Pliva seeks direction after lost royalties

By Gregory Roumeliotis

- Last updated on GMT

Related tags Profit Azithromycin Teva pharmaceutical industries

Pliva, Eastern Europe's biggest drug maker by sales, saw its
profits take a massive dive in the first quarter of 2006, as a huge
loss of royalties could not be offset by the relatively small
growth in its generics business.

Pliva's pretax profit took a dive of 61 per cent year-on-year to $39.2m (€30.4m) after the patent expiry in the US of its blockbuster antibiotic azithromycin reduced the firm's royalties from the drug to $8.3m from $73m.

The poor results increase speculation of a takeover, following bids from Icelandic generic drugmaker Actavis.

However Pliva is still holding out, pointing to growth in its generic business which saw sales rise by 8.4 per cent and the operating margin increase from $19.6m to $21m.

Particularly encouraging were numbers from the US, where revenues increased 40 per cent to $61m with the main driver being azithromycin, now a generic.

In the Pharma Chemicals division, where active pharmaceutical ingredients (APIs) and intermediates are made, operating profit was down by a fifth to $16.8m, a drop Pliva attributed to the revised terms of the new azithromycin bulk supply agreement it signed with Pfizer, which took effect from the start of 2006.

In manufacturing on the other hand, the company finished its most painful reforms in 2005, including the sale of its AWD production plant in Dresden to the Menarini Group.

The Croatian firm incurred restructuring charges in Q1 of 2006 of only $600,000, transferring production from the Dresden plant to more cost-efficient facilities in Poland and Croatia, in a process which, according to Pliva, is expected to deliver savings from 2007 and should be completed by 2008.

"We have completed massive restructuring in the last year, including a manufacturing consolidation programme, and we are now looking forward to a strong product pipeline,"​ Pliva spokeswoman Marija Mandic told​.

"We are currently in a process of reviewing all our strategic options and we are taking advice from Deutsche Bank on our future plans."

Pliva recently completed its exit from its proprietary business but has decided to retain its remaining profitable proprietary products, including Custodial, Nystatin and Urecholine, as they do not require the support of a dedicated sales team.

It has seen two takeover offers from Actavis, the latest one last month valuing the company at $1.85bn.

Actavis has said the two firms are a "perfect fit"​ and a deal would "enable a rapid integration process and create a business with a leading position in the key US, European and Asian markets."

Nevertheless, the Croatian company, which is present in more than 30 countries, is not revealing its intentions, claiming it has been approached by a number of parties interested in an acquisition and that those discussions are advancing.

These acquisition rumours reflect the wider trend in the generics market, with acquisitions such as those of Hexal and Eon Labs by Novartis for $8bn and of Ivax by Teva Pharmaceuticals for $7.4bn making 2005 a record year for such deal-breaking.

Driving this surge in consolidation is a demand to scale up as health insurers and governments are looking to cut costs and therefore find it cheaper to deal with single providers of pharmaceuticals who can offer a broad portfolio of products.

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