Veropharm

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COMPANY PROFILENOVEMBER 2007
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DISCLAIMER
THIS PRESENTATION IS NOT AN ADVERTISEMENT OF
SECURITIES IN ANY JURISDICTION. NOT FOR
RELEASE, DIRECTLY OR INDIRECTLY, IN THE UNITED
STATES OF AMERICA, AUSTRALIA, CANADA OR
JAPAN. This document includes statements that
are, or may be deemed to be, forward-looking
statements. These forward-looking statements
can be identified by the fact that they do not
only relate to historical or current events.
Forward-looking statements often use words such
as anticipate, target, expect, estimate,
intend, expected, plan, goal believe, or
other words of similar meaning. By their nature,
forward-looking statements involve risk and
uncertainty because they relate to future events
and circumstances, a number of which are beyond
Companys control. As a result, actual future
results may differ materially from the plans,
goals and expectations set out in these
forward-looking statements. Any forward-looking
statements made by or on behalf of the Company
speak only as at the date of this announcement.
Save as required by any applicable laws or
regulations, the Company undertakes no obligation
publicly to release the results of any revisions
to any forward-looking statements in this
document that may occur due to any change in its
expectations or to reflect events or
circumstances after the date of this
document. The securities referred to herein have
not been and will not be registered under the US
Securities Act of 1933, as amended (the
"Securities Act"), and may not be offered or sold
in the United States or to US persons unless the
securities are registered under the Securities
Act, or an exemption from the registration
requirements of the Securities Act is available.
No public offering of the securities will be made
in the United States. This communication is
being distributed only to and is directed only at
(a) persons outside the United Kingdom, (b)
persons who have professional experience in
matters relating to investments, i.e., investment
professionals within the meaning of Article 19(5)
of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2005 (the "Order"),
and (c) high net worth companies, unincorporated
associations and other bodies to whom it may
otherwise lawfully be communicated in accordance
with Article 49 of the Order (all such persons
together being referred to as "relevant
persons"). The securities are available only to,
and any invitation, offer or agreement to
subscribe, purchase or otherwise acquire such
securities will be available only to or will be
engaged in only with, relevant persons. Any
person who is not a relevant person should not
act or rely on this communication or any of its
contents.
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COMPANY IN BRIEF

• Founded in 1997 by Pharmacy Chain 36.6 and its
  shareholders
• One of the largest Russian generic drug
  manufacturers
• Operates three production facilities in
  Belgorod, Voronezh, and Pokrov
• Employs 3,100 people
• Specializes mostly in prescription (RX) drugs
• Successful market player in oncology
• 1 by production and sales of adhesive bandages
  in Russia and Ukraine

• IPO in April 2006
• Current market cap. mln.
• Trading at RTS and MICEX Tickers VRPH (RTS)
  and VFRM (MICEX)
• About 49 are currently in the free float

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PRODUCT GROUPS
Sales in 9m 2006, USm
Sales in 9m 2007, USm
Rx Products, 53
Rx Products, 55
Adhesive Bandages, 22
Adhesive Bandages, 19
68.3m
90.1m
Traditional Products, 16
Traditional Products, 17
OTC Products, 9
OTC Products, 9
Gross Profit in 9m 2006, USm
Gross Profit in 9m 2007, USm
Rx Products, 63
Rx Products, 66
Adhesive Bandages, 21
Adhesive Bandages, 17
42.9m
56.5m
Traditional Products, 9
Traditional Products, 9
OTC Products, 7
OTC Products, 8
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Company accounts
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FAST-GROWING MARKET

• Increase in consumer welfare and demand for
  expensive drugs
• Commercial sector of the retail market was 5,8
  bln. in 9m 2007, that shows 18 rise y-o-y
• Federal Reimbursement Program (FRP) was reduced
  by 31 in 9m 2007 vs 9m 2006
  to 1.16 bln.
• Growing rate of diseases and epidemics

Pharmaceuticals market in retail prices, US
billion, VAT included
CAGR of 12,5 2006-2010E
14
13
12
11
36
35
19,6
17.2
15.2
13,6
12.3
9.0
6.7
2004
2005
2006
2007?
2008?
2009?
2010?
Source DSM Group, Pharmexpert 9m 2007
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MARKET STRUCTURE
Market Structure
Imported VS Domestic drugs, US
Pharmacy, 71
Import, 78

• Market statistics
• Imported drugs account for approximately ¾ of the
  market in value terms according to DSM Group
• Prescription drugs account for 63 of sales in
  value terms and 36 in volume terms
• Most of the sales are effected through
  pharmacies or hospitals, FRP sales accounted for
  11 of the market

8,2 bln.
100
Hospital, 14
FRP, 11
BAD, 4
Local, 22
Rx VS OTC, in US terms
Rx VS OTC, in number of packs sold
Rx, 63
Rx, 36
100
100
OTC, 37
OTC, 64
Source DSM Group, Pharmexpert, RMBC 9m 2007
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TOP RUSSIAN PRODUCERS
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Source Pharmexpert, 9m 2007
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FRP SALES
9m 2007
9m 2006
- 17
FRP sales 4.3 mln.
FRP sales 5.2 mln
FRP sales
FRP sales
other sales
other sales
8
Source Company data
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PRODUCTION FACILITIES
VORONEZH Built in 1934 Production ampoules, zinc
oxyde all types of plasters Employees 1,371
POKROV Built in 1998 Production flacons
(lyophilized liquid forms) Employees 256

• 3 plants in the European part of Russia
• 2,731 factory employees as of September 30, 2007
• Flexible manufacturing facilities that allow
• cost-efficient production of both small and large
  batches
• quick shifts from one product to another

BELGOROD Built in 1968 Upgrade in
2001 Production ampoules, tablets, capsules,
dragee Employees 1,104
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PRODUCT GROUPS

• Fast-growing segments
• Rx products
• Sales CAGR 03-06 57
• OTC products
• Sales CAGR 03-06 27

Sales in 9m 2007, USm
Rx Products, 55
Adhesive Bandages, 19
90.1m
Traditional Products, 17
OTC Products, 9

• Cash-cows
• Traditional products
• Sales CAGR 03-06 7
• Adhesive bandages
• Sales CAGR 03-06 4

Gross Profit in 9m 2007, USm
Rx Products, 66
Adhesive Bandages, 17
56.5m
Traditional Products, 9
OTC Products, 8
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Company accounts
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PRESCRIPTION (RX) PRODUCTS

• Utilize and leverage existing sales force and
  develop it in accordance with the portfolio
  development.
• Target clinical specialists and opinion leaders
  in complex therapeutic areas rather than general
  practitioners.
• Build corporate reputation through targeted
  education of medical professionals.
• Bringing modern off-patent drugs to market
• Rely on RX products selling via retail channels
• Improvement of product management functions
  through decentralization

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HOSPITAL PRODUCTS
Veropharm 1,27
76,9
23,1
9m 2007
Veropharm 1,13
21,4
9m 2006
78,6
0
10
20
30
40
50
60
70
80
90
100
Import
Local
12
Source Pharmexpert, 9m 2007
13
SHARE of HOSPITAL PRODUCTS
13
Source Pharmexpert, 9m 2007
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RELY ON RX VIA RETAIL CHANNELS
OTHER PRODUCTS sales USm
RX sales USm
46,2
49,9
52,8
41,9
40,3
35,9
36,0
32,4
9m 2006
9m 2007
2005
2006
9m 2006
9m 2007
2005
2006
14
14
According to management accounts
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RETAIL PRODUCTS LEADING IN GROWTH
Products that sell through retail channels and
have a wide, diversified customer base
are growing faster than hospital products
that have a more concentrated customer base
HOSPITAL Rx sales USm
PHARMACY Rx sales USm
38.8
13.6
16,9
26.9
8.3
32,6
25,4
10,2
15
15
9m 2006
9m 2007
2005
2006
2005
2006
9m 2006
9m 2007
According to management accounts
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OTC PRODUCTS

• Focus on maintenance of existing products,
  minimizing investment and advertising costs
• Opportunistically develop only major attractive
  products as they lose patent protection
• Focus on building relationships with retail
  chains
• Individual product branding
• Piggy-back on specialist field force if products
  could be promoted alongside our Rx portfolio

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TRADITIONAL PRODUCTS

• Zero-cost maintenance of the existing portfolio
• No new product development
• Exploiting natural demand for high quality
  traditional INNs
• Opportunistic inclusion in reimbursement schemes,
  where economically justified
• No active promotion

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ADHESIVE BANDAGES

• Development of value added branded product
  portfolio in underdeveloped niches (specialty
  foot care, analgesic, burn care, smoking
  cessation etc.)
• Focus on building preferred and exclusive
  relationships with the retail chains, enabling
  POS activity, distribution coverage and preferred
  merchandising positions

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SMART BANDAGES

• Bactericidal category - launched

• Bleed category to be launched

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MANAGEMENT STRUCTURE
Anton PARKANSKY Chief Executive Officer
Marina PENKOVA Chief Financial Officer
Oleg KUZNETSOV Director of hospital Rx Department
Stanislav STUKALSKY Adhesive Bandages BU Director
Evgeniy DREGNIN Traditional BU Director
Ivan KONOPLYANNIKOV Pharmacy BU Director
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FINANCIALS ANALYSIS
IFRS FY 2006, FY 2005, FY 2004 audited by
Deloitte
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SHARE PRICE
M.CAP MLN (as at as per
RTS)

• IPO in April 2006
• Shares placed at 28 per share
• Ticker
• VRPH (RTS)
• VRFM (MICEX)
• About 49 are currently in the free float

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SELECTED FINANCIALS
Sales
EBITDA
100,5
28,9
92,1
24,5
24,0
79,4
59,6
16,4
92
85
2004
2006
2005
9m 2007
2006
2005
2004
9m 2007
Gross Profit
Net Income
18,4
60,1
55,4
16,0
15,7
47,0
10,1
32,2
92
85
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23
2005
2004
2006
9m 2007
2004
2006
2005
9m 2007
In USD Millions
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SALES GROSS PROFIT

• Growth in Rx hospital portfolio
• Increase in higher-margin products sales
• FRP sales amounted to 12 in 2005 6 in 2006

Sales
Gross profit
24
24
In USD Millions
25
SALES GROSS PROFIT
9m 2007
Sales

• Growth in Rx hospital portfolio
• Increase in higher-margin products sales
• FRP sales amounted to 5 in 9m2007

Gross profit
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25
In USD Millions
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SALES ANALYSIS
21.1 (21.0)
RX
19.5 (24.6)
Adhesive bandages
52.8 (52.6)
100.5
79.4
36.0 (45.4)
15.2 (19.2)
16.7 (16.7)
Traditional
7.2 (9.0)
8.4 (8.3)
OTC
1.4 (1.8)
Others
1.5 (1.4)
2005
2006
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In USD Millions as percentage of Sales
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SALES ANALYSIS
RX
(19.0)
Adhesive bandages
(21.5)
92.1
(54.2)
70.7
Traditional
(50.8)
(16.4)
(16.0)
OTC
(8.4)
(8.3)
Others
(3.4)
(2.0)
9m 2006
9m 2007
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In USD Millions as percentage of Sales
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COST OF SALES
(8)
(7)
40.4
(8)
(22)
(24)
(40)
32.4
(2)
27.4
(26)
(41)


(46)
(3)
(2)
(2)
(2)
(3)
(6)
(6)
(6)
Raw materials and goods for resale Salaries and
wages Repairs and maintenance Depreciation of
manufacturing assets Other

• Cost structure remained without significant
  changes
• COS increased by y-o-y in 2006

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28
In USD Millions as percentage of Sales
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COST OF SALES
(9)
(8)
(23)
36.7
(40)
29.1
(22)
(2)
(41)
(1)
(2)
(2)
(7)
(5)
Raw materials and goods for resale Salaries and
wages Repairs and maintenance Depreciation of
manufacturing assets Other

• Cost structure remained without significant
  changes
• COS increased by y-o-y

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In USD Millions as percentage of Sales
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SGA
(8)
(4)
(12)
(2)
(10)
(11)
(14)
(34)
(14)
19.5
(2)
(32)
(33)
(2)
(13)
(12)
(9)

• SGA increased by y-o-y in 2006
• Promotion expenses associated with newly launched
  products increased

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In USD Millions as percentage of Sales
31
SGA
(10)
(13)
(9)
(13)
33.6
24.6
(36)
(35)
(2)
(2)
(11)
(11)

• SGA increased by y-o-y
• Promotion expenses associated with newly launched
  products increased

31
31
In USD Millions as percentage of Sales
32
EBITDA NET INCOME

• EBITDA increased by y-o-y in 2006
• Net income increased by y-o-y in 2006

EBITDA
Net income
32
32
In USD Millions
33
EBITDA NET INCOME
9m 2007

• EBITDA increased by y-o-y
• Net income increased by y-o-y

EBITDA
Net income
33
33
In USD Millions
34
CASH FLOW
2006
3,1
19,4
30,3
2,1
0,7
5,0
Operating cash flow before
Changes in INV
Changes in AR
Changes in AP
Income taxes paid
OCF
working capital changes
Interest paid
2005
3,9
14,9
23,1
4,8
5,8
3,3
Operating cash flow before
Changes in INV
Changes in AR
Changes in AP
Income taxes paid
OCF
working capital changes
Interest paid
34
34
In USD Millions
35
CASH FLOW
9m 2007
9m 2006
35
35
In USD Millions
36
BALANCE SHEET
CL DEBT OTHER EQ
CA NCA
36
36
2005
2006
9m 2007
In USD Millions
37
Address bld.3, Barabanniy side-street Moscow,
105062 Tel. [phone] Fax 7 (495)
792-5328 E-mail info_at_veropharm.ru www.veropharm.r
u
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