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<b><font FACE="Arial"><a name="Good Medicine: Croatian Drug Maker Pliva - Already A Giant - Aims to Grow Even More">Good |
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Medicine: Croatian Drug Maker PLIVA - Already A Giant - Aims to Grow Even More </a></font></b><font size="2"><p><font FACE="Arial">Wall Street Journal, by MATTHEW KAMINSKI</font></p> |
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<p><font FACE="Arial">Zeljko Covic is a pragmatic man. He served two years on the Zagreb |
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city council in the early 1990s, but now jokes that the experience wasn't a happy one. |
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"It didn't suit me," he says. "In politics, everything is possible; in |
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business, you have to be realistic."</font></p> |
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<p><font FACE="Arial">Now into his fifth year at the helm of PLIVA, the Croatian |
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pharmaceuticals giant, Mr. Covic has a chance to show how realistic he can be. The |
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conflict in Yugoslavia, which ended two years ago, broke his 77-year-old company's secure |
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home market of 22 million people into pieces. And while war was raging, Hungary's Richter |
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Gedeon Rt. and ICN Pharmaceuticals Inc. of the U.S. were moving aggressively to establish |
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strong regional presences in Central Europe and the former Soviet Union.</font></p> |
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<p><font FACE="Arial">Since then, Mr. Covic has embarked on a campaign to make |
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PLIVA, |
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which is still the largest pharmaceuticals group in the region in terms of sales, into the |
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area's unquestioned leader. Armed with a pile of cash amassed through sales of the firm's |
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popular antibiotic azithromycin, he has begun moving into promising markets, such as |
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Poland and Russia. Analysts say his ambitious forays may yet allow Mr. Covic to achieve |
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his goal of turning the firm into Central Europe's first home-grown multinational.</font></p> |
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<p><font FACE="Arial">Such visions wouldn't be possible were it not for the company's top |
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product, azithromycin. The drug, which was discovered in a PLIVA lab in 1981, is the most |
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widely prescribed antibiotic in the U.S. Last year, global sales for it surpassed $1 |
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billion. But the valuable patent on the drug expires in the next decade, hence the urgency |
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behind Mr. Covic's expansion plans. "PLIVA has a chance to become a |
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multinational," says Helmut Deffner, managing director in Zagreb for Merck Sharp |
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& Dohme, the British arm of U.S. drugs group Merck & Co. "The opportunity is |
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there." </font></p> |
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<p><font FACE="Arial">Central Europe's Top Drug Companies</font></p> |
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<p><font FACE="Arial">Company 1997 Sales*</font></p> |
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<p><font face="Arial">PLIVA (Croatia) $445<br> |
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ICN (U.S.) $443<br> |
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Krka (Slovenia) $281<br> |
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Richter Gedeon (Hungary) $279<br> |
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Lek (Slovenia) $252<br> |
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Egis (Hungary) $150</font></p> |
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<p><font FACE="Arial">* In millions</font></p> |
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<p><font FACE="Arial">Source: Daiwa Europe Ltd.</font></p> |
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<p><font FACE="Arial">Indeed, the company keeps posting strong results. Last year, |
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PLIVA saw net profits rise 32% to 604 million kuna ($92.9 million), from 456 million kuna, on |
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sales of 2.84 billion kuna. But strong profit figures aren't enough to keep |
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PLIVA competitive in the long term. Instead, it must now use its cash flow to strengthen its |
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position throughout the region.</font></p> |
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<p><font FACE="Arial">And that's just what Mr. Covic is doing. Last year, |
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PLIVA spent $138 |
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million to buy an 81% stake in Polfa Krakow, the third-largest Polish manufacturer. The |
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purchase was part of a 1.1-billion-kuna investment drive. The campaign includes hiring |
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additional salespeople in the former Soviet Union, and the effort is already yielding |
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results. Last year, sales in this key area grew 40%. "PLIVA is now unquestionably the |
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leading player in the region," says Nigel Keegan, a pharmaceuticals industry analyst |
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at Daiwa Europe Ltd. in London, in a report.</font></p> |
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<p><font FACE="Arial">Along with the acquisitions, PLIVA is hoping its research department |
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which already came up with one star product --can duplicate its success by discovering |
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another breakthrough. To be sure, the company needs to spruce up its line, especially if |
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it is to claim a presence in the relatively more mature markets of Poland and Hungary. In |
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this quest, the acquisition of Polfa Krakow will help. Companies that can build a strong |
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presence across markets often have an easier time getting the licenses from big |
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multinationals to produce and sell local versions of popular generic drugs.</font></p> |
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<p><font FACE="Arial">Mr. Covic, who joined PLIVA in 1980, sees no reason why the company |
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cannot duplicate the success its scientists created when they invented azithromycin. Last |
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year, PLIVA spent 93.6 million kuna on research and development, which amounted to 3.9% of |
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the company's total sales figure. Next year, PLIVA's R&D spending is expected to grow |
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to 4.7% of sales, according to a report drafted by Daiwa Europe. The ratio matches that of |
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Western drug firms, but PLIVA's R&D budget still pales by comparison. Mr. Covic isn't |
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daunted. Asked how the company can compete with the vastly more generous research budgets |
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at Glaxo Wellcome PLC or Merck, Mr. Covic says: "If you take the same logic, the |
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Chinese should be the best at every sport."</font></p> |
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<p><font face="Arial">PLIVA's top boss adopts a similar approach to management. |
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Recognizing that rapid growth will make running his company more difficult, Mr. Covic has |
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begun devolving more responsibility to mid-level managers. The company, he adds, is |
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recruiting experienced foreign staffers to help make operations more efficient. With a |
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stronger administrative system in place, he hopes senior managers like himself can focus |
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better on strategic tasks. But achieving this goal will require that he relax his |
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control-oriented style -- as well as the company's secretive corporate culture. Mr. Covic |
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can turn brusque when pressed for details about operations, and he wouldn't allow |
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interviews with other PLIVA executives.</font></p> |
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<p><font FACE="Arial">Analysts say it is too early to tell if his corporate strategy is |
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working, but they welcome the changes. The company's margins have increased in recent |
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years; last year, profits grew 32%, while revenue rose 24%. And the firm was able to pare |
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its staff to 5,600 from the 1990 high of 7,300. But analysts say staffing is still too |
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high, criticizing the company for moving too slowly to contain costs. The company had |
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become famous for awarding employees and managers large pay increases, but analysts say |
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this practice seems to have ended last year.</font></p> |
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<p><font FACE="Arial">Investors also like what they see. PLIVA's global depositary |
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receipts, which are listed on the London Stock Exchange, are up 19.35% so far this year. |
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Interest grew when the Croatian government announced it would move ahead with a follow-on |
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share offering, which had been delayed late last year in the wake of the Asian financial |
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crisis. The offering will put another 14% of the company on the market by the end of |
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April.</font></p> |
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<p><font FACE="Arial">Competition is heating up again, too. The same day |
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PLIVA closed its |
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deal for Polfa Krakow, ICN spent $33.7 million to acquire an 80% stake in Polfa Rzeszow, |
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another Polish drug company. In January, U.K.-based Glaxo Wellcome paid $220 million for |
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an 80% stake in Polfa Poznan, Poland's second-largest pharmaceuticals company. Is Mr. |
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Covic worried? "The whole region is a relatively big market," he says. |
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"Three or four companies will have enough room for growth."</font></p> |
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<p></font><font FACE="Arial" SIZE="2">And what about Mr. Covic's vision of creating a true |
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multinational out of the only company he has ever worked for? "In 1993, when we took |
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control over the company, we realized that if we wanted to develop the company |
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successfully, we would have to survive on the international market," he says. |
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"In terms of equity structure and where we sell our products, we could say we're a |
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multinational company right now."<br> |
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