Key Financial Indicators of 2015:  

Consolidated revenue amounted to RUB 47,195 m (+14.5%); 

Gross profitability amounted to 38% as compared to 44% in 2014; 

EBITDA[1] of the Company amounted to RUB 18,234 m, with EBITDA margin reaching 39% vs 36% in 2014; 

Net income amounted RUB 13,931 m, with the net income margin growth by 26%, up to 30%; 

Net cash[2] of the Group grew by 114% and amounted RUB 23,277 m. 

Consolidated revenue 

In 2015, Pharmstandard consolidated revenue amounted to RUB 47,195 m versus RUB 41,223 m in 2014. A 14.5% YoY (or RUB 5,972 m) increase vs 2014 is driven by the increase in TPP segment sales and larger revenues in contractual manufacturing for OTCPharm PJSC due to the spin-off of the Group’s OTC business into a separate legal entity from Q2 2014.

Pharmaceutical products 

Sales data under this category include fill-finish pharmaceutical products manufactured on Pharmstandard Group’s manufacturing platform and products purchased from third parties for re-sale.

Pharmaceutical sales in 2015 increased by 22.3% up to RUB 40,073 m vs RUB 32,772 m in 2014, with organic sales accounting for 29%, TPPs for 66% and APIs for 5% of the pharmaceutical sales mix. 

Organic pharmaceutical sales in 2015 amounted to RUB 13,665 m, which is in line with the prior-year results. Within organic pharmaceutical sales, shares of the OTC products and Rx products amounted to 44% and 56%, respectively.

Organic prescription product (Rx) sales in 2015 declined by RUB 365 m (-5% YoY) to RUB 6,566 m. The top decliners were Biosulin (-27%), Terpincodum (‑15%) and Phosphogliv (-60%). Phosphogliv sales declined due to transfer of this product to the OTC segment in order to expand the distribution channels. Sales of Biosulin and Terpincodum decreased due to overall demand decline.

Organic over-the-counter (ÎÒÑ) sales in 2015 declined by 8% to RUB 5,094 m. Revenue decline results from the transfer of the majority of the OTC product portfolio to OTCPharm PJSC. Validol (+56%), activated carbon (+48%), Corvalol (+31%) were the growth leaders in Pharmstandard Group’s product portfolio.

In 2015 Third Party Products (TPP) segment sales grew by RUB 7,211 m to RUB 26,408 m (+39% YoY) vs RUB 19,025 m in 2014.  Sales growth was mainly attributed to Revlimid ab Rebif medicines. In fact, TPP segment was the only growth drivers in the Pharmaceutical products. This relates to the fact that third party production is located at Pharmstandard's facilities (TPP sales revenue increased from 70% to 77%) and production in this segment becomes more localized. The more localized the production cycle is, the more support the producer gets from the state and more preferences gets during the auctions.

Sales of other products and APIs grew in 2015 by RUB 736 m (or +58% YoY) to reach RUB 2,005 m from RUB 1,269 m in 2014.

Contract manufacturing 

2015 FY contract manufacturing revenue grew to RUB 2,690 m and added up RUB 1,186m vs 2014. The revenue growth in contact manufacturing is attributable to toll material manufacturing, including for OTCPharm PJSC.

Agency fees

2015 FY Agency Fee income reached RUB 1,979 m (+8% YoY vs 2014). The increase in agency fee income primarily relates to the distribution agency contracts for OTCPharm’s products.

Sale of finished product and raw material balances attributable to OTCPharm PJSC

In 2015, finished product and raw material balances were sold to OTCPharm PJSC amounted RUB 877 m, decreased by RUB 3,121 m (-78%). Significant reduction attributed to spin off OTC business of the company in 2014. Total revenue of that transaction in 2014 was RUB 3,998 m.

Medical equipment

2014 FY medical equipment sales increased by RUB 455 m (+41% YoY) to reach RUB 1,575 m vs RUB 1,120 m in 2014.

Third Party Products

The main growth drivers in TPP sales are Revlimid (+780%), Rebif (growth more than 100%) and Kemeruvir (+11,3%). Generally, commercial TPP sales increased by RUB 7 383 m amounting to RUB 26 408 m vs. RUB 19 025 m in 2014 (+38,8%).

Significant increase of Revlimid and Rebif sales is the result of deliveries under Federal Program “7 High-Cost Nosologies”. The Government provides expensive medicines to patients with rare diseases through the program “7 High-Cost Nosologies”. Procurements are implemented centrally from the funds of state budget. In addition to sales drivers Revlimid and Rebif, significant  growth of Oktofaktor is noted (more than 100%). Due to the patent protection expiration and the launch of generic versions of Velcade® and Mabthera®, 2015 total sales in government procurement segment decreased in 2015 compared to 2014. Total sales within Federal program “7 High-Cost Nosologies” increased by RUB 6 856 m that amounting to RUB 14 562 m in 2015 vs RUB 7 706 m in 2014 (+92,9%). 

Cost of Goods Sold (COGS)

Cost of Goods Sold (COGS) includes raw material/ component costs, TPP purchase costs, manufacturing overheads, direct labour costs, brand name depreciation, plant & equipment amortization and depreciation, and contract manufacturing related expenditure.

In 2015, COGS increased by RUB 6,391 m (or +27,8% YoY vs 2014) and amounted to RUB 29,398 m compared to RUB 23 007 m in 2014. The increase in COGS in absolute terms is attributed to a general increase in sales.

The main expenditure items – Raw Materials and TPP Costs have slightly increased in an aggregate share comparing to 2014 (+1%) and amounted to 87% of total COGS in 2015.

The overall increase of COGS in 2015 was caused by the following changes:

1)     Raw Materials costs in absolute terms increased from RUB 6,150 m in 2014 to RUB 7,333 m in 2015 (+19.2% YoY) as a result of  the Russian rouble devaluation with a significant amount of raw materials purchased in foreign currencies, as well as high rates of inflation;

2)     TPP Costs increased by RUB 4,686 m in absolute terms – from RUB 13,571 m in 2014 to RUB 18,257 m in 2015 as a result of the increase of TPP segment;

3)     Manufacturing overheads increased from RUB 2,040 m in 2014 to RUB 2,422 m in 2015. Increase of Manufacturing overheads is attributed to growth of production volume, including Contract Manufacturing;

4)     Depreciation and amortisation increased from RUB 747 m in 2014 to RUB 869 m in 2015;

5)     Direct Labour Costs increased from RUB 499 m in 2014 to RUB 517 m in 2015 (+3,5% YoY) due to the indexation of wages.

The Table below shows the revenue and COGS evolution by the following segments: Organic Pharmaceutical Products (including OTCPharm’s sales and COGS in 2014), Third Party Products, Medical Equipment, Contract Manufacturing and Agency Fees.

Pharmaceutical products 

In 2015, organic COGS in absolute terms increased by RUB 50 m (or +1% YoY) vs 2014 and amounted to RUB 7,701 m amid 18% reduction in total organic sales. This organic COGS growth was primarily driven by increase of Raw Materials costs from RUB 4,888 m in 2014 to RUB 4,984 m in 2015 (+2%).

Third party products

TPP COGS increased by RUB 4,686 m (+35% YoY) from RUB 13,571 m in 2014 to RUB 18,257 m in 2015 due to the overall increase in TPP sales (+39% YoY), including increase of Revlimid and Rebif sales.

Contract manufacturing and agency fees

In 2015, COGS in contract manufacturing grew by RUB 1,180 m vs 2014 reaching RUB 2,263 m mainly driven by the concluded contracts for product manufacturing for OTCPharm PJSC.

Medical equipment

COGS in medical equipment segment increased compared to 2014 (+67,5% YoY) and reached RUB 1,177 m amid a 40,5% increase in the segment sales. Leading cost growth in 2015 vs 2014 related to the change in the structure of sales and nomenclature, as well as a significant increase in foreign currency exchange rates, with a significant share of imports in the cost of sales.

Gross profit

In 2015, the Company’s gross profit declined by -2,3% YoY down to RUB 17,797 m from RUB 18,216 m in 2014. This YoY decline in gross profit is primarily attributed to decline in gross margin. Gross profit margin decreased to 37,7% in 2015 vs 44,2% in 2014. Profit margin decline was influenced by following factors:

1)     Purchase price increase because of general changes in structure of macroeconomic, Rubble depreciation and increase of forex share in inventory cost;

2)      Changes in structure of sales, incl. TPP’s segment which historically has low margin and decrease of share in high marginal drugs related to OTCPharm carve-out;

 Significant part of sales in 2014 attributed to sales to PJSC OTCPharm, which was one-off transaction and didn’t take place in 2015.

Selling and distribution costs  

Selling and distribution costs (S&D) include expenses mainly related to product advertising and promotion.

In absolute terms selling and distribution costs showed a 38.7% YoY decline (-RUB 1,599 m) from RUB 4,134 m in 2014 to RUB 2,534 m in 2015. Decline in 2015 generally related to decrease of advertising and promotion by RUB 1,347 m (-85.6%) and salary expenses by RUB 164 m (- 10.9%). Advertising campaigns attributed to OTC products seized because of OTCPharm spin-off and reduction of employees number.

Other commercial expenses (transportation and insurance, quality control and finished product certification, communications, travel, rental, stationary and office supplies, etc.) decreased from RUB 1,057 m in 2013 to RUB 968 m in 2015 (‑8.4% YoY).

General and administrative expenses

General and administrative expenses (G&A) include administrative personnel payroll expenses, information and consultancy service fees, and other expenses.

The Company’s overall general and administrative expenses increased by RUB 387 m (+16.8% YoY) from RUB 2,300 m in 2014 up to RUB 2,687 m in 2015. As of 2014, G&A share in total sales made up 5.7%, which in the same level as it was in 2014 (5,6%).

This YoY growth was mainly driven by:

1)     increase in payroll expenses from RUB 1,404 m in 2014 to RUB 1,696 m in 2015 (+20.7% YoY) resulting mainly from administrative personnel wage indexation in Pharmstandard Group operating companies;

2)     increase in rent costs from RUB 132 m in 2014 to RUB 224 m in 2015 (+69% YoY) associated with the fact that part of agreements concluded in foreign currency and local currency depreciation lead to growth of expenses in Rubbles.

Net other income[1]  

The Company’s Net other income reached RUB 4,623 m in 2015.

This growth is primarily associated with:

1)     FX difference gain of RUB 4,323 m generated in 2015 vs RUB 1,641 m in 2014 (RUB +2,682 m) due to the efficient liquidity management;

2)     Other income from sale of Pentalgin trade mark to OTCPharm at amount of RUB 380 m in 2015;

3)     Expenses increased attributed to fines and penalties by RUB 152 m comparing with 2014;

4)     Increase of research and development expenses write-off Biolek, NTS +, Biomed, Selltera up to RUB 163 m in 2015 vs RUB 37 m in 2014, wherein capitalised expenses comprised RUB 636 m.

5)     Accrual of income related to bonuses from supplier in 2015.

Financial income and expense

Financial income to a large extent consists of gains from short-term financial instruments, interest income from bank deposits and interest income from loans provided. In 2015, financial income grew by RUB 622 m and reached RUB 947 m vs RUB 323 m in 2014 (+192% YoY).

Financial expenses are mostly connected with interest payments under debt raised. In 2015, financial expenses grew by RUB 35 m (+8% YoY) reaching RUB 467 m vs RUB 432 m in 2014.

EBITDA

EBITDA equals to the amount of earnings before deduction of tax, interest, and D&A assessed. In 2015, EBITDA demonstrated a 22.6% YoY decline from RUB 14,873 m in 2013 to RUB 18,234 m in 2015. Margin reached 38.6% vs 36.1% in 2014. A 2.5% increase in EBITDA margin was driven by overall rise of revenue, decrease of S&D share from revenue and effective liquidity management.

Income tax expense

Accrued income tax for 2015 was RUB 3,747 m vs RUB 2,724 m in 2014 with effective tax rate of 21,2% in 2014 vs 19,7% in 2014. Higher tax rate in 2015 is mainly a result of correction of prior year income tax and non-deductible expenses (increase of additional-paid in capital of joint venture).

Net income

The Company’s net income decreased by 6,6% YoY from RUB 11,095 m in 2014 to RUB 13,931 m in 2015 (+25,6%). Net income margin demonstrated a 2,6% growth and reached 29,5% in 2015 vs 26,9% in 2014. 

Consolidated financial statements for 2015 presented on the corporate web-site http://pharmstd.com