At the beginning of 2010, the entire Central and Eastern Europe experienced the largest deceleration of growth in the pharmaceutical and OTC markets in more than ten years. However, the market’s weaker growth dynamics in H1 2010 did not prevent Nepentes from strengthening the market position of its products, expanding exports and increasing sales of prescription drugs.
 

Nepentes was well prepared for to face the recently experienced volatility of the economic and market environment. In H1 2010, the Company increased its gross margin to 56.2%, compared with 55.6% in H1 2009. Operating margin and net margin stayed at a double-digit levels of 16.2% and 12.9%, respectively.

Sales revenue exceeded PLN 64.5m, close to the previous year’s figure. Operating profit reached PLN 10.5m, down by 14.5% on H1 2009, and net profit amounted to PLN 8.4m, down by 24.7% year on year.

“These results must be viewed in the context of two principal factors. First, the decrease in result was due to completion of the investment project in Chociw. The Company has now been incurring the costs of maintenance of two production plants, and that was also further increased by the cost of transfer of production. Second, the market dynamics was in H1 2010 considerably lower than had originally been expected,” commented Łukasz Butruk, President of the Management Board of Nepentes S.A.
 

Production of the entire range of dermocosmetics was transferred from Łódź to the new plant in Chociw. As soon as the Chociw plant obtains a certificate of pharmaceutical production in the highest GMP standard, it will launch production of selected pharmaceuticals in the ointment and liquid form. Commissioning of the Chociw plant marks the closing of the first phase of the investment plan, opens up new opportunities for Nepentes and enables the Company to start charging depreciation on the tangible assets purchased under the project.
 

One of the key events in Q2 2010 was the announcement of a tender offer for all Nepentes shares by Sanofi-Aventis, one of the largest global pharmaceutical conglomerates. The offer ended in August, already after the balance-sheet date, with a full success. The tender offer and its terms were approvingly recommended by the Management Board of Nepentes, which had found the proposed price attractive to the existing shareholders. Furthermore, such an excellent investor will further support the Company’s dynamic growth in the Polish and CEE markets, and will give momentum to the process of globalisation of the Company’s selected products.
 

In H1 2010, sales of dermocosmetic preparations rose by over 12% year on year. Sales of Nepentes’ own products have also been growing steadily, by 7.2% in H1 2010.

“Despite weaker economic conditions in CEE countries, we have been steadily increasing the sales and the market shares of our products on the key export markets. In the first half of 2010, export sales accounted for more than 17% of the total revenue, which was by 10.9% more than in the first half of 2009,” said Company President Łukasz Butruk. “We expect exports revenue to grow further and our Romanian and Bulgarian subsidiaries to record positive net margins this year,”  added Mr Butruk.

Very good results were recorded on the export of the Emolium products to Russia, where they were met with a positive reception. In H1 2010, sales to Russia totalled PLN 2.3m and directly contributed to the Company’s profit.
 

On the Polish market, introduction of the Company’s own dermatology drugs towards the end of Q4 2009 proved a major success. In H1 2010, the first quarter was particularly important for the sales of the medicines offered by Nepentes. It was in the first quarter of the year that construction of numerical distribution was completed, designed to reach the broadest possible range of pharmacies in order to ensure the availability of products in any dosage form and packaging. For the entire first half of 2010, Nepentes recorded revenue from sales of medicines of more than PLN 2m.

 

According to a new definition by IMS Health, the total dermocosmetics market comprises all pharmacy-sold products registered as “cosmetics” (including emollients). In accordance with this new definition, in H1 2010 pharmacy sales stood at a level similar to that in seen H1 2009 – it declined only slightly, by 1%, to PLN 727.2m.

In H1 2010, the value of the OTC market increased slightly in value terms, by 1.3% year on year. Its value in H1 2010 exceeded PLN 2.7bn. After a weaker first quarter, due to the absence of the typical infection season, we saw a clear revival in the second quarter and a return to the typical trend.

According to IMS’ data, in H1 2010 the market of dermatology drugs grew by nearly 4% relative to H1 2009, to reach PLN 320m in value. These categories of dermatology drugs to which Nepentes’ products belong have been growing in value. Drugs offered by Nepentes have been placed successfully among directly competing (including the same active ingredients) products, achieving high market shares. This proves that the adopted growth strategy for Nepentes’ dermatology drugs portfolio has been effective.

Nepentes’ preparations are leaders or best selling products in their respective market categories. In H1 2010, Emolium maintained its leading position on the emollients market, with a 27.8% market share, while Iwostin ranked fourth in the dermocosmetic preparation category, with a 6.1% market share. In June 2010 alone, Iwostin held the third position on the market with a 6.5% share in total pharmacy sales.

As far as other market categories are concerned, despite the difficult situation on the OTC market due to the absence of the typical flu season in the first half of 2010, the key brands distributed by Nepentes maintained their high market positions. Sudocrem is still a customer’s first choice preparation and the market leader in the nappy rash segment. Its market share increased in H1 2010 to 32.3%. Marimer still occupies the second position in the sea water solutions segment with a market share of 24.3%.

 

Nepentes S.A. is among the most dynamically growing pharmaceutical companies, focusing on delivering to the market innovative formulations and solutions in the area dermatology, paediatrics and colds. It has developed and currently manufactures the Iwostin, Emolium and Propolki brands, which are sold in Poland and in other countries of the CEE region. In addition, the business scope of Nepentes S.A. comprises the introduction and promotion of a number of internationally-recognised pharmaceutical brands, including Sudocrem, neo-angin, Melisana and Marimer. Last year, the Company added prescription dermatology drugs to its product portfolio. Nepentes’ production plants, located in Łódź and Chociw, operate their own in-house research and development centre and are listed among the most advanced plants of the type in the Central Europe.

September 2007 saw the establishment of two subsidiaries of Nepentes: Nepentes Romania and Nepentes Bulgaria, while in early 2008 Nepentes set up its own sales structures in Lithuania. The Company has also registered subsidiaries in the Czech Republic and Slovakia.

Nepentes S.A. is a public company, listed on the Warsaw Stock Exchange since December 2007. Following a tender offer for Nepentes shares announced by Sanofi-Aventis on May 19th 2010, on August 18th 2010 Sanofi-Aventis acquired in aggregate 15,657,476 shares in Nepentes, representing 99.7% of the Company’s total share capital. These shares confer the right to 15,657,476 votes, or 99.7% of the total vote at the at General Shareholders Meeting of Nepentes. Since August 18th 2010, Sanofi-Aventis has been the parent undertaking of Nepentes S.A. within the meaning of Art. 4.4 of the Polish Commercial Companies Code.
 

More information about the Company and its products is available at www.nepentes.com.