AstraZeneca plumbs emerging markets deeper with new plant in Russia

AstraZeneca CEO Pascal Soriot

Emerging markets have been a beacon for AstraZeneca ($AZN) CEO Pascal Soriot as he pilots the U.K. drugmaker through its challenges. And he now has a new production facility in Russia to draw on, although that market is less vibrant than it was four years ago when the project was launched.

The $224 million facility is in Kaluga about 90 miles outside of Moscow. It will start commercial production early next year. When it is fully up and running in 2017, it will produce around 40 million packs and 850 million tablets of 30 different meds a year, the company said.

Soriot was in Russia Tuesday to announce the opening of the facility, which AZ claims is the largest foreign investment in the construction of a new pharmaceutical facility in the country.

"This opening builds on our investments in clinical research and scientific collaborations in this important country and serves to reinforce our long term commitment to Russia," the CEO said in a statement.

The plant will produce more than 60% of the drugs AstraZeneca ($AZN) expects to be selling in Russia, and as such, should allow the company to meet the dictates of President Vladimir Putin that international pharma companies selling in the country invest in production there.

AstraZeneca was among the first to respond to that invitation, announcing in 2011 its intent to build a plant there, after Putin declared he would invest $3.9 billion in the pharma industry in Russia. Since then, the Russian economy has faltered as Western sanctions over Russia's role in the Ukraine civil war and falling oil prices have undercut sales for drugmakers in the region. Even so, companies that have invested there are counting on the large country to pay off over time.

That is key for Soriot who has made emerging markets part of his 5-point campaign to rebuild the drugmaker's financial health. Emerging markets are already important to the U.K. drugmaker, accounting for more than 22% of its sales last year and growing by 12% to $5.8 billion.

A recent report by Bernstein & Co. analyst Tim Anderson found that AstraZeneca is outperforming its peers in those markets. He analyzed EM sales for 7 drugmakers over a recent four-quarter period and found growth in those areas ran 9.4%, far better than the 1.3% the companies had in the U.S. or the declines in other developed markets. AstraZeneca topped that list with sales growth of 14% in emerging markets, much of that from China, another challenging market, which accounts for almost half of AstraZeneca's emerging markets sales.

The new plant in Russia gives Soriot something positive to point to during a time when other areas of expectation have run off course. Last week the FDA disappointed the company by nixing approval of a new combo diabetes med that the drugmaker has projected could generate peak sales of $3 billion. The agency said it will need more clinical data from ongoing or completed studies to support its application for the drug which combines AZ's DPP-4 therapy, Onglyza, with SGLT2 contender Farxiga.

- here's the release