H1 2009 Results Announcement of EastPharma Ltd.

2009-08-19 19:30:02 -

London, August , 19, 2009

EASTPHARMA LTD.

London, 19 August 2009 - EastPharma (EAST LI), a company active in

the manufacturing and marketing of branded generic and in-licensed,

original, pharmaceutical products in Turkey and other regional

markets, today announces its H1 2009 reviewed consolidated financial

results.

* Sales in H1 2009 increased by 35% to USD 132.2mn versus USD 97.6mn

in H1 2008.

* Sales of Roche products amounted to USD 34.6mn in H1 2009.

* Gross profit reached USD 62.4mn, corresponding to an increase of

72% on a year over year basis.

* Gross profit margin according to IFRS results reached 47% in H1

2009 from 32% at the end of the year 2008 and from 37% in H1 2008.

* EBITDA reached USD 22.7mn in H1 2009.

* Adjusted EBITDA (excludes certain items in other gains and losses

and general administrative expenses) realized as USD 31.1mn in H1

2009, which corresponds to an adjusted EBITDA margin of 23% versus

the negative result at the end of the year 2008 and in H1 2008.

* Net Profit in H1 2009 reached USD 2.9mn versus a net loss of USD

8.9mn in H1 2008.

* Improvement in receivables and inventory turnover days compared to

year end 2008:

- Decrease in receivable turnover days to 127 days in H1 2009 from

201 days at the end of the year 2008.

- Decrease in inventory turnover days to 150 days in H1 2009 from

170 days at the end of the year 2008.

* Market share in unit terms decreased to 4.7% in H1 2009 versus 5.8%

in H1 2008, according to IMS Healthcare data.

* Exchange rate fluctuation had a negative impact in EastPharma

financials. Average TRY/USD foreign exchange rate increased by 31% in

H1 2009 compared to the same period in 2008.

Detailed financial statements of EastPharma are provided in the

attachment and a presentation on results will be available on the

EastPharma website www.eastpharmaltd.com on 21st of August, 2009.

A conference call to review the H1 results with EastPharma management

will be held at 4:45pm London time on 21st of August, 2009 (11:45am

US East Standard Time / 6:45pm Istanbul time). Dial-in details are

provided below.

Conference call:

Dailed-in Number (UK): +44 (0)20 7162 0077

Dailed-in Number (US): +1 334 323 6201

Dailed-in Number (Switzerland): +41 (0)2 2592 7007

Dailed-in Number (Germany): +49 (0)695 8999 0507

Conference ID: 843786

For further information, please contact:

EastPharma Ltd.

Idil Bora - Investor Relations

Tel.: + 90 (212) 6929326

Market Growth and EastPharma Sales Performance in the H1 2009

according to IMS Healthcare data:

The Turkish Pharmaceutical Market showed 2.46% growth in unit terms,

19.28% growth in TRY value terms, and a decrease of 8.86% in USD

value terms during H1 2009 compared to H1 2008.

EastPharma sales according to IMS Healthcare data in H1 2009 declined

by 16.89% in unit terms, grew by 1.71% in TRY value terms and

declined by 22.53% in USD value terms compared to H1 2008.

EastPharma's market share in H1 2009 was 4.7% in unit terms versus

5.8% in H1 2008. EastPharma's market share in H1 2009 was 3.4% in TRY

value terms, while it was 4.0% in H1 2008.

The therapeutic breakdown of the total sales of EastPharma products

in H1 2009 in unit terms was; Systemic Anti-infectives 30.2%,

Musculo-Skeletal System 19.4%, Alimentary T. & Metabolism 13.1%,

Cardiovascular System 11.6%, Respiratory 6.1%, Dermatology 5.8%,

Nervous System 5.1%, G.U. System & Sex Hormones 4.9%, Antineoplast +

Immunomodul 0.2%.

Comments on financial performance and business developments for

EastPharma in H1 2009:

The revenues reached to USD 132.3mn in H1 2009, showing a 35%

increase when compared to the same period in 2008. The contribution

of Roche products amounted to USD 34.6mn in H1 2009. In H1 2009, Deva

human pharma net sales (excluding Roche products) increased by 36% in

TRY terms and Saba net sales increased by 55% in TRY terms compared

to same period in 2008. However, net sales improvements in TRY terms

both in Deva human pharma (excluding Roche products) and Saba did not

have a strong positive impact in EastPharma revenues due to the

increase in average TRY/USD foreign exchange rate by 31% on a year

over year basis.

Margins improved as the efficiency in sales increased. The gross

profit margin according to IFRS results reached 47% in H1 2009,

whereas it was 32% in 2008. Product acquisition from Roche and the

new product launches had positive effects on the gross profit margin.

Gross profit was USD 62mn which corresponds to an increase of 72% on

a year over year basis. EBITDA reached USD 22.7mn in H1 2009, while

adjusted EBITDA (excludes certain items in other gains and losses

and general administrative expenses) was USD 31.1mn, which

corresponds to an adjusted EBITDA margin of 23% versus a negative

result at the end of the year 2008 and also in H1 2008. This shows an

important increase in operational performance and our constructive

effort in this regard continues.

Another improvement can be seen in the expense accounts. Operating

expenses decreased by 18% on a year over year basis to USD 46.8mn

from USD 57.2mn, which shows an improvement from 59% to 35% in

percentage terms of the total operating expenses to the net sales.

Marketing and sales expenses as a percentage of the total operating

expenses have decreased to 58% in H1 2009, which was 67% in H1 2008.

The finance cost was USD 14.0mn in H1 2009, which shows a decrease of

42% on a year over year basis.

The company's net profit is USD 2.9mn in H1 2009 versus the net loss

of USD 8.9mn in H1 2008.

There is a significant improvement in reducing receivables and

inventory turnover days compared to year-end 2008. Receivables

turnover days in H1 2009 decreased to approximately 127 days level

whereas it was around 201 days at the end of the year 2008. The

inventory turnover days decreased to 150 days compared to the 170

days at the end of the year 2008.

Reconciliation of Adjusted EBITDA

EastPharma uses Adjusted EBITDA to manage its operations as

management believes it is indicative of underlying operations.

Adjusted EBITDA includes the adding back of the following:

USD

Net

profit 2,907,599

Finance costs, investment revenue, income taxes,

depreciation and amortization

19,772,081

Provisions (tax provisions * and restructuring of personnel and

others) 4,120,077

Fair value of call option liability

3,988,394

Foreign exchange

loss 285,646

Adjusted

EBITDA 31,073,797

*In Q2 2009, Deva Holding received a tax penalty from tax authorities

as a result of a general inspections in the pharma market in Turkey.

Total amount of USD 3.4mn has been reserved as provision for tax

penalty on accounts. The fine has been appealed and the legal

procedures are being followed by Deva Holding.

Update on investments:

The most recent update on the facilities is that the successful

Ministry of Health approval of the Cerkezkoy Main Production building

for oral dosage forms was received on April 24th, 2009. The liquids

and semi-solids lines have been successfully inspected by the

Ministry of Health in first half of July. The approval of the liquids

and semi-solids facility will close supply gaps for syrups,

ointments, creams and suppositories, since we had to rely on bridging

stock for almost one year. The announced investment of approximately

EUR 5mn into new equipment including a bigger granulation line,

faster tablet production line, faster and more flexible packaging

lines for blisters and bottles, including finished product packaging

and case packing is currently being implemented and is advancing as

planned with the first machines already delivered and installed in

the new Cerkezkoy facility. This investment will help to overcome

bottlenecks in granulation and packaging and to better meet

increasing sales demand. The machines will be equipped with state of

the art control systems to ensure product quality and effective

processes with higher output and less waste.

On 8th of July 2009, Deva Holding announced the creation of its new

Research and Development Center called "DEVARGE". While this new R&D

center shall be a separate unit within the Cerkezkoy production

facility complex, it shall be the centralized hub of our R&D

operations and supported by the research teams in the Topkapi and

Izmit production facilities. Deva Holding's new R & D center

'DEVARGE' is an important step in our growth strategy. The new R&D

center will help Deva Holding to increase the number of its own, new

product launches in the future.

Outlook for 2009:

While the first half results indicate a marked improvement in the

operating performance of the company over 2008, the delay in the MOH

approval of the main production building meant that the move from the

Topkapi factory to the new building was delayed accordingly and took

only place during the second quarter of this year. This means that

our operating costs during the second quarter still included some

moving costs. On the other hand, the organization had to adapt itself

to production short falls in several areas, which made the task of

our sales and marketing force a rather difficult one and we lost

significant sales volumes in the first half due to production

shortfalls caused by the move and subsequent need for re-registration

of the products. The task involved in moving the production machines

and re-registering the products was a daunting one and it is an

absolute credit to our production and regulatory staff, that this

process was done within the extremely short deadlines and that not

more loss of sales was incurred.

As of today, we can say that the painful period of moving from our

old facilities to our new facilities is accomplished and that we are

currently fine tuning all production processes and that major stock

outs will be avoided as from the fourth quarter of this year.

With the elimination of the above mentioned production issues, we are

confident to recuperate sales lost during the past 2 years and this,

combined with the introduction of new products, will assure a better

performing top line.

There are currently talks between the Turkish government and the

pharmaceutical industry to explore ways how to address the ballooning

budget deficit. Discussed solutions range from a general price

decrease to a sharing of the surplus pharma deficit by the

pharmaceutical sector. While no agreement has been reached yet, it is

clear that prices will come under pressure in the near future.

As a first measure, the government has reduced the reimbursement band

from 22% to 15% as of 1 August 2009. While this is not immediately

affecting our pricing, it means at the very least, that co-payments

by the patients increase, which will likely have a negative impact on

our volumes and over the medium term we might also be forced to

reduce our prices.

The pricing developments in the domestic market make our efforts to

export even more important and we forecast significant developments

in this respect during the next year.

In H1 2009, the budget realization was around 85%. Due to above given

facts and budget realization ratio in H1 2009, we had to revise our

budget forecasts for the full year 2009. We forecast around 20%

decrease in our original budgeted net sales and EBITDA figures which

corresponds to new budget of TRY 400mn in net sales and TRY 80mn in

EBITDA for the full year 2009.

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