Moscow, 29 August, 2012 – OJSC Pharmstandard (LSE: PHST IL, MICEX-RTS: PHST RU) reports 1H2012 unaudited financial results.

1H2012 Key Highlights

· Company's revenue amounted to RUR 16,167.0 million.

· Gross profit, in value terms, amounted to RUR 6,228.0 million or 39% of revenue.

· EBIDTA¹ amounted to RUR 4,125.8 million or 26% of revenue.

· Net profit amounted to RUR 3,074.6 million or 19% of revenue.

 The table below presents an overview of the Company’s performance, comparing the key figures for 1H2012 and 1H2011, in absolute values and percentage to sales. In this table, Third Party Products (hereinafter, TPP) are shown as separate elements of the sales structure during the periods under review. The purpose of such analytics is to present the Company’s organic sales and sales of TPP, produced and sold under agreements with other pharmaceutical companies, as separate features.

Sales

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 accounted for 97.6% and 2.4% of the total sales, respectively. Pharmaceutical products and medical equipment are mainly sold under direct delivery contracts with wholesale distributors and/or medical institutions, as well as procured within the framework of open state auctions won by the Company.

For the 6 months 2012, total sales² amounted to RUR 15,786.5 million, which is 14.1% below the corresponding period of 2011 figure (RUR -2,595.9 million). Organic pharmaceutical products accounted for 49.2% in the structure of sales, third party products (TPP) – for 49.2% and sales of API – for 1.6%. The reduction is a natural consequence of the decrease in the Company’s sales, in 1H2012, by 31.0%, which was caused by the lack of pandemics, according to Rospotrebnadzor (Federal Service on Customers' Rights, Protections and Human Well-Being Surveillance), the reduction in sales of products severely affected by seasonal fluctuations, and the effect of procuring most of the TPP products needed to cover the 2012 needs of Russian citizens in expensive pharmaceutical products, in 4Q2011.

Revenue from sales of VEP (Vital and Essential Products) in 1H2012 amounted to RUR 8,430.8 million or 52.1% of the Company’s total revenue.

Sales of Third Party Products (TPP) in 1H2012 fell by 20.4% or RUR 1,990.4 million and amounted to RUR 7,763.6 million. The following products were the main sales leader in 1H2012: Velcade® (RUR 2,346.3 million), Reduxin® (RUR 1,274.8 million), Prezista® (RUR 934.8 million), Mildronate® (RUR 473.7 million), Mabthera® (RUR 388.5 million).

Organic Sales of Pharmaceutical Products (excluding TPP)

In 1H2012, organic sales of pharmaceutical products amounted in value terms amounted to RUR 15,786.5 million, a reduction of RUR 2,595.9 million or 14.1% vs the same period of 2011 (RUR 18,382.4 million in 1H2011).

OTC products accounted for 68.7% of organic sales of the Company, Rx products accounted for 28.2% and API – for 3.1%. The reduction in organic sales amounted to 7.0% or RUR 605.5 million in value terms. Total sales of pharmaceutical products in 1H2012 amounted to RUR 8,022.8 million vs RUR 8,628.4 million in 1H2011.

It’s worth noting that the decrease in organic sales in 1Q2012 (-24.4%) caused by the absence of pandemics and, therefore, a reduced consumption of anti-viral and immunomodulating products, gave way to a growth in organic sales in 2Q2012 (+24.5%).

It is also of considerable importance that following the enactment of Decree No. 599 of the Government of the Russian Federation of 20 July 2011 stipulating that as of 1 June 2012 products containing codeine can be purchased only with a doctor's prescription, the Company’s sales of codeine-containing products are reflected in the Rx sales section. Consequently, retrospective data with respect to sales of this group of products prior to 1 June 2012, is included in the OTC sales section.

Sales of OTC products in 1H2012 fell vs 1H2011 and amounted to RUR 5,511.0 million as compared to RUR 6,668.2 million or -17.4% (RUR -1,157.3 million).The following products were the main sales leaders: Pentalgin® (RUR 1,139.7 million), Complivit® (RUR 664.7 million), Arbidol® (RUR 650.8 million), Flucostat® (RUR 349.6 million, Afobazol® (RUR 297.4 million).

Sales of Rx products grew by RUR 447.6 million or 24.7%, from RUR 1,812.0 million in 1H2011 to RUR 2,259.6 million in 1H2012. The following products were sales leaders in value terms: Phosphogliv® (RUR 468.7 million), Biosulin® (RUR 237.7 million), Combilipen® (RUR 224.3 million), Octolipen® (RUR 132.3 million), Picamilon® (RUR 78.5 million). The main growth drivers were: Phosphogliv® (RUR +74.2 million or 18.8%), Gluconorm® (RUR +61.4 million), Biosulin® (RUR +60.8 million or 34.4%), Octolipen® (RUR +60.0 million or 83.0%), Combilipen® (RUR +56.2 million or 33.4%) and Formentin® (RUR +27.3 million or 115.1%).

Medical Equipment 

Sales of medical equipment in 1H2012 grew by RUR 109.4 million or 40.4% and amounted to RUR 380.6 million vs RUR 271.1 million in 1H2011. Overall growth in the segment of medical equipment was primarily caused by the expansion of product range following the realisation of a joint sales project through Pharmstandard-Medtechnika LLC. The objective of this joint venture established in June 2011, together with DGM group of companies, was an increase in sales of sterilisation and disinfection equipment.

Joint operation of OJSC Pharmstandard and the group of companies DGM resulted in a successful combination their respective expertise in the field of sales of hi-tech Russian medical equipment for disinfection and sterilization. The main objectives of Pharmstandard-Medtechnika LLC include promotion of the full range of equipment for the construction of infection control systems and Central Sterilization Departments within medical establishments, marketing, sales (both direct and through distribution networks), provision of comprehensive services and training for clients.

Cost of Sales

Cost of sales comprises API and other material costs (“material and components”), third party products for resale costs, overhead production costs, direct labour costs and amortization and depreciation.

In 1H2012, cost of sales figures decreased by RUR 1,513.6 million or 13.2% vs the same period in 1H2011 and amounted to RUR 9,939.0 million in 1H2012 vs RUR 11,452.6 million in 1H2011. Overall, the share of cost of sales in total sales remained at the level of the previous year: 38.5% in 1H2012 vs 36.6% in 1H2011 due to decrease of total sales of third parties products.

The main expenditure items in the structure of cost of sales were “API and other materials” and “third party products for resale costs” amounting in total to RUR 88.3% of the overall cost of sales. The reduction in cost of sales was primarily due to the decrease in expenditure on third party products of RUR 1,555.2 million or 19.4%, from RUR 8,009.9 million in 1H2011 to RUR 6,454.7 million in 1H2012.

The table below demonstrates the organic changes in sales and cost of sales, excluding third party product sales:

In 1H2012, cost of sale of Pharmstandard’s organic products, in relation to the respective sales was 41.5% representing an increase 2.8% vs 1H2011 (the overall figure of 2011 was 39.5%). This change was primarily caused by an increase of overhead expenses which was due to the following factors:a n indexation of personnel salary, an increase of utilities and repair costs and an increase of GMP (Good Manufacturing Practice) certification expenses.

Below is a separate table specifically presenting the changes in TPP sales and cost of TPP sales:

Gross profit

In 1H2012, gross profit of the Company decreased by RUR 972.9 million or 13.5% and amounted to RUR 6,228.0 million vs 7,200.9 in 1H2011. In relation to sales, total gross profit remained at the level of 1H2011and amounted to 38.5% in 1H2012.

In 1H2012, gross profit of the Company’s pharmaceutical segment was RUR 6,079.0 million or 38.5% of this segment sales vs RUR 7,137.7 million or 38.8% of total sales in 1H2011.

A review of Company’s organic sales (excluding TPP sales) shows that gross profit in 1H2012 amounted to RUR 4,919.1 million which is RUR 537.7 million or 9.9% less than the figures for the same period of the previous year (RUR 5,456.8). Gross profit from the Company’s organic sales in relation to the volume of sales amounted to 58.5% in 1H2012 vs 61.3% in 1H2011.

Profitability of TPP sales in 1H2012, 16.9%, was very similar to 17.9%, the figure for 1H2011.

In the segment of medical equipment and disposables, gross profit in 1H2012 was RUR 149.0 million or 39.2% of this segment’s sales volume, which is a significant increase on the figures for the same period of the previous year, RUR 63.1 million or 23.3%. This positive change was primarily caused by the expansion of product range following the realisation of a joint sales project through Pharmstandard-Medtechnika LLC.

Operating expenses increased by RUR 514.1 million or 24.3%, from RUR 2,114.6 million in 1H2011 to RUR 2,629.0 million in 1H2012. In percentage terms, in 1H2012 operating expenses grew by 16.3% vs 11.3% in 1H2011.

Selling and distribution costs (S&D) in 1H2012 increased by RUR 401.3 million or 25.3% and amounted to RUR 1,989.4 million vs RUR 1,588.1 million for the same period of the previous year which represents 12.3% and 8.5% in respective periods.

Organic selling and distribution costs (excluding TPP) in 1H2012 in relation to sales amounted to 21.4% vs 16.7% in the same period of the previous year.

Marketing, advertising and promotion expenses amounted to RUR 998. 7 million or 50.2% of the total S&D amount, representing an increase of RUR 339.6 million or 51.5% vs 1H2011 (RUR 659.1 million). In relation to the Company’s total sales, this category of expenses accounted for 6.2% vs 3.5% in 1H2011. The biggest share of the increase in expenses in this category was allocated to facilitating coverage – through advertising in the media – of those OTC products of the Company which are at the stage of active promotion (Pentalgin®, Afobazol®, Arbidol®, Codelac® Broncho, Flucostat®, Complivit®, Acipol®, Amixin®).

Labour costs in 1H2012 increased by RUR 60.5 million or 10.9% vs the same period of the previous year and totalled RUR 617.8 million (31.1% in the S&D structure). This was mainly due to (1) an increase in personnel working in marketing and promotion and to an annual increase in payroll rates; and (2) an increase of social tax contribution to Russian social funds.

Other S&D expenses in 1H2012 have not changed in relation to those in the same period of 2011.

Organic general and administrative expenses (excluding TPP) in relation to total sales in 1H2012 amounted to 5.8% which is similar to the level of 1H2011. In value terms, in 1H2012 this category of expenses has also remained at the level of 1H2011 and totalled RUR 484.7 million.

Operating profit

In 1H2012, operating profit decreased and amounted to RUR 3,599.3 million vs RUR 5,086.3 million in 1H2011, a decrease of 29.2%. In relation to sales, our operating profit accounted for 31.3% of sales in 1H2012, vs 27.3% in 1H2011.

Organic operating profit (excluding the contribution of TPP), in 1H2012, amounted to 31.3% of total organic sales vs 39.2% in 1H2011.

We explain this reduction of profitability with respect to organic products primarily (1) by the increase in expenditure on media coverage of branded OTC products which are in the stage of active promotion, through advertisement placement in mass media; (2) by the decrease of sales in 1Q 2012.

EBITDA

In 1H2012, EBITDA³ amounted to RUR 4,125.8 million or 26% in relation to total sales, vs RUR 5,471.6 million or 29% in 1H2011. In absolute terms, in 1H2012, EBITDA decreased by RUR 1,345.8 million or 24.6% vs the same period of the previous year.

Organic EBITDA (excluding the contribution of TPP) 1H2012 reduced to RUR 3,146.8 million (37.4% of sales) which is RUR 727.0 million or 18.8% below the 1H2011 figure, RUR 3,873.8 million (43.5% of sales).

Other income, net

In 1H2012, net other income totaled RUR 226.2 million vs RUR 64.7 million for the same period of 2011. Most of this was due to (1) the increase in income from non-core operations, primarily such as income from agent's commission under certain agreements with third parties, which in 1H2012 amounted to RUR 133.8 million; (2) gain from changes in currency exchange rates amounting to RUR 150.1 million vs the RUR 117.0 million in 1H2011.

Financial Income and Financial Expense

Financial expense of the Company, mainly related to the interest payable on credit, significantly decreased, by RUR 17.5 million or 94.5%, from RUR 18.6 million in 1H2011 to RUR 1.0 million in 1H2012. This was primarily due to the repayment of the Citibank syndicated loan, as per agreement concluded in December 2006 (the loan was fully repaid in December 2011). Financial income in 1H2012 amounted to RUR 55.0 million vs RUR 115.5 million in 1H2011. That income primarily comprised interest income from cash deposits and short-term loans provided to third parties.

Income Tax Expense

In 1H2012, the Company's incurred RUR 804.8 million of income tax expense vs RUR 1,050.7 million in 1H2011. Effective tax rate in 1H2012 was 20.7%.

Net profit

In 1H2012, the Company's net profit reduced by RUR 1,122.6 million or 26.7% and amounted to RUR 3,074.6 million vs RUR 4,197.3 million in 1H2011. These figures represent 19.0% and 22.5% of sales for the respective years.

The Company's net profit accounted for 27.4%of sales in 1H2012 (excluding TPP), vs 32.9% in 1H2011.

In 1H2012, profit attributable to the equity holders of the Parent Company was RUR 3,059.8 million.

Earnings per Company's share in 1H2012 were RUR 85.07, a 25.5% decrease vs RUR 114.26 per share1H2011⁴.

Conference call:
Pharmstandard is pleased to invite the investment and mass media community to conference call with the management of the company followed by a Q&A session.

Wednesday, August 29, 2012

09:00 New York

14:00 London

17:00 Moscow

International Call-in Number: +44 207 162 0025

US Call-in Number: +1 334 323 6201
Conference ID: 921237

Conference call participants can register in advance using the link below:https://eventreg1.conferencing.com/webportal3/reg.html?Acc=097741&Conf=184827

 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 officer

Press release & presentation will be available on Wednesday, August 29, 2012 on Company’s web-site:
www.pharmstd.com

The conference call replay will be available through 7, September 2012

International Replay Number: +44 207 031 4064

Replay Access Code: 921237

Contacts:

Ilya Krylov
IR officer
Pharmstandard JSC

Tel: +7 495 970 0030 ext 2416

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

¹ EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) represents the company's income before deduction of tax, interest and amortization and depreciation, as well as other expenses/income of non-recurring nature.
² 2011 and 2012 figures include financial results of Ukrainian pharmaceutical company PJSC Pharmstandard-Biolek situated in the city of Kharkiv and specialising in manufacturing immunobiological products, vaccines, serums, diagnostic products, nutrient mediums, blood products, hormonal, antiviral, antibacterial and enzymatic drugs. During 2011, Biolek was successfully integrated in the structure of the group of companies Pharmstandard.
³ EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) represents the company's income before deduction of tax, interest and amortization and depreciation, as well as other expenses/income of non-recurring nature.
⁴ Weighted average number of ordinary shares during 1H2012 was 35,968 (36,576 in 1H2011).