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Bio Matt
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Pre-Medical graduate and biotech market enthusiast.
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  • Could The Russian Government Help Rafarma Pharmaceuticals Become The Next Teva?

    The pharmaceutical market is quickly expanding in Russia, with an estimated compounded annual growth rate of about 13%. With per capita pharmaceutical consumption expected to quadruple by 2021, pharmaceutical companies are starting to capitalize financially on this massive market. While the market was only 1% of total Russian GDP, it accounted for $11.6 billion in 2009. With annualized 13% growth, the market should be well over $25 billion by 2020. Russian companies supplied only 20% of domestic pharmaceuticals through 2011. This is to change dramatically during 2013 as the Russian government is rolling out healthcare reforms to support domestic pharmaceutical production and reduce imports. This reform project, known as Pharma 2020 is intended to reduce imports below 50% and increase exports out of Russia. The Strategy of Pharmaceutical Industry Development 2020 (the Strategy) was created jointly by the Government and the private sector. It was adopted by the Ministerial Decree 965 and signed by the Minister of Industry and Trade Khristenko. The goal of the project was the "Creation of the necessary conditions for the conversion of the Russian pharma production into the innovative development model".

    The best way to take advantage of this policy is through the publicly traded company Rafarma Pharmaceuticals (OTC:RAFA). Rafarma has already obtained several government contracts, and I believe they could possibly become the Teva Pharmaceuticals (NYSE:TEVA) with the help of the Russian government. Rafarma is a Russian pharmaceutical company based in the Lipetsk region, which will mainly manufacture generic products. The newly-constructed plant is the most technologically advanced plant in the country and is now GMP compliant. The factory is situated in the Terbuny special economic zone in the Lipetsk region, which also means that it will receive certain economic advantages as tax breaks. The project was initiated by the Zdorovye healthcare support fund and is one of the very largest projects in the medical industry in Russia in recent years. The project has had the support of the Ministry of Industry and Trade, Ministry of Health and Social Development, and the administration of the Lipetsk region. This certainly will help revenues as the Russian government has levied taxes on all foreign pharmaceutical products.

    Rafarma also runs clinical trials and is hoping to bring several new products to the Russian market in the coming years. Production of generics has already begun as their new plant opened in Q4 2012, and revenues are expected to top $150 million in 2013 and $300 million by 2014. This project is expected to reduce pharmaceutical imports by 30-40% in the short term, and Rafarma is expected to gain 20% of total pharmaceutical market share in the country. Recently, Rafarma was named one of the four national strategic Pharmaceutical Suppliers to the Russian Federation, which means that the company will receive guaranteed government contracts helping load the manufacturing facility to 100% capacity. In total, Rafarma is expected to produce about 100 types of medicines and have been part of Russia's $3.9 billion dollar pharmaceutical modernization plan. Total production at the plant is expected to include 101 million packs of antibiotics and 869 thousand packages of anticancer drugs annually. The six major regions the company will serve are also expected to be Moscow, Moscow Region, Krasnodar, St. Petersburg, Republic of Bashkortostan, and Tatarstan. The plant is also expected to follow the highest production standards, with ISO international certification.

    With a current market cap around $30 million dollars, and an extremely low float of 1.66 million shares. Rafarma should be the perfect long term growth investment. The company has only been on the US market since early December and has had low volume due to the reverse merger formation, but news from Rafarma has increased drastically during the past two weeks. Several PR's have released news of strategic partnerships, which has brought increased volume and some level of recognition to the stock. Rafarma also plans to list on the European GXG exchange, which should provide some much needed PR. With the determination and assistance of the government, Rafarma could certainly become the top pharmaceutical company in an ever-growing market. Rafarma also has long term plans to increase production and export their product to underserved countries in South America and East Asia. I currently have a small position in the company, but as with all start ups in foreign countries, I will wait until I see more volume to purchase more of this equity. I do believe that with Russia's policy of promoting domestic product, Rafarma could become the Gazprom (OGZPY:PINK) of the pharmaceutical world.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: I am long RAFA

    Tags: TEVA, long-ideas
    Feb 11 12:30 PM | Link | Comment!
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