Pliva drops its German plant

By Gregory Roumeliotis

- Last updated on GMT

Related tags Eastern europe Investment Pliva

Croatian drug firm Pliva has sold its Dresden production plant to
Italy's Menarini Group as it tries to recover losses suffered by
its failed venture in proprietor drugs and an end to most of the
royalties it receives.

But Pliva​ warned that restructuring charges of $22 million (€18.2 million), mainly related to asset impairment, will still mar its Q4 results.

Eastern Europe's largest drugs maker by sales saw a net loss of $34 million (€28.2 million) for the first nine months of 2005, compared with a net profit of $107 million (€88.7 million) a year before.

The main culprit for this slump was its incontinence drug Sanctura​, whose failure to make profit in the US plunged the company into considerable debt, so Pliva had to divest it last May.

Adding salt to the wound, the expiry last November of patent protection for its blockbuster antibiotic azithromycin in the US wiped out $150 million (€125 million) a year in revenue, about 75 to 80 per cent of the overall royalties it earned.

Nevertheless, the company now believes it can build a sustainable business model by focusing exclusively on the generic drugs market.

"Royalties give 100 per cent profit so the loss of this revenue from the US is going to have a hard impact on us, but it was anticipated,"​ Marija Mandic, Pliva's executive director of investor relations and corporate communications, told​.

"We have already started transferring production from our German plant to Eastern Europe, but it won't be until 2008 until the full benefits of the savings can be seen."

The divestment, whose financial details have not yet been revealed and closure is expected within the next six months, leaves Pliva with one production site in the US and three in Eastern Europe.

The majority of the manufacturing operations from Dresden will be moved to Krakow, but Zagreb will also host some of the production facilities.

The seller of the plant, AWD pharma​, a Pliva subsidiary, was the target of much speculation last September, with rumours that it could be bought by Indian drugmaker Wockhardt.

However, Pliva then insisted only the production plant was up for sale.

The Menarini Group​ says the Dresden plant is highly synergetic with its pharmaceutical production, not only because this plant already contract manufactures 250 tons of capsules and tablets annually - out of a total of 500 tons - for its subsidiary Berlin-Chemie​, but also because it will be able to absorb further production thanks to the possibility of increasing its current manufacturing capacity.

Berlin-Chemie/Menarini estimates that it will be able to increase production up to 2,400 tons in five years.

"Faced with the growth of our presence in Russia as well as in all countries of Central and Eastern Europe and in the Far East, we are uniting the strength of our production in Germany,"​ Alberto Aleotti, chairman and CEO of the Menarini Group, said in a statement.

"Nevertheless, it is also clear that those who invest [in Germany] want a sign from the country that our trust is well reciprocated because drugs are not part of the economic crisis, but of an answer that the economy can give to the crisis."

The company says it can place the Dresden plant in a condition to not fear competition from China and the other emerging countries for at least the next twelve years.

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