Home  English Website About STADA Company profile The strategy

Company profile

The strategy

Strategic focus on markets with long-term growth potential

The increasingly international orientation of business activities at STADA Arzneimittel AG and STADA’s Group companies are focused on the health care market, in particular the pharmaceutical market. For years, these markets have recorded a growing demand worldwide; also for the years to come, external analysts forecast further growth of these markets. The constant growth trends in the markets will be, in particular, medical progress increasing life expectancy in industrial countries and global population growth.

Core segments Generics and Branded Products

In the health care and pharmaceutical market, STADA concentrates on the development and marketing of products with active ingredients – generally active pharmaceutical ingredients – which are free from commercial property rights, particularly patents.Due to cost and risk aspects, STADA deliberately does not carry out any research into new active pharmaceutical ingredients.

In accordance with this strategic alignment, Generics and Branded Products are the Group’s two core segments:

• Products for which the focus of sales and marketing is on a low pricing and/or on a cross-product and active-ingredient marketing concept are, in the scope of the Group’s segmentation, part of the core segment Generics;
• Products for which the specific product characteristics and in particular also the brand name of the respective product are at the forefront of marketing are part of the core segment Branded Products.

Non-core activities comprise businesses and equity interests in fields outside the two core segments at STADA. These non-core activities are aimed at supplementing and supporting the Group’s business in the core segments.

Challenging conditions

Inherently linked to the historical and projected continuous growth of the markets in which STADA is active are also challenging conditions.¹⁾

The good growth opportunities thus attract intense competition. In addition, these markets are strongly characterized by regulatory influences. Because it is one of the central tasks of each country to provide as many of its citizens as possible with access to health care at acceptable cost. Therefore, the continuous increase in demand in the health care and pharmaceutical market leads to constant cost pressure in nearly all national health care systems, regularly entailing cost saving state regulation.

The health care policy interventions in local regulatory framework conditions that must always be expected thus have a particularly strong effect on generics. Such interventions can have a curbing effect if, for example, a state regulates direct price reductions, but they can also have a stimulating effect if, for example, stronger regulatory incentives for the prescription of low-price generics are given in a national health care system.

In addition to these industry-specific challenges, STADA also faces general business risks. Currently these include, to a great extent, the potential effects of the global financial and economic crisis.

Flexible and lean operative alignment

STADA’s strategic response to this structural environment lies in a lean and above all flexible operative alignment. Rapid change in response to altering conditions with, at the same time, high cost sensitivity are decisive success factors for STADA, characterizing therefore the operative alignment in all of the Group’s functional areas.

International sales infrastructure

An essential factor for success of STADA’s business model is market proximity through the international network of local sales companies. Only through its local sales presence in the individual national markets, which due to the different health care systems differ strongly, the Group is capable to take advantage of the respective structural growth potential for its own growth. In order to rapidly adapt to the frequent variations in structural conditions of the respective national health care markets, STADA’s local sales companies have a high level of sales autonomy. In individual national markets, STADA thereby also relies on sales companies which operate parallel to one another or focus on specific market segments if the respective market structures require this to take optimal advantage of the potential.

Continuous portfolio expansion

The continuous expansion of its product portfolio – visible in form of the high annual number of product launches within the Group – is a central success factor for STADA. In view of costs and regulatory requirements, the objective of the Group’s development activities that are based on many years of experience – also including the use of external development partners – is to provide the sales companies with a product portfolio that is always up to date. This applies in particular to generics for which the launch of new products promptly after expiration of the commercial property rights is one of the central operative success factors. For several years already, STADA has been selectively increasing the in-house development of important active pharmaceutical ingredients to reduce supply commitments, which are frequently associated with the use of external development partners, and thereby to optimize the procurement and production costs.

Continuous cost optimization

Particularly of its larger core segment Generics, STADA has a price-sensitive business model. Therefore, an important success factor of the Group is the continuous cost optimization. Within the framework of this ongoing cost optimization, one focus continues to be cost of sales. For reasons of flexibility and cost, STADA does not normally carry out its own production of raw or auxiliary materials, utilizing instead a worldwide network of raw materials suppliers.

STADA has recourse to a flexible, international network of internal and external resources in the area of pharmaceutical production²⁾. Here particularly the production facilities acquired and expanded over the last few years in the low-cost countries have made their corresponding contribution. Within the framework of the production strategy, the large production sites in South East Europe, Russia and Vietnam play a special role, as STADA – in view of the continuous cost optimization – is increasingly transferring production activities into these cost effective Group-owned production facilities. Due to the contracts that already exist, however, these are longer-term processes. With a view to the continuous cost optimization in the area of cost of sales, the Group will also continue these comprehensive transfer processes in the future.

Cost optimization potential can also be expected in the sales area. For fully developed national sales companies, the continuous expansion of the current product portfolio is frequently possible without the additional need for sales capacities. This is associated with cost-reducing economy of scale effects. Furthermore, it is regularly assessed whether in case of changed demand mechanisms for Group products the sales capacity can be modified, adapted or reduced in the individual markets.

Cautious acquisition policy

In addition to STADA’s organic growth, the Group’s cautious acquisition policy is the basis of the sustainable and successful growth course. STADA can thereby rely on its many years of experience in selecting suitable acquisition objects as well as in integrating acquired products and companies into existing business activities. However, STADA is currently hesitant to further increase the Group’s net financial liabilities in order to finance external growth without, however, excluding taking advantage of special opportunities. For larger projects such as acquisitions or cooperations with capital investments, however, appropriate capital measures continue to be imaginable if the burden on the equity-to-assets ratio from such acquisitions or cooperations is too high.

1)	For a comprehensive presentation of the risks for the Group anticipated by the Executive Board from today’s perspective: see “Risk Report” in the Annual Report 2009.
2)	Pharmaceutical production: Conversion of the active pharmaceutical ingredient into a dosage form, e.g. tablet.