Stada boosts production power with Russian pharma acquisition

The purchase, announced Friday last week, has given Stada 100 per cent ownership of the Makiz group of companies: ZAO Makiz-Pharma, ZAO Skopinpharm and ZAO Biodyne Pharmaceuticals. The staggered purchase price will partly depend on financial results over 2007, but is expected to be around €125m (less net debt) and a maximum of €135m. The acquisition is due to complete by the end of this year. According to Stada, Makiz represented a particularly valuable acquisition target, representing one of the fastest growing suppliers in the Russian pharmaceutical market. The group experienced a 95 per cent growth rate in local currency from 2005 to 2006, with annual sales hitting €51.5m. The Makiz portfolio comprises a 50/50 mix of generic and branded products, covering indications from cardiovascular disease and central nervous system complaints to tuberculosis and urology. The addition of the group to Stada's portfolio significantly strengthens the company's activities in the Russian market, complementing its existing businesses serving the region, Nizhpharm and Hemofarm. As well as providing another base from which to serve the Russian market, the Makiz acquisition also provides Stada with access to low-cost production sites and development centres in the region. ZAO Makiz-Pharma in Moscow covers a 1.5 hectare site, with production capacity of one billion tablets a year. The site was established in 2001, and has packaging equipment to complement the tablet production, along with other chemical-analytical and microbiological laboratories. ZAO Skopinpharm in Ryazan is a few years older, with production capacity of 500 million tablets and 30 million capsules per year. As well as manufacturing the company's own products, the Makiz Group sites also provide contract manufacturing services for external clients, but Stada representatives were unable to confirm whether the contract manufacturing activities would continue following integration into the Stada family of companies. Stada has historically made extensive use of contract manufacturers itself, believing this option to be more flexible and cost effective than manufacturing the products internally. However, over recent years the company has been pursuing plans to cut back on its use of external contract manufacturers and up it in-house production capacity. A significant milestone in these plans was the 2006 acquisition of Serbian firm Hemofarm for €493.9m, the largest acquisition in the company's history. The purchase provided six additional production facilities in a number of East European countries, providing the company with sufficient capacity to make in-house production of some of its products a more cost-effective option. Back in 2005 around 70 per cent of Stada's production was carried out by contract manufacturers; by 2006 this had dropped to 60 per cent, and with an active acquisition policy and plans to further reduce this reliance on external manufacturers, this figure can be expected to fall steadily over the coming years. "​The STADA group clearly intends to reduce outsourcing levels further on, mainly via transfer of volumes from contract manufactures to our own low cost facilities in Eastern Europe,"​ confirmed Axel Müller of Stada. Another small step in the company's plans to enhance in-house production capacity, the purchase also provides the extra foothold over in Russia, an "important growth market​" for the firm. The company reported sales of €87.5m in Russia over 2006, a significant increase over the 2005 figure of €56.5m, and largely due to the positive performance of Nizhpharm, Stada's local subsidiary since early 2005. According to Stada, the Makiz group has strong positions in government-funded programmes as well as in the patient-paid segments of the Russian pharmaceutical market, which could help the company's business in the region continue to show healthy growth over the coming years.