Dear shareholders, customers, business partners, and esteemed
employees;
I am very pleased to present you with our first EastPharma annual
report. Our achievements in our first year of operation in Turkey
bring the attainment of the vigorous growth targets that we have
set for the years ahead one step closer.
This annual report provides a review of our activities in 2007 as
well as our strategy, targets and expectations for the industry.
Success in implementing strategies
Our main objective is to become one of Turkey's leading
pharmaceutical companies and to attain revenue growth both in
Turkey and abroad through a combination of organic growth, joint
ventures, licensing and in-licensing deals and acquisitions. As a
company, we are committed to reviewing our business strategy on
an ongoing basis with the aim of increasing shareholder value.
We achieved a significant measure of success in implementing our
business strategy in 2007, reaching most of our goals, in addition
to posting a very satisfactory set of financial and operational
results.
As of year end, our total assets had risen by 59% to reach
USD 638 million, while our total shareholders' equity increased
by 70% to reach USD 512 million. We reported an adjusted EBITDA
of USD 33.1m and a net loss of USD 12 million.
Our sound business performance was also reflected in our operational
figures, with our top line growing from USD 9 million to USD 213
million. EastPharma produced a total of 105.84 million units, with
total exports, including both human pharmaceuticals and active
pharmaceutical ingredients (API), reaching USD 9.5 million, chalking
up a 6.7% increase.
These results allowed us to increase our market share to 5.1% by
year end 2007.
Why Turkey?
We have identified Turkey and a number of other selected emerging
market countries as a region offering significant growth potential
for EastPharma. Our business strategy is focused on taking advantage
of these growth prospects in our target markets.
We believe the Turkish pharmaceuticals market offers significant
opportunities and that Turkey will therefore be the cornerstone
of our business development. Turkey boasts a well developed
generic pharmaceutical industry and is a leader in the region in
terms of new drug development. Markets neighbouring Turkey also
present lucrative growth opportunities, and we seek to access
these markets through a number of channels including exports,
the establishment of sales teams in these markets and through
selective acquisitions.
The dynamics of the Turkish pharmaceutical market
The Turkish pharmaceuticals market is currently ranked as the 13th
largest market worldwide but is forecast to be one of the top ten
markets by 2010. Turkey is the second most populous country in
Europe, and is driven by favorable demographics, improving life
expectancy and widely publicized EU accession plans.
The size of the Turkish pharmaceuticals market amounted to USD
8.9 billion in 2007 and has exhibited strong growth over the past
few years. Despite the strong growth in the Turkish pharmaceuticals
sector, per capita pharmaceuticals expenditure still stood at a
modest USD 103 in 2006 and is expected to be around the same
level in 2007. This falls significantly short of the levels seen in
almost all developed nations and is a testament to the further
growth potential in the Turkish pharmaceuticals sector.
Turning to the utilization rates of generic vs. branded
pharmaceuticals, Turkey has one of the highest consumption rates
of generics in Europe.
With regard to its therapeutic focus, the Turkish pharmaceutical
market is likely to shift towards more cardiovascular and CNS
categories and away from anti-infectives. In our view, this suggests
a potential mix more broadly in line with that seen in Western
Europe, reflecting the expected demographic shift and similar
underlying therapeutic trends.
(Source: IMS Health)
EastPharma's growth strategy is based on two main pillars.
Our growth strategy encompasses a linked and integrated
combination of organic and inorganic growth. Although our
operations and assets are primarily in Turkey, our organic growth
strategy includes plans to develop and expand both the geographic
coverage of our operations and our product portfolio through
selective acquisitions in Turkey and other selected emerging market
countries. Our target markets include the emerging economies in
the CIS, North Africa, the Middle East and parts of Asia as well as
developed markets in the United States and Europe.
With regard to organic growth, we are currently building the
foundations for regional expansion via three specific geographical
areas: Georgia, Russia, Ukraine and Kazakhstan, as well as leveraging
our current position in Turkey with Deva and Saba.
Our operations in Georgia got underway in May 2007. The local
office was opened with licenses obtained from the Georgian Ministry
of Health and 40 products have been registered to date. The office
has a sales force of 14 staff. Our product portfolio in the Georgian
market will include both oncology and commodity type products.
Elsewhere, we have completed the process of opening local offices
in Russia and Ukraine, timing the first product launches for Q3
2008. We have chosen to concentrate our initial product offering
in what we deem to be niche therapeutic areas, specifically oncology
and cardiovascular drugs.
Turning to possible inorganic expansion/acquisition goals, we seek
to complete various acquisitions, which we would class in three
categories:
• the 'bolt-on type' which leverages the current infrastructure of
our company (transaction size up to USD 100 million);
• the small to medium (transaction size also up to USD 100 million)
geographical expansion type whereby our company would purchase
a small local player to act as a nucleus for geographical expansion;
and
• strategically larger deals (transaction sizes of between USD 100
million and USD 1,000 million) which would rapidly propel us to
leading market share positions in new geographical territories.
Building the foundations for growth
The construction process of our new manufacturing facilities, which
will become fully operational by the end of third quarter 2008, is
continuing well. The investment, which encompasses a new
Betalactam unit, a new Cephalosporin building, as well as separate
oncology, injectables and general production sites, is likely to be
the largest such investment currently carried out by a pharmaceutical
company in Europe.
Our new facilities will increase our current yearly production
capacity from 80 million boxes to 350 million boxes. With these
investments, we are laying our foundation for growth in both
Turkey and international markets.
2007 key milestones
• Construction of new production campuses at Çerkezköy and
Köseköy/‹zmit started in April 2007
• EastPharma acquired Saba Pharmaceuticals in May 2007
• EastPharma was listed on the London Stock Exchange (GDR)
through an IPO held in July 2007
• EastPharma's head office was relocated to its new premises in
the Halkal› district of Istanbul in November 2007
• EastPharma met its product launch goals and launched six new
products in thirteen presentation forms in 2007
Outlook
In the coming years, we seek to enhance our position in Turkey
with new operational and investment initiatives. We aim to become
the leading pharmaceutical company in Turkey and to continue
expanding our operations both here in Turkey and abroad. We plan
to achieve these goals by implementing the following business
strategies:
• Continue to implement our focused growth strategy and promote
growth in exports
• Capitalize on the growing demand for our products
• Pursue selective acquisition and investment opportunities
• Diversify our product and service portfolio
• Further improve our core competencies
• Continue to develop manufacturing facilities and internal research
and development functions
• Reduce the cost base and streamline our corporate structure
We believe that the company has a sound strategic direction and
that the steps being taken to streamline our business will strengthen
our position going forward. We have confidence in our strong
brand name and products, the capability of our sales force and
the strength of our large distribution network. These competitive
advantages will enable us to increase our market share, generate
higher profits, create added value for our stakeholders and assist
EastPharma in achieving a leading position in its sector.
To sum up…
EastPharma's development will continue to be based on delivering
solid and sustainable performance from its core activities. In
closing, I would like to thank our shareholders for their trust, all
of our employees for their commitment, and our business partners
for their continued and valuable support.
Philipp Haas,
Chairman of the Board of Directors
