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LEADING DRUG PRODUCER HAS BROAD PRIVATIZATION INTERESTS

Company Profile: Slovakofarma

For a company that started out in 1941 by producing morphine and its derivatives, Slovakofarma a.s. has grown into quite a giant in recent years. Today it is one of the top firms in Slovakia, especially regarding profitability and export performance. "Slovakofarma now ranks among the six largest pharmaceutical companies in Central and Eastern Europe," said Ondřej Gattnár, the 48-year-old general director.
Slovakofarma manufactures more than 230 types of drugs which are classified into two categories, anatomical and therapeutic (ATC), which can be divided further into 18 groups. The largest portion of drugs is designed to treat cardiovascular diseases, and made up 31 percent of 1996 sales. The company's bestsellers are the well-known Agapurin and Alnagon tablets.


Slovakofarma director, Ondřej Gattnár.
Courtesy of Slovakofarma

For a company that started out in 1941 by producing morphine and its derivatives, Slovakofarma a.s. has grown into quite a giant in recent years. Today it is one of the top firms in Slovakia, especially regarding profitability and export performance. "Slovakofarma now ranks among the six largest pharmaceutical companies in Central and Eastern Europe," said Ondřej Gattnár, the 48-year-old general director.

Slovakofarma manufactures more than 230 types of drugs which are classified into two categories, anatomical and therapeutic (ATC), which can be divided further into 18 groups. The largest portion of drugs is designed to treat cardiovascular diseases, and made up 31 percent of 1996 sales. The company's bestsellers are the well-known Agapurin and Alnagon tablets.

Slovakofarma produces mainly generic drugs - drugs invented by the world's leading pharmaceutical companies that are no longer patent protected. The company's R&D department duplicates these medicines, which are then produced on a large scale by Slovakofarma. By this process, the company saves huge amounts of money on proprietary drugs research or expensive license purchases.

Such pharmaceuticals must then be registered in the country of sale and receive certification. "We have around 350 certifications abroad, another 360 are being prepared," Gattnár said at a recent press conference. "The company has already registered 10 of its finished pharmaceutical drugs in Western Europe. The substances [representing 9 percent of total sales] are almost exclusively exported to the Western European countries and Hungary," he added.

Gattnár explained that his company has no other choice but to expand abroad. "While last year our exports grew 15 percent, during the first half of this year we managed to strengthen exports by 55 percent," he said. "This is the only way possible for us, because the Slovak market is too small."

Slovakofarma's 1996 sales amounted to 4.413 billion Sk ($138 million): the company reaped a net profit of 513 million Sk ($15.5 million). "As much as 66 percent of sales were made abroad," Gattnár said. "The highest share, 47 percent, was sold in the Czech Republic, 34 percent was sold at home, and 19 percent went to other countries, especially in Central and Eastern Europe. This year we have more than doubled our sales in Russia and Ukraine."

Competing on the Czech market is something entirely new for Slovakofarma. Before Communism collapsed, production and distribution of pharmaceuticals in Czechoslovakia was pooled in SPOFA, a state-owned company. Therefore, pharmaceutical companies never acted as competitors. This is changing quickly, not only because of the entry of the world's pharma-giants such as Roche, Sandoz or Janssen Cilag, but also due to the growing competition among local producers.

"They had to become competitive if they were to keep their market share," said the marketing manager of the Slovak subsidiary of Léčiva, a.s., the largest Czech pharmaceutical company. Léčiva has still kept its dominant position on both the Slovak and Czech markets in financial terms. But She added that "perhaps Slovakofarma is first according to the number of packages sold."

To keep profitability and competitiveness, the company needs large investments. "Slovakofarma has invested a total of 3 billion Sk ($91 million) since 1990," Gattnár said. "In 1997 and 1998, we plan to invest 400 million Sk ($12 million) annually," he added.

So far, the investment has been spent mainly on environmental projects and on improving the production process. "We are already one of the most sophisticated companies in Slovakia, meeting the standards of several international inspections such as GMP certification for our production facilities," Gattnár said.

The company runs two production plants in Slovakia, with its headquarters based in Hlohovec, about 80 km from Bratislava, and a smaller plant in Malacky.

The name Slovakofarma definitely has a good reputation on the Slovak capital market, where it is one of the best traded stocks. Last February, the company joined other Slovak blue chips included in the SAX index. Before the recent GDR issue (please see story on page 5), the company's equity consisted of 1,384,588 ordinary shares and 138,459 employee shares, which get a higher dividend (230 Sk in 1996, 10 Sk more than ordinary shares) but carry no voting rights.

A majority of the ordinary shares, 77.94 percent, is owned by S.L. Pharma Holding, GmbH, Vienna, founded by Slovakofarma's top management in 1993 in order to privatize the company. As Gattnár explained for the press, "We had hard times obtaining external financing in Slovakia, so we decided to establish S.L. Pharma on the other side of the border."

Since then, the S.L. Pharma group has become an important privatization player in a number of other field-related companies, the most important being the VÚLM a.s., th Drug Research Institute in Modra, Biotika a.s. Slovenská Ľupča, the monopoly Slovak anti-biotics producer, and the Czech Intercaps, a capsule producer.

One of the S.L. Pharma owners is Vladimír Poór, a Trnava regional HZDS boss and one of the main representatives of the so called "Trnava group", a strong lobby controlling stakes in several top Slovak companies such as Nafta Gbely.

In attempting to diversify its activities, Slovakofarma has recently become known as the participant in two infamous projects. The first was the takeover of the Slovak part of AG Banka, formerly a Czech bank subsidiary with a balance sheet total of 5 billion Sk. The second project, although fruitless, was the planned takeover of the public television channel STV2 by PRO TV, a HZDS-friendly company.


Slovakofarma at a glance:
(1H97 figures in billion Sk)

Sales: 2.239
Net profit: 0.406
Equity:3.010
Registered capital: 1.523
Fixed Assets: 2.870
Total Assets:6.250
No. of employees:2,100
Return on Equity (ROE):13%

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