German Herbal-Drug Maker Navigates Putin, EU to Expand in Russia

  • Herbal medicine manufacturer Bionorica makes anti-cyclical bet
  • German CEO plans new factory in Voronesh as others flee Russia

Michael Popp’s faith in Russia is unshakable. 

Ruble trading near record lows? “Manageable.” Millions of Russians sinking into poverty? “Just remember the 1998 crisis.” The country facing the longest recession in two decades? “Now is the time to invest,” the Chief Executive Officer of German herbal-drug maker Bionorica SE said at a Russian business forum in Hamburg this week.

As European Union leaders weigh extending sanctions on Russia for another six months, the self-declared market leader for plant-based medicines in Germany and Russia is pressing ahead with plans to build its first Russian factory in Voronezh, 520 kilometers (323 miles) south of Moscow. Situated next to a Siemens AG’s plant, it would be Bionorica’s first herbal plant extraction site outside it’s home base of Neumarkt, located about 150 kilometers north of Munich.

Michael Popp

Photographer: Jan Voth/Bionorica SE

“The rental contract is signed, we expect to start construction in 2017,” said Popp, who is the grandson of Bionorica founder and developer of its hallmark sinus medicine Sinupret Josef Popp. “We’re not allowing politics to affect our business.”

Scale Back

Popp, 56, is one of several German businessmen active in the Russian health sector that are expanding even as the decline in the price of oil, Russia’s biggest export, and sanctions over the Ukraine crisis lead other manufacturers and investors to scale back. German exports to the country have fallen 8.5 billion euros ($9.2 billion) to 20.8 billion euros this year, after a 6.5 billion-euro decline in 2014, according to the Berlin-based Committee on Eastern European Economic Relations.

Mirco Nowak, the head of Hamburg-based Medicatus Holding, which specializes in bringing Russian biomedicines to the market, echoes Popp’s sentiments. He has spent 2 million euros on a new state-run, 11-floor rehabilitation center in the center of Moscow, which plans to open its gates to well-heeled patients in March.

“The Russians have the know-how in basic medical research, but fail to position themselves internationally,” said Nowak. “This new center in Moscow is a way to showcase Russian products and patents.”

Quadrupled Revenue

Neither Nowak’s Moscow investment nor Popp’s Voronesh plans are affected by the EU’s trade and investment curbs to pressure Russia-backed separatists in eastern Ukraine to uphold a cease-fire or Russian counter-sanctions including a ban on food products such as Italian mozzarella or Austrian alpine cheese.

The Ukraine has been given “firm assurances” that the EU will prolong sanctions against Russia introduced in 2014, President Petro Poroshenko said in Brussels on Thursday.

“You can think forever about who started the cat-and-mouse game, it’s clear that it should end now,” said Popp.

Popp, who took the helm at Bionorica in 1989, quadrupled revenue to 232 million euros in the 10 years through 2014 as the company pursued international growth. After opening plant-growing facilities in Budapest and on the Spanish island of Mallorca, the CEO has advanced in Russia by going against the grain. He first set foot in the country in 1997, just before it slid into a financial crisis.

“1998 was a dramatic situation with companies seeing customers defaulting on their debt,” leading to an exodus of bigger competitors, said Popp. “What did I do? I bought my first property in Moscow in 1998 to house our office.”

Almost 20 years later, Russia is Bionorica’s second-biggest market, accounting for 30 percent of total revenue. 

Poverty Trap

With annual inflation running at 15 percent in November and wages declining the most since 1999, millions of Russians are sinking into poverty as President Vladimir Putin allowed household finances to bear the brunt of the country’s first economic contraction in six years. Putin said on Thursday that Russia has passed the worst of the economic crisis, predicting gross domestic product to grow by 0.7 percent next year.

Despite the ruble’s decline, Bionorica is still managing to boost its market share to as much as 50 percent for some remedies and grow its sales in the country, Popp said. Since patients must pay for the herbal capsules and liquid medicines out of their own pockets, the company has stopped passing on major price increases to its customers, he said.

“We give up revenue and parts of the icing on the cake, meaning lower margins,” he said.

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