Table of Contents
Investment Ideas ...................................................................
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Market overview ........................................................................................................................................... 4
Market structure ........................................................................................................................................... 5
Competition .................................................................................................................................................. 6
Main players ................................................................................................................................................. 8
Export/Import ............................................................................................................................................. 11
Market Drivers ........................................................................................................................................... 12
Risks ......................................................................................................................................................... 16
Company Valuations………………………………………………………………………………………………………..17
Valuation Summary ................................................................................................................................... 18
Kyivmedpreparat ....................................................................................................................................... 22
Farmak ...................................................................................................................................................... 27
Darnitsa ..................................................................................................................................................... 32
Zdorovie Group ......................................................................................................................................... 37

Investment Ideas
Most leading Ukrainian pharmaceutical companies are outperforming the quickly
growing market and obtaining market share, successfully competing with large
foreign players. While international pharmaceutical producers own the market in
value terms (78%), local ones own it in volume terms (61%), due to their lower
price segment specialization. However, we expect local producers’ share to
increase owing to a shift to the higher price segment and government support.
The ability to produce more expensive drugs is supported by GMP certification
and outstanding local R&D potential.
• Dynamic CEE/CIS marekt. The Ukrainian pharmaceutical market grew at 21%
CAGR in 2004-2007. We expect it to more than double by 2012 to USD 5.5 bln.
Operating margins for domestic producers will surely increase as Ukrainian
pharmaceuticals begin to penetrate New Markets as well as entering the higher price
segment.
• Stable industry. The pharmaceutical industry remains stable under the conditions of
the current liquidity crisis and credit crunch. We believe that the pharmaceutical
industry has strong drivers that protect industry from the negative effects of a
universal economic recession, of which rising per capita consumption is one.
Moreover, we believe that the level of consumption growth won't become any lower
as a result of the inelastic demand for pharmaceutical products.
• Per capita consumption. Apart from real salary growth, the fundamental factor
driving per capita consumption is the country’s changing demographics. The country’s
aging population is expected to drive the demand for drugs, while income growth will
be concentrated among those younger than 40 years old. The USD 48 per capita
consumption in 2007 is far lower than the consumption level in developed and
emerging markets (Czech Republic - USD 331, Slovakia - USD 254, Poland - USD
154). We see significant growth potential for drugs’ consumption level (up to USD 124
in 2012) considering the levels of European per capita consumption.
• New production GMP requirements. According to the Cabinet of Ministers decision
No.1419, dated October 28, 2004, all pharmaceutical producers must be fully GMP
compliant by 2009. Perhaps the date will be pushed back to 2011. Export markets
remain critical for long-term growth and GMP compliance opens this avenue for many
larger producers. We believe that large local companies will be able to significantly
increase their market share as soon as small companies lacking financial resources
to certify their production in accordance with GMP standards are to leave the market.
• Consolidation. Lots of companies from developed markets having aggressive growth
strategies are coming to explore and expand their businesses into fast-growing,
emerging markets. There were about six M&A deals and three private placements in
2006-2007 in the CIS. We see leading Ukrainian pharmaceutical companies as likely
takeover targets for strategic investors. We believe Polpharma, Pliva, Octapharma
AG or Sopharma could be possible bidders.
• Seasonal activity and decreasing demand for foreign drugs. We believe that the
local producers sales level will increase in the short term under the conditions of the
current economic crisis (the same trend took place in Ukraine in 1998). In order to
save money, people would prefer to buy local drugs, which are an estimated seven
times cheaper than imported ones. We expect that an increase in demand will
significantly benefit local producers, especially at the outset of the winter season.