Pliva sees growth, but needs partners to recover profits

ZAGREB – Croatian drugs firm Pliva expects organic growth of at least 10 percent in coming years, when profitability will rise and growth costs shrink, Chief Executive Zeljko Covic said yesterday. In the nine years since its listing on the London stock market, Pliva, Eastern Europe’s largest drugs maker by sales, has grown from a local company into a global player in the generic business. Yet profitability suffered after several acquisitions and a failed venture in the proprietary business. «We extended our presence from Croatia to some 30 markets in Europe and North America. This incurred considerable costs, but now we turn to cheaper, organic growth which will positively affect profitability,» Covic told Reuters in an interview. In the first half of 2005, Pliva swung to a net loss of $83 million from a net profit of $89 million a year before. The result was largely due to the loss-making incontinence drug Sanctura on the US market. Pliva sold the drug in May and decided to withdraw from the proprietary business altogether by the end of the year. Now it sees the generic business, including a strong input of biotechnology, as its main earnings-driver in the future. «This year, we will have launched more than 80 new generic products. We have more than 100 molecules in our pipeline and I am convinced we will keep up a strong pace in launching new products to the markets in the coming years,» Covic said. He said one of Pliva’s strengths was biotechnology as «there are not many generic players able to apply it, while the share of biogenerics in the industry is on rise.» Pliva is under pressure to offset a sharp decline in royalty revenues from November, when patent protection for its blockbuster antibiotic azithromycin expires on the US market and its annual royalties shrink from some $150 million to something much smaller. «That decline will not affect overall revenues much, but profitability in 2006 will suffer as royalties are revenues without costs. It will certainly take a few years to recover our profitability,» Covic said. He said Pliva lacked the financial muscle to continue research into new drugs on its own and was intensively looking for partners. «We’re not financially strong enough to work on generics, biotechnology and new drugs at the same time. New drugs are an expensive and risky business. We reached a certain stage with some molecules, but now we need partners,» Covic said.