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        <b><font FACE="Arial"><a name="Good Medicine: Croatian Drug Maker Pliva - Already A Giant - Aims to Grow Even More">Good

        Medicine: Croatian Drug Maker PLIVA - Already A Giant - Aims to Grow Even More </a></font></b><font size="2"><p><font FACE="Arial">Wall Street Journal, by MATTHEW KAMINSKI</font></p>

        <p><font FACE="Arial">Zeljko Covic is a pragmatic man. He served two years on the Zagreb

        city council in the early 1990s, but now jokes that the experience wasn't a happy one.

        &quot;It didn't suit me,&quot; he says. &quot;In politics, everything is possible; in

        business, you have to be realistic.&quot;</font></p>

        <p><font FACE="Arial">Now into his fifth year at the helm of PLIVA, the Croatian

        pharmaceuticals giant, Mr. Covic has a chance to show how realistic he can be. The

        conflict in Yugoslavia, which ended two years ago, broke his 77-year-old company's secure

        home market of 22 million people into pieces. And while war was raging, Hungary's Richter

        Gedeon Rt. and ICN Pharmaceuticals Inc. of the U.S. were moving aggressively to establish

        strong regional presences in Central Europe and the former Soviet Union.</font></p>

        <p><font FACE="Arial">Since then, Mr. Covic has embarked on a campaign to make
        PLIVA,

        which is still the largest pharmaceuticals group in the region in terms of sales, into the

        area's unquestioned leader. Armed with a pile of cash amassed through sales of the firm's

        popular antibiotic azithromycin, he has begun moving into promising markets, such as

        Poland and Russia. Analysts say his ambitious forays may yet allow Mr. Covic to achieve

        his goal of turning the firm into Central Europe's first home-grown multinational.</font></p>

        <p><font FACE="Arial">Such visions wouldn't be possible were it not for the company's top

        product, azithromycin. The drug, which was discovered in a PLIVA lab in 1981, is the most

        widely prescribed antibiotic in the U.S. Last year, global sales for it surpassed $1

        billion. But the valuable patent on the drug expires in the next decade, hence the urgency

        behind Mr. Covic's expansion plans. &quot;PLIVA has a chance to become a

        multinational,&quot; says Helmut Deffner, managing director in Zagreb for Merck Sharp

        &amp; Dohme, the British arm of U.S. drugs group Merck &amp; Co. &quot;The opportunity is

        there.&quot; </font></p>

        <p><font FACE="Arial">Central Europe's Top Drug Companies</font></p>

        <p><font FACE="Arial">Company 1997 Sales*</font></p>

        <p><font face="Arial">PLIVA (Croatia) $445<br>

        ICN (U.S.) $443<br>

        Krka (Slovenia) $281<br>

        Richter Gedeon (Hungary) $279<br>

        Lek (Slovenia) $252<br>

        Egis (Hungary) $150</font></p>

        <p><font FACE="Arial">* In millions</font></p>

        <p><font FACE="Arial">Source: Daiwa Europe Ltd.</font></p>

        <p><font FACE="Arial">Indeed, the company keeps posting strong results. Last year,
        PLIVA saw net profits rise 32% to 604 million kuna ($92.9 million), from 456 million kuna, on

        sales of 2.84 billion kuna. But strong profit figures aren't enough to keep
        PLIVA competitive in the long term. Instead, it must now use its cash flow to strengthen its

        position throughout the region.</font></p>

        <p><font FACE="Arial">And that's just what Mr. Covic is doing. Last year,
        PLIVA spent $138

        million to buy an 81% stake in Polfa Krakow, the third-largest Polish manufacturer. The

        purchase was part of a 1.1-billion-kuna investment drive. The campaign includes hiring

        additional salespeople in the former Soviet Union, and the effort is already yielding

        results. Last year, sales in this key area grew 40%. &quot;PLIVA is now unquestionably the

        leading player in the region,&quot; says Nigel Keegan, a pharmaceuticals industry analyst

        at Daiwa Europe Ltd. in London, in a report.</font></p>

        <p><font FACE="Arial">Along with the acquisitions, PLIVA is hoping its research department

         which already came up with one star product --can duplicate its success by discovering

        another breakthrough. To be sure, the company needs to spruce up its line, especially if

        it is to claim a presence in the relatively more mature markets of Poland and Hungary. In

        this quest, the acquisition of Polfa Krakow will help. Companies that can build a strong

        presence across markets often have an easier time getting the licenses from big

        multinationals to produce and sell local versions of popular generic drugs.</font></p>

        <p><font FACE="Arial">Mr. Covic, who joined PLIVA in 1980, sees no reason why the company

        cannot duplicate the success its scientists created when they invented azithromycin. Last

        year, PLIVA spent 93.6 million kuna on research and development, which amounted to 3.9% of

        the company's total sales figure. Next year, PLIVA's R&amp;D spending is expected to grow

        to 4.7% of sales, according to a report drafted by Daiwa Europe. The ratio matches that of

        Western drug firms, but PLIVA's R&amp;D budget still pales by comparison. Mr. Covic isn't

        daunted. Asked how the company can compete with the vastly more generous research budgets

        at Glaxo Wellcome PLC or Merck, Mr. Covic says: &quot;If you take the same logic, the

        Chinese should be the best at every sport.&quot;</font></p>

        <p><font face="Arial">PLIVA's top boss adopts a similar approach to management.

        Recognizing that rapid growth will make running his company more difficult, Mr. Covic has

        begun devolving more responsibility to mid-level managers. The company, he adds, is

        recruiting experienced foreign staffers to help make operations more efficient. With a

        stronger administrative system in place, he hopes senior managers like himself can focus

        better on strategic tasks. But achieving this goal will require that he relax his

        control-oriented style -- as well as the company's secretive corporate culture. Mr. Covic

        can turn brusque when pressed for details about operations, and he wouldn't allow

        interviews with other PLIVA executives.</font></p>

        <p><font FACE="Arial">Analysts say it is too early to tell if his corporate strategy is

        working, but they welcome the changes. The company's margins have increased in recent

        years; last year, profits grew 32%, while revenue rose 24%. And the firm was able to pare

        its staff to 5,600 from the 1990 high of 7,300. But analysts say staffing is still too

        high, criticizing the company for moving too slowly to contain costs. The company had

        become famous for awarding employees and managers large pay increases, but analysts say

        this practice seems to have ended last year.</font></p>

        <p><font FACE="Arial">Investors also like what they see. PLIVA's global depositary

        receipts, which are listed on the London Stock Exchange, are up 19.35% so far this year.

        Interest grew when the Croatian government announced it would move ahead with a follow-on

        share offering, which had been delayed late last year in the wake of the Asian financial

        crisis. The offering will put another 14% of the company on the market by the end of

        April.</font></p>

        <p><font FACE="Arial">Competition is heating up again, too. The same day
        PLIVA closed its

        deal for Polfa Krakow, ICN spent $33.7 million to acquire an 80% stake in Polfa Rzeszow,

        another Polish drug company. In January, U.K.-based Glaxo Wellcome paid $220 million for

        an 80% stake in Polfa Poznan, Poland's second-largest pharmaceuticals company. Is Mr.

        Covic worried? &quot;The whole region is a relatively big market,&quot; he says.

        &quot;Three or four companies will have enough room for growth.&quot;</font></p>

        <p></font><font FACE="Arial" SIZE="2">And what about Mr. Covic's vision of creating a true

        multinational out of the only company he has ever worked for? &quot;In 1993, when we took

        control over the company, we realized that if we wanted to develop the company

        successfully, we would have to survive on the international market,&quot; he says.

        &quot;In terms of equity structure and where we sell our products, we could say we're a

        multinational company right now.&quot;<br>

1	dpavlin	1.1	<b><font FACE="Arial"><a name="Good Medicine: Croatian Drug Maker Pliva - Already A Giant - Aims to Grow Even More">Good
2
3			Medicine: Croatian Drug Maker PLIVA - Already A Giant - Aims to Grow Even More </a></font></b><font size="2"><p><font FACE="Arial">Wall Street Journal, by MATTHEW KAMINSKI</font></p>
4
5			<p><font FACE="Arial">Zeljko Covic is a pragmatic man. He served two years on the Zagreb
6
7			city council in the early 1990s, but now jokes that the experience wasn't a happy one.
8
9			"It didn't suit me," he says. "In politics, everything is possible; in
10
11			business, you have to be realistic."</font></p>
12
13			<p><font FACE="Arial">Now into his fifth year at the helm of PLIVA, the Croatian
14
15			pharmaceuticals giant, Mr. Covic has a chance to show how realistic he can be. The
16
17			conflict in Yugoslavia, which ended two years ago, broke his 77-year-old company's secure
18
19			home market of 22 million people into pieces. And while war was raging, Hungary's Richter
20
21			Gedeon Rt. and ICN Pharmaceuticals Inc. of the U.S. were moving aggressively to establish
22
23			strong regional presences in Central Europe and the former Soviet Union.</font></p>
24
25			<p><font FACE="Arial">Since then, Mr. Covic has embarked on a campaign to make
26			PLIVA,
27
28			which is still the largest pharmaceuticals group in the region in terms of sales, into the
29
30			area's unquestioned leader. Armed with a pile of cash amassed through sales of the firm's
31
32			popular antibiotic azithromycin, he has begun moving into promising markets, such as
33
34			Poland and Russia. Analysts say his ambitious forays may yet allow Mr. Covic to achieve
35
36			his goal of turning the firm into Central Europe's first home-grown multinational.</font></p>
37
38			<p><font FACE="Arial">Such visions wouldn't be possible were it not for the company's top
39
40			product, azithromycin. The drug, which was discovered in a PLIVA lab in 1981, is the most
41
42			widely prescribed antibiotic in the U.S. Last year, global sales for it surpassed $1
43
44			billion. But the valuable patent on the drug expires in the next decade, hence the urgency
45
46			behind Mr. Covic's expansion plans. "PLIVA has a chance to become a
47
48			multinational," says Helmut Deffner, managing director in Zagreb for Merck Sharp
49
50			& Dohme, the British arm of U.S. drugs group Merck & Co. "The opportunity is
51
52			there." </font></p>
53
54			<p><font FACE="Arial">Central Europe's Top Drug Companies</font></p>
55
56			<p><font FACE="Arial">Company 1997 Sales*</font></p>
57
58			<p><font face="Arial">PLIVA (Croatia) $445<br>
59
60			ICN (U.S.) $443<br>
61
62			Krka (Slovenia) $281<br>
63
64			Richter Gedeon (Hungary) $279<br>
65
66			Lek (Slovenia) $252<br>
67
68			Egis (Hungary) $150</font></p>
69
70			<p><font FACE="Arial">* In millions</font></p>
71
72			<p><font FACE="Arial">Source: Daiwa Europe Ltd.</font></p>
73
74			<p><font FACE="Arial">Indeed, the company keeps posting strong results. Last year,
75			PLIVA saw net profits rise 32% to 604 million kuna ($92.9 million), from 456 million kuna, on
76
77			sales of 2.84 billion kuna. But strong profit figures aren't enough to keep
78			PLIVA competitive in the long term. Instead, it must now use its cash flow to strengthen its
79
80			position throughout the region.</font></p>
81
82			<p><font FACE="Arial">And that's just what Mr. Covic is doing. Last year,
83			PLIVA spent $138
84
85			million to buy an 81% stake in Polfa Krakow, the third-largest Polish manufacturer. The
86
87			purchase was part of a 1.1-billion-kuna investment drive. The campaign includes hiring
88
89			additional salespeople in the former Soviet Union, and the effort is already yielding
90
91			results. Last year, sales in this key area grew 40%. "PLIVA is now unquestionably the
92
93			leading player in the region," says Nigel Keegan, a pharmaceuticals industry analyst
94
95			at Daiwa Europe Ltd. in London, in a report.</font></p>
96
97			<p><font FACE="Arial">Along with the acquisitions, PLIVA is hoping its research department
98
99			which already came up with one star product --can duplicate its success by discovering
100
101			another breakthrough. To be sure, the company needs to spruce up its line, especially if
102
103			it is to claim a presence in the relatively more mature markets of Poland and Hungary. In
104
105			this quest, the acquisition of Polfa Krakow will help. Companies that can build a strong
106
107			presence across markets often have an easier time getting the licenses from big
108
109			multinationals to produce and sell local versions of popular generic drugs.</font></p>
110
111			<p><font FACE="Arial">Mr. Covic, who joined PLIVA in 1980, sees no reason why the company
112
113			cannot duplicate the success its scientists created when they invented azithromycin. Last
114
115			year, PLIVA spent 93.6 million kuna on research and development, which amounted to 3.9% of
116
117			the company's total sales figure. Next year, PLIVA's R&D spending is expected to grow
118
119			to 4.7% of sales, according to a report drafted by Daiwa Europe. The ratio matches that of
120
121			Western drug firms, but PLIVA's R&D budget still pales by comparison. Mr. Covic isn't
122
123			daunted. Asked how the company can compete with the vastly more generous research budgets
124
125			at Glaxo Wellcome PLC or Merck, Mr. Covic says: "If you take the same logic, the
126
127			Chinese should be the best at every sport."</font></p>
128
129			<p><font face="Arial">PLIVA's top boss adopts a similar approach to management.
130
131			Recognizing that rapid growth will make running his company more difficult, Mr. Covic has
132
133			begun devolving more responsibility to mid-level managers. The company, he adds, is
134
135			recruiting experienced foreign staffers to help make operations more efficient. With a
136
137			stronger administrative system in place, he hopes senior managers like himself can focus
138
139			better on strategic tasks. But achieving this goal will require that he relax his
140
141			control-oriented style -- as well as the company's secretive corporate culture. Mr. Covic
142
143			can turn brusque when pressed for details about operations, and he wouldn't allow
144
145			interviews with other PLIVA executives.</font></p>
146
147			<p><font FACE="Arial">Analysts say it is too early to tell if his corporate strategy is
148
149			working, but they welcome the changes. The company's margins have increased in recent
150
151			years; last year, profits grew 32%, while revenue rose 24%. And the firm was able to pare
152
153			its staff to 5,600 from the 1990 high of 7,300. But analysts say staffing is still too
154
155			high, criticizing the company for moving too slowly to contain costs. The company had
156
157			become famous for awarding employees and managers large pay increases, but analysts say
158
159			this practice seems to have ended last year.</font></p>
160
161			<p><font FACE="Arial">Investors also like what they see. PLIVA's global depositary
162
163			receipts, which are listed on the London Stock Exchange, are up 19.35% so far this year.
164
165			Interest grew when the Croatian government announced it would move ahead with a follow-on
166
167			share offering, which had been delayed late last year in the wake of the Asian financial
168
169			crisis. The offering will put another 14% of the company on the market by the end of
170
171			April.</font></p>
172
173			<p><font FACE="Arial">Competition is heating up again, too. The same day
174			PLIVA closed its
175
176			deal for Polfa Krakow, ICN spent $33.7 million to acquire an 80% stake in Polfa Rzeszow,
177
178			another Polish drug company. In January, U.K.-based Glaxo Wellcome paid $220 million for
179
180			an 80% stake in Polfa Poznan, Poland's second-largest pharmaceuticals company. Is Mr.
181
182			Covic worried? "The whole region is a relatively big market," he says.
183
184			"Three or four companies will have enough room for growth."</font></p>
185
186			<p></font><font FACE="Arial" SIZE="2">And what about Mr. Covic's vision of creating a true
187
188			multinational out of the only company he has ever worked for? "In 1993, when we took
189
190			control over the company, we realized that if we wanted to develop the company
191
192			successfully, we would have to survive on the international market," he says.
193
194			"In terms of equity structure and where we sell our products, we could say we're a
195
196			multinational company right now."<br>
197