Novartis' Russian growth plans get delayed

Novartis CEO Joe Jimenez

Novartis ($NVS) CEO Joseph Jimenez has made a big commitment to Russia, an emerging market he believes has big potential. But the Swiss drugmaker is now reportedly delaying work on a manufacturing plant there, slowing its return on investment.

Citing a company announcement, Pharmaletter reports that the Swiss drugmaker has halted work on a $150 million manufacturing plant it is building near St. Petersburg that was slated to be completed this year. It said "technical reasons" will delay work for at least a year. Citing sources close to the Russian Ministry of Industry and Trade, however, the publication said that the work was halted because of the sanctions the EU imposed on Russia and "an unfavorable investment climate." The sanctions were put in place in response to its involvement in unrest in neighboring Ukraine.

Asked for comment, a Novartis spokeswoman in the U.S. called the report inaccurate. "Novartis is not suspending construction of our manufacturing plant in St. Petersburg, Russia. While there have been technical changes to the project layout, we are on track to open the site in 2015.

"We are committed to meeting this goal and to improving healthcare in Russia. This ongoing partnership with Russia enables us to expand our commercial presence in a key emerging market. The scientific development and public health efforts have been prioritized to focus on the most beneficial programs for the Russian people."

With an economy fueled by petrodollars and a growing middle class looking for branded drugs, Russia has been seen as a prime target for growth by drugmakers. The manufacturing facility that Novartis is building is only one piece of an elaborate strategy that Jimenez has laid out to capture market share and sales there.

He said the company would invest $500 million over 5 years on a wide range of projects, R&D activities, collaborations with the government on public health initiatives, investments in academia and private businesses and plans to double its spending on clinical trials there.

"Novartis is making a strategic investment in Russia for long term growth," he said four years ago when he first outlined the Swiss drugmaker's plans there.

Those investments have been paying premiums with Russia becoming one of its fastest-growing markets, up 18% to more than $500 million last year.

The plant, a facility that could make up to 1.5 billion units a year, was seen as key to the strategy. Jimenez has said several times that Novartis understood Putin's expectations that to sell meds in Russia, drugmakers must be prepared to manufacture meds in Russia. It was to focus on generic meds, one of the areas that a slimmed down Novartis intends to focus on after its $25 billion triple play dealmaking.

Earlier this year, Novartis agreed to take GlaxoSmithKline's ($GSK) cancer portfolio in exchange for Novartis' vaccines business, sold its animal health unit to Eli Lilly ($LLY), and set up a consumer-health joint venture between Novartis and GSK. The new structure is keyed on three areas: branded drugs, eye care products, and generics.

- here's the Pharmaletter story (sub. req.)

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