® (RUR 404.9 million), Rastan® (RUR 355.9 million), Octolipen® (RUR 188.7 million), Picamilon (RUR 169.2 million). The main growth drivers were Phosphoglive® (+RUR 225.8 million or 32.3%), Combilipen® (+125.8 million or 45.1%), Octolipen® (+RUR 95.9 million or 103.2%), Azitrox® (+RUR 50 million or 50.3%), Biosulin® (+RUR 48 million or 13.3%) and Artrozan® (+RUR 48 million or 134.3%).

Sales of third party products (TPP) increased by 119.6% or RUR 11,832.1 million and totalled RUR 21, 726 million. The share of TPP in total sales for 2011 amounted to 52.5% (in 2010 it was 34.1%). The main sales growth drivers were Mabthera® (RUR 8,239.3 million), Velcade® (RUR 3,596.4 million), Coagil VII (RUR 1,707.3 million) Pulmozyme® (RUR 1,612.1 million), IRS®-19 and Imudon® (RUR 1,312.6 million), Prezista (RUR 1,243.6 million), Mildronate® (RUR 1,071 million). Sales of TPP in 4Q2011 totalled RUR 9,986.6 million, an increase of 164.6% or RUR 6,213 million vs. RUR 3,773.6 million in 4Q2010. The share of TPP sales in 4Q2011 amounted to 45.9% of the Company’s total TPP sales for the whole year. The increase is attributable to the commencement of sales of TPP supplied in December 2011 under the state 7 nosologies programme.

Sales of medical equipment in 2011 increased by RUR 133.1 million or 21% and totalled RUR 763.6 million vs RUR 630.5 million during 2010. The overall increase in the segment of medical equipment resulted primarily from the expansion of the line of products sold through Pharmstandard-Medtechnika LLC, a joint venture established for sales of medical equipment. This joint venture was set up by Pharmstandard and group of companies DGM in June 2011 to boost sales of medical equipment for disinfection and sterilisation.  

Gross profit of the Company increased by RUR 2,746.1 million (or 21.1%): from RUR 12.985.8 million in 2010 to RUR 15,731.9 million in 2011. In relation to sales, total gross profit decreased from 43.7% in 2010 to 37.4% in 2011. This decrease was primarily due to a higher share of third party products in the Company's total sales structure. 

Operating expenses increased in absolute terms by RUR 940.2 million (24.7%) from RUR 3,808.2 million in 2010 to RUR 4,748.4 million in 2011. In relation to sales, in 2011 operating expenses decreased from 12.8% in 2010 to 11.3% in 2011. This decrease in relative terms was caused by the increase in third party products' share of sales. It is worth noting that operating costs with respect to TPP sales are considerably lower than the costs related to organic sales, primarily because TPP products do not require active promotion.

Selling and distribution costs (S&D) in 2011 increased by RUR 688.2 million (23.6%) and amounted to RUR 3,604.4 million vs RUR 2,916.2 million in 2010 (8.6% and 9.8% of sales in the respective years). Organic S&D (excluding TPP expenses) in relation to sales amounted to 15.9% in 2011 vs 13.6% in 2010.

General and administrative expenses (G&A) in 2011 increased by RUR 252.1 million (28.3%) and amounted to RUR 1,144 million vs RUR 891.9 million in 2010 (i.e. 2.7% of the overall 2011 sales volume vs 3% in 2010). In 2011, G&A expenses (excluding TPP), accounted for 3.8% of total sales, which is similar to the level of 2010. 
 

In 2011 EBIDTA amounted to RUR 11,831.2 mln or 28.1% in relation to total sales vs RUR 9,685.2 million or 32.6% in 2010. In absolute terms, EBIDTA grew, during the 12 months of 2011, by RUR 2,146 million or 22.2% as compared to the previous year. In 2011, organic EBIDTA (excluding TPP) increased by RUR 726.6 million or 8.6% amounting to RUR 9,155.2 million (44.9% of sales) vs RUR 8,428.7 million (42.6%) in 2010.

Other expenses (income), net
The net amount of 'Other Expenses' in 2011 was RUR 8.2 million as compared to 'Other Expenses' of RUR 300.8 million in 2010. This was primarily due to (1) an increase in revenue from transactions related to non-core business operations under agreements signed with third parties, first of all revenue from agency commissions amounting to RUR 166.2 million; (2) recognition of financial discounts as per contract terms with respect to certain pharmaceutical products procured in 2010, for the amount of RUR 63.5 million; (3) In 2010 expenses related to joint venture NTS+ were recognized in other expenses line of RUR 248.3 million in comparison with RUR 53.1 million in 2011.

Financial income and financial expense
Our financial expense, mainly related to the interest on loans received, decreased by RUR 8.5 million or 17.9%, from RUR 47.7 million in 2010 to RUR 39.2 million in 2011. This was primarily due to of the repayment of the Citibank syndicated loan, as per agreement concluded in 2006 (full repayment made in 2011). The main source of financial income, which in 2011 amounted to RUR 231.4 million vs RUR 315.2 million in 2010, was interest from cash deposits in interest paying bank accounts.

Profit for the year and non-controlling interest
In 2011, the Company’s profit grew by RUR 1,616 million (22.6%) and amounted to RUR 8.779.8 million as compared to RUR 7,163.8 million in 2010. These figures represent 20.8% and 24.1% of sales for the respective years.

The Company’s profit (excluding TPP) accounted for 32.6% of organic sales in 2011 vs 31.2% in 2010.

In 2011, profit attributable to the equity holders of the Parent Company was RUR 8,751.5 million.

Earnings per Company's share in 2011 were RUR 242.07 which is 27.9% more than RUR 189.18 in 2010.
Weighted average number of ordinary shares in issue during 2011 was 36,272 (in 2010 it was 37,793). This change is attributable to OJSC Pharmstandard's repurchase of shares following the offer announced and executed in 1Q2011 by subsidiary OJSC Pharmstandard-Lekredstva. These shares are registered as treasury shares; weighted average number of shares for 2011 was calculated in compliance with the requirements of IAS33.

PJSC PHARMSTANDARD-BIOLIK[1]
In 2011 Ukrainian company PJSC Biolik was successfully integrated into the Pharmstandard group of companies. It was the first acquisition by the Company of a manufacturing entity in Ukraine whose market is the second largest (after Russia) in terms of sales in the CIS. Biolik is the largest Ukrainian facility for the production of immunobiological preparations, vaccines, serums, diagnostics products, culture mediums, blood products, hormonals, antivirals, antibacterials and enzymatic products. Its products are sold in all regions of Ukraine and Russia and are imported to other CIS countries and to Europe.

Finished products, especially Tuberculin, Heparin and Immunoglobulin, are the most prominent element in the structure of sales. Among the branded products, all except Dalargin belong to the group of antineoplastic products; while Dalargin belongs to the group of medicines for the treatment of acid dependent diseases.

The main financial data:

Consolidated statement of financial position as at 31 December 2011
(in thousands of Russian Roubles)

Consolidated statement of comprehensive income 
For the year ended 31 December 2011
(in thousands of Russian Roubles)

Sales results for 1Q2012

Pharmstandard's revenue in 1Q2012 amounted to RUR 8,155.9 million, a decrease of 30.1% (RUR 3,514.3 million) vs 1Q2011 (RUR 11,670.2 million).The share of pharmaceutical products in the Company's total revenue amounted to 97.9%, while the share of medical equipment was 2.1%

Pharmaceutical products

Revenue from sales of pharmaceutical products in 1Q2012 decreased by 31.0% and totalled RUR 7,981.5 million as compared to RUR 11,563.6 million in 1Q2011. Organic and TPP sales accounted for 49.9% and 46.3% respectively in the overall sales structure of the Company.

The Company's management believe that the decrease in sales of pharmaceutical products was caused by the a number of factors:

1) First of all, by the absence of flu pandemic in Russia, according to Rospotrebnadzor (Federal Service on Customers' Rights, Protections and Human Well-Being Surveillance), and by a reduction in orders, which manufacturers of pharmaceutical products receive from distributors, due to sufficient stockpiles of such products in distributors' warehouses to maintain the current level of consumption. This factor explains the reduction in sales, in 1Q2012, of products which are affected by seasonal fluctuations and other external factors (Arbidol®, Codelac®, Complivit®, Flucostat®, Terpincod® and other products).

2) The effect of the Decree of the Government of the Russian Federation No. 599 of 20 July 2011 which stipulates that all pharmaceutical products containing a small amount of codeine are to be sold only with doctor's prescription. This led to i) a reduction in the volume of distributors' orders for products with a small amount of codeine because, at present, their priority is to sell off the current stockpiles of codeine-containing products; and to ii) several constituent entities of the Russian Federation passing regulations, exceeding their authority, which permit retail of codeine containing products with doctor's prescription or with a limit of two packages per customer. This is an additional factor contributing to the reduction in sales of the Company's products containing codeine in 1Q2012 (Pentalgin®, Terpincod®, Codelac®)

It is worth noting that the Company started developing codeine-free analgesics and products for cold and flu symptoms (sold without doctor's prescription) in 2008 which enabled us to successfully launch a new, codeine-free forms of Pentalgin® and Codelac® as early as in 2010-2011. One does not need doctor's prescription to purchase codeine-free Pentalgin® and Codelac®, while those consumers who prefer the traditional forms of products containing codeine, can easily buy them in pharmacies on presentation of doctor's prescription. All these facts confirm that the Company managed to control and considerably minimise the risks inherent in the above mentioned limitation on codeine containing products, owing to timely preparation and realisation of a correct strategy. According to our estimates, the rate of substitution of codeine containing by codeine-free products will increase in 2H2012.

3) Taking into account the above factors and on the basis of the analysis of the current level of distributors' orders, we have come to the conclusion that the customary cycle of pharmaceutical product consumption by the population of the Russian Federation has shifted from 1Q2012 to 2Q2012.

4) The reduction in sales of TPP in 1Q2012 was due to the fact that most of the Company's TPP supplies, needed to meet the demand of Russian citizens in expensive medications in 2012, took place in 4Q2011. This led to a considerable growth in TPP sales in 4Q2011 (+165% or RU 6,212.9 million).

Sales of Pharmstandard's organic pharmaceutical products include sales of PJSC Pharmstandard-Biolek following the successful integration of this Ukrainian pharmaceutical enterprise. The share of OTC products in the organic sales structure amounted to 72.9%, while the sales of Rx products accounted for 27.1%.

Organic sales of Rx products grew by 11.5% or RUR 114.0 million and amounted to RUR 1,102.6 million. The following products were the growth drivers: Biosulin®, Combilipen®, Octolipen®, Gluconorm®, Formentin®.

Organic sales of OTC products decreased by 34.0% or RUR 1,529.3 million and amounted to RUR 2,966.8 million. The main reason for this reduction in sales of OTC products was the decrease is sales of Arbidol® (-RUR 1,094 million or 71.8%).

Sales of third party products amounted to RUR 3,777.7 million, a reduction of 37.1% (RUR 2,224.5 million) vs TPP sales in 1Q2011 (RUR 6,002.1 million).

Sales of medical equipment in 1Q2012 grew by 63.7% (RUR 67.9 million) and amounted to RUR 174.4 million vs RUR 106.6 million in 1Q2011. The growth of the segment of medical equipment resulted from expansion of the product range following the commencement of sales through Pharmstandard-Medtechnika LLC. This joint venture was set up by group of companies DGM and OJSC Pharmstandard in June 2011 with the purpose of boosting sales of medical equipment for disinfection and sterilisation.

Pharmstandard’s structure of sales, 1Q 2012

Pharmstandard’s structure of sales (excluding TPP), 1Q 2012

Conference call:

OJSC Pharmstandard (LSE: PHST LI, RTS: PHST RU) will be announcing its 2011 audited Financial Results and 1Q 2012 Sales Results on Friday, 27 April 2012 at 17:00 PM Moscow time.

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.

Friday, April 27, 2012
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 62 01
Access Code: 916089

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

https://eventreg1.conferencing.com/webportal3/reg.html?Acc=513832&Conf=183491

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 Friday, 27 April 2012 on Company’s web-site:

http://www.pharmstd.com/ 

The conference call replay will be available through May 2, 2012.

Replay UK Call-in Number: +44 (0) 20 7031 4064
Replay US Call-in Number: +1 954 334 0342
Replay Access Code: 916089

Contacts:

Ilya Krylov
IR manager
OJSC Pharmstandard

Tel: +7 495 970 0030 ext 2416

E-mail: ir@pharmstd.ru
www.pharmstd.com  

About the Pharmstandard group of companies

The main sphere of activity of the enterprises comprising the Pharmstandard group of companies, are developing and manufacturing of high-quality modern pharmaceutical products which meet the requirements of the healthcare system and the expectations of patients.

The most well known Pharmstandard products today are Arbidol®, Complivit®, Pentalgin®, Flucostat®, Phosphoglive®, Amixin®, Afobazol®, Rastan® and Biosulin®. The Pharmstandard group of companies manufactures more than 250 pharmaceutical products, including medicines for the treatment of cardio-vascular diseases, diabetes, growth hormone deficiency, gastroenterological, neurological, contagious diseases, metabolic disorders, cancer and other diseases. More than 100 Pharmstandard products (taking into account all forms and dosages) are included in the list of Vital and Essential Pharmaceuticals.

In the period from 2004 to 2011 more than 60 new pharmaceutical products were developed by Pharmstandard, in co-operation with the leading Russian scientific centres. Pharmstandard is a participant in a joint bio-engineering project, Generium, whose objective is the development of socially significant pharmaceutical products within the framework of the state program of import substitution.

By 2011 the Сompany’s aggregate production capacity has reached more than 1,46 billion packages per year. The production capacity of the Pharmstandard group of companies comprises four modern pharmaceutical plants: JSC Pharmstandard-Leksredstva (Kursk), JSC Pharmstandard-UfaVita (Ufa), JSC Pharmstandard-Tomskhimpharm (Tomsk), JSC Pharmstandard-Biolek (Kharkov, Ukraine) and the medical equipment and tools plant JSC TZMOI (Tyumen); Pharmstandard LLC is responsible for the purchase and supply of raw materials for manufacturing of pharmaceutical products at the production facilities of the Pharmstandard group of companies.

All the production facilities of the Pharmstandard group of companies fully comply with Russian national standards, while six production lines at JSC Pharmstandard-Leksredstva have already received certificates of compliance with the EU GMP standards. All the plants are expected to convert to European GMP standards by 2014, according to the schedule approved by the company's management.

On 4 May 2007 Pharmstandard placed its shares during IPO on Russian Trading System (RTS), Moscow Interbank Currency Exchange (MICEX) and Global Depositary Receipts (GDR) at London Stock Exchange (LSE).