Spanish Drugmakers Fleeing Crisis Follow Almirall’s Path

As Spain’s economy was booming more than a decade ago, drugmaker Almirall SA (ALM) decided it was time to boost international sales, treading a path that other companies are now following to offset health cuts in the debt-ravaged country.

Almirall, Spain’s biggest publicly traded drugmaker, will accelerate its strategy to rely less on the “challenging” Spanish market, Chief Financial Officer Daniel Martinez said in an interview. Three-quarters of the Barcelona-based company’s sales will come from outside Spain by 2014, up from 57 percent now and 28 percent in 2003, he said.

“From a value standpoint, the Spanish health-care market will not grow,” Martinez said. “When we expand our sales abroad with our own products, the gross margin is higher than with a licensed product” and Almirall is mainly selling its own products outside Spain, he said.

The company makes Actikerall skin treatments and the multiple sclerosis drug Sativex, and serves more than 70 countries. Almirall’s transformation may be a template for the nation’s drug industry. Cutbacks and delayed payments from the government and state hospitals have forced drugmakers from Almirall to Faes Farma SA (FAE) and Laboratorios Farmaceuticos Rovi SA (ROVI) to speed up their search for new markets.

Shares Climb

While Vizcaya-based Faes Farma still gets most its revenue from Spain and Portugal, “in two years, most of our sales ought to come from outside Spain,” said Gonzalo Lopez, general manager. More than 60 percent of the company’s sales aren’t affected by government spending cuts as they don’t rely on reimbursements, he said.

“This would be a very positive and significant milestone for Faes,” Francisco Salvador, a Madrid-based strategist at FGA/MG Valores, said by phone today. “Even if the company faced declines in revenue of as much as 20 percent in Spain due to austerity measures, international growth would allow it beat market expectations.”

Faes shares soared as much as 6.5 percent, the biggest intraday gain since March, and were up 3.2 percent at 1.28 euros as of 12:34 p.m. in Madrid trading. Almirall climbed 1.2 percent to 6.12 euros. The Madrid Stock Exchange General Index fell 0.7 percent.

Spanish Cuts

The Spanish government’s spending on drugs sold through pharmacies in 2013 will be 35 percent below 2009’s level as it tries to reduce the budget deficit, said Humberto Arnes, director general of the trade group Farmaindustria. The market is at a 10-year low, he said.

“Spanish drugmakers have no other way around this crisis but to bolster their presence abroad,” Arnes said. “This, however, is a process that takes a long time, especially as local companies lack strong financial muscle or a big-enough arsenal of products to enter other markets quickly.”

Almirall is seeking U.S. and European Union approval to sell two new drugs: linaclotide, a treatment for irritable bowel syndrome, and aclidinium bromide, for patients with chronic lung disease.

Rovi, whose treatments include Bemiparin blood thinner, still gets 60 percent of sales from Spain.

“It will still take two or three years for our international sales to be bigger than our national sales, which are still doing well,” said Rovi Chief Financial Officer Javier Lopez-Belmonte. “The trend is to increase sales outside of Spain and that’s one reason why the company is growing fast.”

Centralized Buying

The government’s cuts are affecting earnings of all health-related companies in Spain, said Lopez of Faes Farma, which makes allergy treatment bilastine.

Spanish Health Minister Ana Mato presented the regions with a list last week of 426 drugs to be excluded from public financing, in a bid to save 458 million euros ($576 million). In April, Mato said that the health-care system would cut spending by 7 billion euros by using more generics, reducing purchase prices and centralizing buying. Spain is also charging patients more of the cost of medicines depending on their income.

Faes Farma said in May that international sales were set to grow faster as it expected to sign a licensing agreement this year for bilastine in Japan. The company already had a licensing agreement with Pfizer Inc. (PFE) for 21 Latin American countries and another with Menarini Group’s Invida for 17 countries in the Asia-Pacific region, it said at the time.

Acquisition Strategy

Spanish health-care companies have also expanded abroad through acquisitions. Last year, Grifols SA (GRF), Europe’s largest maker of blood-plasma products, bought Talecris Biotherapeutics Holdings Corp., based in Research Triangle Park, North Carolina, for about $4 billion.

From its Barcelona headquarters, Grifols first expanded into neighboring Portugal and then into Latin America. It now counts subsidiaries in more than 20 countries and its products are sold in more than 100 countries worldwide.

Grifols is ruling out other big purchases in the short term, Deputy Chief Financial Officer Nuria Pascual said.

“The U.S. is one of the fastest-growing markets for us especially compared with Europe, which is more stable now,” Pascual said in an interview. “We are also growing very fast in China and even in Russia.”

Prim SA (PRM) makes orthopedic devices and gets more than 80 percent of its revenue from the public health system. The company is suffering payment delays of about 800 days in some of Spain’s regions, Chairman Victoriano Prim said.

“Budget cuts are clearly affecting the industry’s operations, especially by increasing waiting lists and the length of treatments,” said 63-year-old Prim, whose great grandfather Pedro Prim founded the Madrid-based business in 1870. “Our sales abroad have become crucial. We export about 40 percent of our sales, mainly to Europe and the U.S., and this will continue to grow.”

To contact the reporters on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net; Naomi Kresge in Berlin at nkresge@bloomberg.net

To contact the editors responsible for this story: Phil Serafino at pserafino@bloomberg.net; Kenneth Wong at kwong11@bloomberg.net

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Cidine tablets pass along the production line during manufacture at the Almirall SA pharmaceutical plant in Barcelona.

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Photographer: Stefano Buonamici/Bloomberg

Cidine tablets pass along the production line during manufacture at the Almirall SA pharmaceutical plant in Barcelona. Close

Cidine tablets pass along the production line during manufacture at the Almirall SA pharmaceutical plant in Barcelona.

Photographer: Marc Verges Amor/Almirall SA via Bloomberg

Almirall Chief Financial Officer Daniel Martinez said three-quarters of the Barcelona-based company’s sales will come from outside Spain by 2014, up from 57 percent now and 28 percent in 2003. Close

Almirall Chief Financial Officer Daniel Martinez said three-quarters of the Barcelona-based company’s sales will... Read More

Photographer: Stefano Buonamici/Bloomberg

An employee operates machinery during the manufacture of Serenase Lorazepam tablets at the Almirall SA pharmaceutical plant in Barcelona. Close

An employee operates machinery during the manufacture of Serenase Lorazepam tablets at the Almirall SA pharmaceutical... Read More

Photographer: Stefano Buonamici/Bloomberg

A logo sits outside the headquarters of Almirall SA pharmaceuticals in Barcelona. Close

A logo sits outside the headquarters of Almirall SA pharmaceuticals in Barcelona.

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