OREANDA-NEWS. November 6, 2012. Pharmstandard OJSC (LSE: PHST IL, MICEX-RTS: PHST RU) reports its sales results for 9M2012.

Sales results:[i]

Pharmstandard’s sales increased by 15.6 % (RUR 4,133.9 million) for 9M2012 and amounted to RUR 30,560.7 million from RUR 26,426.8 million in the previous year.

Key highlights of the Russian pharmaceutical market in 3Q2012:

· For 9M2012 Russian pharmaceutical retail market increased by 24% or RUR 82,6 billion in monetary terms and amounted to RUR 428,8 billion.[ii]

· Market share of domestic pharmaceutical products is to amount to no less than 50% by 2020

Market share of domestic pharmaceutical products is to amount to no less than 50% by 2020 and market share of medical equipment to no less than 40%. That was stated by Dmitry Medvedev, the Prime Minister of the RF, at the government session on the state program for pharmaceutical and medical industry development for the current period. He recalled that RUR 100 billion were planned to be provided for that purpose by 2020. [iii]

“We clearly realize that the efficiency of medical treatment provided to our citizens depends on the availability of modern medical equipment and pharmaceutical products in our hospitals and policlinics ” – said the Prime Minister mourning that currently all the modern medical centers are equipped with foreign equipment only.

· The road map for pharmaceutical products pricing perfection proposed by The Ministry of Economic Development and Trade.

“The road map for pharmaceutical products pricing perfection for the period of 2012-2014 and subsequent period” proposed by The Ministry of Economic Development and Trade and agreed upon by other ministries and departments (Minpromtorg (Ministry of Industry and Trade), Minzdrav (Ministry of Health), Federal Antimonopoly Service) turned out to be one of the key news topic. The main objective of the road map is shift to insurance indemnity of pharmaceutical products value in the course of citizens’ pharmaceutical support. The foundation was laid by change of VEP (Vital essential products) pricing.

· 18th July 2012 - The Federation Council ratified the Russian Federation joining of Marrakesh Agreement Establishing the World Trade Organization

In 3Q2012 the duties collected by Russian Agency for Patents and Trademarks from domestic pharmaceutical companies were raised, therefore we became equal to foreign companies. Before that the duties for foreign applicants and Russian ones had differentiated. The decrease of duty rate for foreign pharmaceutical products from 15-5 % to 6,5-5% within the transition period is next in turn and duty rate for medical equipment and pharmaceutical substances are going to be decreased simultaneously even faster (down to 2-3%). Abolishment of import duties on foreign pharmaceutical products is unlikely to influence pricing, everyone will try to use it for yield increase (by 10-15%). Decrease in prices of substances and active pharmaceutical ingredients (API) will have minor positive impact on domestic pharmaceutical companies.

The management of the company doesn’t see any prerequisites for 15 per cent preference abolishment in relation to contract values of domestic players for orders of products from state and municipal entities through tender and auction conduct.

Under federal act ¹ 271 – FA of 11 October 2010 “Amendments to” pharmaceutical products circulation” federal act” article 16 “Submission and pendency of applications for state registration of pharmaceutical preparations and presentation of necessary documents” was supplemented with part 6 of the following content: receipt, disclosure, commercial use and usage with a view to state registration of the information on the results of pre-clinical trial of pharmaceuticals and clinical trial of pharmaceutical products submitted by the applicant for pharmaceutical products state registration without its consent within 6 years of the pharmaceutical products state registration date.

We believe that competition on the Russian market will be tougher, more reasonable and the best and strongest player will win. Our mission “Development and production of pharmaceutical products designed to comply with healthcare requirements and patients expectations” is going to be the same and the strategy chosen 7 years ago is even more relevant nowadays.

· The list of VEP for 2013 hasn’t been altered

In 2013 the list of VEP is similar to 2012. The list was approved by the order of the Government of the Russian Federation of 7th December 2011 ¹2199-p. Corresponding order ¹1378-p of 30th July 2012 was signed by Dmitry Medvedev, the prime minister of the Russian Federation.

According to Veronika Skvortsova all the INNs included in the list of VEP are going to be realized within the standards free of charge. “We mean the level of hospitals and day hospitals except for ambulatory sector which we are going to discuss separately ”- missaid the minister – “Within INNs the preference is to be given to generic products and preferably to domestic preparations. Our task is to economize on the price but not the quality. It is clearly enough, that is the state policy direction of every country.” However it doesn’t mean that foreign pharmaceutical products are going to be totally excluded from the list. “Everything depends on the availability of bioequivalent domestic products and pricing policy”- underlined Veronika Skvortsova.

The draft order is posted on the official website of Minzdrav of Russia (Ministry of Health). The document is supplemented with the provisions stating that the increase of registered maximum selling price is not to exceed the anticipated inflation level stated for subsequent year and schedule period in the budget federal law, as well as the maximum selling price submitted for registration is not to exceed the minimum selling price of the pharmaceutical product set by the manufacturer in the manufacturer’s country and others.

Key highlights of Pharmstandard OJSC in 3Q2012:

· 26th June 2012 - The company announced the purchase of a controlling stake (50.005%) in Bigpearl Trading Limited (Cyprus). This deal enabled Pharmstandard OJSC to determine general terms of business activity of Biomed named after I.I. Mechnikov OJSC, Pharmapark LLC and other commercial entities comprising a group of entities which includes Bigpearl Trading Limited. Aggregate sales of acquired companies amounted to RUR 350.4 million for 3Q2012.

· July 2012 - The data on Arbidol® was submitted to WHO experts.

At WHO conference on effective treatment of flu and other acute respiratory viral infection the experts were provided with the data on Arbidol®, Russian original anti-viral medication, as well as the information on the start of ARBITER, multicenter postregistry clinical trial, which is conducted in compliance with the Russian laws and regulations (¹61 FA” Pharmaceutical products circulation act” of 12th April 2010) as well as with the international guidelines for clinical trials ICH-GCP.

ARBITER, postregistry clinical trial, of Arbidol® is the first Russian clinical trial included in international database of ClinicalTrials.gov.[iv]

ARBITER is a double-blind, randomized, placebo-controlled, multicenter clinical trial stipulated for two epidemic seasons of flu and ARVI (2011-2012 and 2012-2013). The trial is carried out in 17 medical centers which have the accreditation of Ministry of Health Care and Social Development of the Russian Federation to conduct clinical trials.

· 30th August 2012 –Pharmstandard OJSC approved possible purchase of additional ordinary shares by its subsidiary Pharmstandard-Leksredstva OJSC and approved an increase of the amount from RUR 1.1 billion up to 2.0 billion within the announcement of 9th June 2012 about possible purchase of ordinary shares of Pharmstandard OJSC on market terms.

Pharmstandard OJSC also indicated that it had no intention of OJSC Pharmstandard-Leksredstva to purchase the shares in the form of Global Depository Receipts (GDR) which circulate on London Stock Exchange (LSE).

As of 1st October 2012 the amount of voting shares and charter capital of Pharmstandard OJSC in possession of OJSC Pharmstandard-Leksredstva is 3 189 750 votes or 8,44 % of Pharmstandard OJSC charter capital.

· 6th September 2012 - Federal Antimonopoly Service approved the application of Pharmstandard OJSC to acquire 100% of "Pharmaceutical company “Lekko” CJSC voting shares. The deal is to be closed by the end of 2012.

· October 2012 – Expert journal published the rating of the biggest Russian companies and Pharmstandard OJSC was ranked 161, in 2010 the company was ranked 196.

Sales results of OJSC Pharmstandard[v]

For 9M2012 pharmaceutical products sales increased by 15.1% or RUR 3,933.2 million and amounted to RUR 29,942.8 million from RUR 26,009.6 million for the same period last year. In the structure of sales of pharmaceuticals 45.7% (RUR 13,698.4 million) represents the company’s own-produced pharmaceutical products sales, 52.9% (RUR 15,841.7 million) represents sales of third party products (TPP) and 1.4% (RUR 402.7 million) represents substances sales.

For 9M2012 the company’s own-produced pharmaceutical products sales decreased by 2.3% (RUR 323.0 million) and amounted to RUR 13,698.4 million. In the structure of sales of company’s own pharmaceuticals 74% (RUR 10,141.9 million) accounts for OTC products sales and 26% (RUR 3,556.5 million) accounts for Rx products sales.

For 9M2012 the company’s own-produced OTC products sales decreased by 10.0% (RUR 1,121.8 million) and amounted to RUR 10,141.9 million from RUR 11,263.8 million for the same period last year. The main cause of the decrease were the sales of Arbidol® in 1Q2012 (RUR -1,094 million) due to absence of a flu pandemic in Russia, according to Rospotrebnadzor (Federal Service on Consumers’ Rights Protection and Human Well-Being Surveilance) and due to sufficient stockpiles of the product at the distributors’ warehouse to meet the current level of consumer demand and as a result the decrease in orders for pharmaceutical products from distributors. Under RF Government Decree N599 of 20th July 2011 from 1st June 2012 retail of pharmaceuticals products with small amounts of codeine shall require a doctor’s prescription. Whereby from 1st June 2012 revenue from the sales of products with small amounts of codeine such as Pentalgin®, Terpincod ®, Codelac® is shown in company’s analytics section – Rx products sales, and revenue from sales of codeine-free products in section – OTC products sales.

In 9M2012 the company’s own-produced Rx products sales increased by 29% (RUR 798.9 million) and amounted to RUR 3,556.5 million from RUR 2,757.6 million for the same period last year.