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STADA - A strong brand with strong brands

Sales in the Branded Products core segment increased by 8% to EUR 425.0 million in financial year 2010 (previous year: EUR 392.6 million). Branded Products thus had a share of Group sales of 26.1% in financial year 2010 (previous year: 25.0%). The Group recorded an increase of 3% in adjusted sales of branded products in 2010.

The core segment Branded Products recorded growth in sales of 12% to EUR 350.1 million (1-9/2010: EUR 311.4 million) in the the first nine months of 2011. Branded Products thereby contributed 28.0% to Group sales in the first nine months of 2011 (1-9/2010: 26.4%). Adjusted sales of branded products in the Group recorded a plus of 13%.

In this segment, STADA’s focus lies on products with off-patent active pharmaceutical ingredients, for which the specific product characteristics and in particular also the brand name of the respective product are at the forefront of sale. Thereby, the Branded Products portfolio at group level continues to consist primarily of non-prescription products in individual national markets, but also of prescription drugs.

Branded Products, STADA’s second core segment, also demonstrate growth potential due to increasing life expectancy in industrialized countries. Economic influences in individual national markets carry more weight here however than in the case of generics, as the majority of the costs are assumed by the patients themselves and are only partly reimbursed. Moreover, the development of branded products can also be affected by regulatory framework conditions such as modified reimbursement regulatory conditions or pricing requirements. This occurs, however, less frequently and with less marked operating consequences than with generics.

In the core segment Branded Products, STADA also pursues a selective portfolio approach. Accordingly, the Group only markets the branded products in selected local markets depending on availability and market responsiveness. STADA focuses on the concept of so-called “strong brands” which as they are very well known, ideally as the local market leader, with comprehensive promotional and sales support, enjoy growth opportunities independently of local market trends as far as possible.

In view of increasing pressure to reduce costs, to which the individual national health care systems are exposed, the Executive Board sees further growth potential in the Branded Products core segment, as better margins can generally be achieved with them and they are subjected to far less regulatory intervention than generics. In view of these prospects, STADA will accelerate further the continued expansion and internationalization of this core segment in the future.

In the second quarter of 2011, STADA and Grünenthal GmbH, a globally active research pharmaceuticals company located in Aachen, Germany, agreed to negotiate exclusively on the purchase of a branded product portfolio including the associated sales structures for numerous national markets in Central and Eastern Europe as well as in the Middle East.¹⁾ In the current third quarter of 2011, both negotiating partners signed the respective contracts.²⁾

The purchase price for the branded product portfolio including sales structures and various pipeline products amounts to a total of approx. EUR 360 million in cash. The products, which include, among others, the branded products Tramal^®, Zaldiar^®, Transtec^® and Palexia^® in the relevant countries, are for the most part prescription drugs and positioned primarily in the pain area of indication. Expected sales in the current financial year 2011 for the existing product package in the respective markets amounts to approx. EUR 68.6 million. The expected EBITDA in the same period should be approx. EUR 25.6 million. Both values do not yet consider the sales and earnings of the licensed product Palexia^® from the acquired product pipeline, which will be gradually introduced in the contract area in the next two years and from which thereafter an additional annual sales contribution of EUR 20 to EUR 25 million is expected.

The acquired product portfolio consists of over 14 own and licensed brands for Central and Eastern Europe as well as the Middle East. The products are currently sold in the contract area in Poland (approx. 30% share of sales), Russia (approx. 20% share of sales), Czech Republic, Slovakia, Slovenia, Romania, Bosnia, Serbia, Croatia, Latvia, Estonia, Ukraine, Hungary, Saudi Arabia, Kuwait, Lebanon, Jordan, the United Arab Emirates, Egypt, Yemen, Oman, Bahrain and Qatar and are each generally market leader in the relevant area of indication. With the purchase, STADA also takes over all legal sales units in these markets, along with the approximately 240 employees – thereof about 70% sales representatives – as well as the brand names and existing licenses. Grünenthal will itself continue to market the products in all other markets outside of the contract area under the same brand names. In addition, STADA has purchased all rights to these products for the national markets of the contract area in which the products acquired have not yet been introduced.

The purchase does not include any production facilities. For a contractually agreed period, Grünenthal will continue to manufacture the products for STADA, insofar as these are not licensed products. For the licensed products, STADA seeks a long term entry into the existing license and supply contracts. If, contrary to expectations, this is not possible, an appropriate reduction in the purchase price is called for.

The acquisition requires the approval of the responsible anti-trust authorities, so that the implementation of the transaction and the consolidation of product sales is expected for the fourth quarter of 2011. Payment of the purchase price will be made at the time of completion of the acquisition.

STADA will use cash on hand as well as existing free credit lines to finance the acquisition. In addition, the placement of a further corporate bond is currently being examined in this context.

With the acquisition, the STADA Group strengthens its presence in Central and Eastern Europe, one of the largest growth regions in the world, and further expands its basis in the Middle East and thus its international presence overall. In addition, STADA opens up new strategic distribution channels for appropriate products from the comprehensive Group portfolio which in future can also be marketed as branded products via the acquired sales structures in the respective markets in Central and Eastern Europe as well as the Middle East.

Furthermore, STADA signed contracts for the purchase of the British branded product Cetraben^® in the second quarter of 2011.³⁾ The sellers were various companies and a private individual. The purchase price amounts to GBP 30 million (approx. EUR 34.6 million). STADA used cash on hand to finance the acquisition.

Since 2006, the British STADA subsidiary Genus Pharmaceuticals has sold, under the Cetraben^® brand, a moisturizing cream and bath essence in the therapeutic area of dermatology for the treatment of skin eczema and dry skin as a licensed product in the UK. On completion of the contractually agreed purchase, these previously in-licensed products will be transferred to the ownership of Genus Pharmaceuticals. In 2010, Genus Pharmaceuticals generated sales of GBP 7.5 million (approx. EUR 8.7 million) with these high-margin and seasonally independent products and thus achieved sales growth of 27% compared to 2009.

Between 2006 and 2010, Genus Pharmaceuticals generated average annual growth rates of 30% with these products. After the purchase, the Company, from today’s perspective, sees good chances of maintaining this strong growth at a similar level. The planned introduction of further products under the Cetraben^® brand name is also expected to contribute to this.

The acquisition of the Cetraben^® branded products secures both products, whose license agreement would have expired at the end of 2012, for the product portfolio of Genus Pharmaceuticals in the long term. In addition, the profitability of Genus Pharmaceuticals will be considerably improved as a result of the license payments previously in the amount of 15% of net sales, which will no longer be applicable in the future.

In the context of the acquisition, STADA acquired the brands, the approvals, the product pipeline and the domain names for Europe and a large number of Eastern European countries including Russia as well as joint ownership of the dossier. The STADA Group therefore also has the opportunity to internationalize the Cetraben^® products and thus develop additional growth impulses for both products. Furthermore, the acquisition will allow STADA to further expand its expertise in the area of dermatology.

With the top five branded products in the Group in terms of sales, STADA achieved sales in the amount of EUR 104.0 million in 2010 (previous year: EUR 106.3 million). These products thus had a share of 24.5% of sales in the Branded Products segment in 2010 (previous year: 27.1%).

Measured by sales, Grippostad^®, with sales of EUR 28.7 million in financial 2010 (previous year: EUR 34.1 million), continued to be the strongest branded product in the Group.

In addition to Germany, branded products are distributed by STADA’s subsidiaries in Austria, Belgium, Bosnia-Herzegovina, Bulgaria, China, the Czech Republic, Denmark, Egypt, France, Finland, Ireland, Italy, Kazakhstan, Lithuania, Macedonia, Montenegro, the Netherlands, Poland, Portugal, Romania, Russia, Sweden, Serbia, Slovakia, Spain, Thailand, Ukraine, United Kingdom and Vietnam.

1)	See the Company’s ad hoc release of May 12, 2011.
2)	See the Company’s ad hoc release of July 22, 2011.
3)	See the Company’s corporate news of May 26, 2011.