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Novartis To Offset Patent Cliff With Emerging Markets

Published Saturday, 18th June 2011 02:26 am - © 2011 Dow Jones

(Updates with details on the company's move into emerging markets, beginning in the sixth paragraph.)

By Nadia Popova


ST. PETERSBURG -(Dow Jones)- Swiss drug giant Novartis AG (NVS, NOVN.VX) aims to offset patent expiries and the impact of price cuts caused by European austerity measures by expanding in emerging markets, the company's chief executive said Friday.

Novartis Thursday began building a new plant in St. Petersburg as part of its $500 million Russian investment program, which was announced in December. The plant will produce 1.5 billion units a year after becoming operational in 2014.

"There are two things we are doing to offset the patent expiries and austerity measures in Europe: launching new drugs and expanding in emerging markets," Chief Executive Joe Jimenez told Dow Jones Newswires. "That's why we're investing so hard in Russia and investing heavily in China, as we can generate significantly better growth rates there than in the West."

The patents on some of Novartis's key blockbuster drugs are set to expire over the next few years, like most of the company's peers in the industry. It will also be hit by price cuts brought about by European austerity measures and U.S. health-care reform.

Novartis, which generated $5 billion in total sales in emerging markets in 2010, expects the Russian pharmaceutical market to experience "low double-digit growth--at least 10% and up--in the next five years," Jimenez said.

Another reason that drove Novartis to start building a plant in Russia was the threat of looming stricter rules for the drug importers, Jimenez said.

"The government has told us the import conditions are going to be more difficult in the future so we did take that into account," Jimenez said.

Russia is seeking to draw foreign investment in local pharmaceutical plants to reduce dependence on imported medicines, and has warned global pharmaceutical companies they will face restrictions if they fail to establish manufacturing facilities and transfer technology to the country. Russia currently relies on imports for around 80% of its medicine.

Novartis's CEO said the company could start exporting drugs produced at its Russia plant to Europe in a few years' time if the conditions are favorable.

"Once our St. Petersburg plant is up and running, we have the ability to double the production capacities on the land plot we have there," Jimenez said. "Our long-term intention is to export drugs we produce at the expanded capacities back into Europe if the cost structure in Russia benefits us."

However, there are no concrete plans on that yet, Jimenez added.

-By Nadia Popova, Dow Jones Newswires; +7 495 232-9198;

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