Pliva D.D. Business Information, Profile, and History

Company Perspectives:

With over 80 years of experience in the pharmaceuticals arena and a longstanding research tradition, PLIVA is now a global specialty pharmaceutical player.

History of Pliva D.D.

PLIVA d.d. is Central and Eastern Europe's leading pharmaceutical company. Through much of its history it produced vitamins and generic drugs for Soviet states. The company attained global prominence in the 1980s on the strength of Azithromycin, an antibiotic of its own design, marketed under license in the West as Zithromax and in Eastern and Central Europe as Sumamed.

Eighty percent of revenues came from outside Croatia in 2003. In a dramatic shift from its Soviet Bloc origins, its largest markets were the United States and Western Europe. PLIVA has invested heavily in research and development, aiming to bring new proprietary drugs to market following the lapse of Azithromycin's patent protection beginning in 2006. The company has evolved into a multinational corporation, with subsidiaries throughout Europe and the United States.

Origins

PLIVA d.d.'s origins date back to the 1921 founding of predecessor company Kastel d.d. Kastel (or Kashtel) was formed as a joint venture of Budapest-based Chinoin and Isis of Zagreb, Croatia.

A research program was begun in 1935 under the direction of Dr. Vladimir Prelog, who would go on to win the Nobel Prize in chemistry 40 years later. Kastel was taken over by the state in the early 1940s. In 1941, it was given the name PLIVA, an acronym for the State Institute for Production of Medicines and Vaccines.

PLIVA began producing vitamin C in bulk in 1953. Vitamin B6 production began six years later. In 1959, the company also began producing oxytetracycline, an antibiotic.

Introducing Azithromycin in the 1980s

PLIVA researchers patented a new fast-acting macrolide antibiotic dubbed Azithromycin in 1980. U.S.-based Pfizer began licensing production of the drug for sale in Europe and the United States in 1986, where it became a bestseller under the name Zithromax. PLIVA sold it in the Soviet bloc under the name Sumamed.

Economic crisis affected the Soviet Union, the company's main export market at the time. The local workforce of 7,000 was cut in half during the lean times. As staffing levels were rebuilt, the company became more international, reported the Financial Times, with many foreign employees joining and many being based overseas. English became the language of the company's meetings and memos.

PLIVA's longtime president and CEO Zeljko Covic left the company for two years beginning in 1991. He was frustrated at its conservative response to industry globalization, said Britain's Financial Times. After he returned in 1993, Covic had the food and cosmetics divisions divested, although they were profitable, in order to focus on the core business.

PLIVA became a joint stock company in 1993. Revenues were $300 million in 1994, with more than 40 percent from exports. Former Soviet satellites made up its largest market, and PLIVA was the largest pharmaceutical company by sales in Central and Eastern Europe. Revenues were about $400 million in 1995.

Another big product was vitamin C, for which it was the world's fifth leading producer. Other products included agricultural products, food items, and health and beauty supplies.

Croatian army advances and the signing of the Dayton Peace Accord in December 1995 brought more security to investing in the country.

Public in 1996

The Croatian government privatized PLIVA in 1996, selling 31 percent of shares. The company was valued between $415 million and $510 million. After being listed in Zagreb, PLIVA shares began trading publicly on the London Stock Exchange on April 11, 1996, a first for an East European industrial company, according to the Financial Times. Part of the $140 million in proceeds from the highly successful initial public offering (IPO) were earmarked for building a new $100 million azithromycin factory in Savski Marof, near Zagreb. A research plant was being built nearby, at a cost of $80 million. Designed by British architectural firm Sheppard Robson, it opened in 2002.

After the IPO, PLIVA also invested in export marketing. Sales to Russia more than doubled in 1997. Total sales rose 23 percent to HRK 2.9 billion and net profit grew 32 percent to HRK 604 million ($92.3 million).

In 1997, PLIVA acquired a 70 percent stake in a leading Polish pharmaceutical company, Polfa Krakow, for $102.5 million. This holding was soon raised to 81.5 percent through a $38 million infusion of new capital. It was renamed PLIVA Krakow.

The Croatian government sold off the last of its directly owned, 14 percent shareholding in 1998. The European Bank for Reconstruction and Development reduced its stake from 11 percent to 8 percent. Together this raised $238 million.

PLIVA used its Polish subsidiary, PLIVA Krakow, to acquire control of Lachema, a leading Czech pharmaceutical company, in December 1999. Lachema had revenues of $30.5 million in 1999. Two other companies were acquired during the year: FARMACOM and MIXIS Genetics.

R&D a Priority After 2000

The company was diversifying and investing in research to prepare for a drop in revenues when its top seller came off patent. In 2000, worldwide azithromycin sales accounted for nearly a quarter, or HRK 854 million ($107 million), of PLIVA's total revenues.

PLIVA was developing both new and generic drugs, reported Britain's Financial Times. It was teaming with Glaxo Wellcome (later Glaxo-SmithKline) to test a successor to azithromycin. Glaxo, a British firm, had a laboratory four hours from Zagreb in Verona, Italy.

German pharmaceutical company AWD.pharma GmbH & Co. KG was acquired from the Degussa chemicals group for Euro 50 million in August 2001. AWD specialized in generics and was approaching Euro 115 million in annual revenues.

Sobel Holdings, Inc., PLIVA's first U.S. purchase, was acquired in June 2002 for $212 million. It included Sidmak Laboratories, Inc. and its subsidiary Odyssey Pharmaceuticals, Inc. PLIVA had acquired ten companies in the previous ten years.

By this time, PLIVA was testing three products to treat digestive disorders, fungal infections, and blood clots. Another half-dozen drugs were in earlier stages of development. PLIVA also had a presence in the world's largest generic markets (the United States, Germany, the United Kingdom, Spain, and Italy) chief executive Zeljko Covic told the Financial Times, and it was shifting to a strategy of organic growth through them rather than acquisitions.

Revenues rose 32 percent in 2003 to HRK 7.22 billion ($1.1 billion). Pre-tax profit was HRK 1.1 billion. Eighty percent of revenues came from outside Croatia. The company's largest export markets were now Western Europe and North America. During the year, PLIVA sold off a plant in Trogir, Croatia for HRK 31 million.

PLIVA adopted a new, streamlined organizational structure in January 2004. Around the same time, the company began licensing an array of technologies from Louisiana State University. These included potential treatments for type 2 diabetes, obesity, and cardiovascular problems.

A new overactive bladder treatment, Sanctura, was launched in the United States in August 2004. PLIVA was marketing it with Odyssey Pharmaceuticals, Inc. and Indevus Pharmaceuticals, Inc., which had obtained U.S. rights for the drug from Germany's Madaus AG five years earlier.

Revenues rose 5 percent to $1.1 billion (HRK 6.8 billion) in 2004. Western Europe was the strongest region of growth, with sales rising 25 percent to $159 million. Italy and the United Kingdom were the fastest-growing markets. Sales in Central and Eastern Europe rose 7 percent to $365 million. The U.S. market fell 6 percent to $210 million due in large part to new generic competition for PLIVA's Urecholine, a bladder control product. Pharma Chemicals sales rose 11 percent on the strength of Azithromycin orders. Research revenues slipped 7 percent to $170 million. The Non-Core division contributed another $54 million, up 6 percent. Finally, other income rose 28 percent to $42 million.

Principal Subsidiaries: PLIVA HRVATSKA d.o.o.; PLIVA--ISTRAZIVACKI INSTITUT d.o.o.; PLIVA ISTRAZIVANJE I RAZVOJ d.o.o.; Globalni Poslovni Servisi--IT d.o.o.; Pharmaing d.o.o.; PLIVA ESOP d.o.o.; Pliva Zdravlje d.o.o.; Velaris d.o.o.; VETERINA d.o.o.; PLIVA Ljubljana d.o.o. (Slovenia); PLIVA Sarajevo d.o.o. (Bosnia and Herzegovina); Pliva Skopje d.o.o.e.l. (Macedonia); Pharmazug AG (Switzerland); Mixis Genetics Ltd. (Great Britain); PLIVA Pharma UK Ltd.; PLIVA, Inc. (U.S.A.); PLIVA Pharma Holding B.V. (Netherlands); PLIVA London Ltd. (Great Britain); PLIVA Research India Private Ltd.; PLIVA Global Finance AG (Switzerland).

Principal Divisions: Pharmaceuticals; Pharma Chemicals; Research; Non-Core.

Principal Competitors: Barr Pharmaceuticals, Inc.; Johnson & Johnson; Mylan Labs Inc.; Par Pharmaceutical, Inc.; Sanofi-Aventis S.A.

Chronology

• Key Dates:
• 1921: PLIVA precursor Kastel d.d. is formed.
• 1980: Azithromycin antibiotic is patented.
• 1991: Croatia declares independence.
• 1993: PLIVA becomes a joint stock company.
• 1996: PLIVA lists shares on the Zagreb and London stock exchanges.
• 1999: Lachema, FARMACOM, and MIXIS Genetics are acquired.
• 2000: DOMINION is acquired.
• 2001: AWD.pharma GmbH & Co. KG is acquired.
• 2003: Revenues exceed $1 billion.