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Danske Bank Fund buys eastern European drugmakers

The venture capital arm of Danske Bank A/S is buying eastern European drug companies to create a major competitor in a region where drug stocks are rising faster than the region's benchmark index. Amber Trust II, a fund jointly owned by Danske Bank and New York-based Firebird Management LLC, along with Citigroup Inc., the world's biggest bank by market value, and related funds purchased 34% of Lithuanian drugmaker AB Sanitas for $51.2 million earlier this year. European Union regulators approved the purchase June 21. The investors aim to transform Sanitas, which didn't make the list of top 10 drugmakers in eastern Europe until April, into a major competitor in the generic-drug market through acquisitions, said Kustaa Aima, general manager of Amber Trust II in Helsinki. Sanitas would vie with companies such as Hungary's Gedeon Richter Rt, eastern Europe's biggest drugmaker by market value. “We are financial investors and we are in it for the money,” Aima said in a telephone interview. “Our desire is to build an eastern European player.” The generic-drug market could reach $100 billion by 2010 as governments and insurers seek lower-cost alternatives to branded drugs, industry analysts estimate. Over the past 12 months, the share price of eastern Europe's five biggest pharmaceutical companies have added an average of 61%. Excluding Croatia's Pliva d.d., whose share price has been driven up by an ongoing takeover battle, average gains are still 48.6%. The Vienna Stock Exchange's NTX index of eastern European stocks rose 22% over the same period. “We just viewed this opportunity as a very lucrative investment,” Aima said. Citigroup Venture Capital International in London, did not respond to any telephone messages seeking comment, nor did Citigroup's press department. Danske Bank and Citigroup purchased their stakes in Sanitas at the invitation of Lithuanian venture-capital firm AB Invalda, which owns 31% of the Kaunus, Lithuania-based drugmaker. Sanitas issued new shares to finance its April 7 acquisition of eastern Europe's sixth-biggest drugmaker, Jelfa SA, Aima said. Sanitas paid 534 million zloty ($163.6 million) for 84.5% of Jelfa, raising its total stake in the company to 94%. The company now plans to purchase the rest of Jelfa and remove it from the Warsaw Stock Exchange, said Ruta Milkuviene, head of Sanitas' legal department. The Lithuanian drugmaker also owns Slovakia's Hoechst- Biotika, purchased in July 2005 for 13.4 million euros ($17.1 million). Aima declined to identify any future takeover targets. He would not say whether Sanitas was preparing a bid for Romania's last state-owned drugmaker Antibiotice Iasi SA, slated to be sold in the coming months. Besides Sanitas, no other major pharmaceutical company in eastern Europe is majority-owned by venture capital firms. Acquisitions have been done by other pharmaceutical companies. France's Les Laboratoires Servier purchased 50.9% of Budapest-based Egis Nyrt in 1995. U.S.-based Barr Pharmaceuticals Inc. and Iceland's Actavis Group hf are locked in a $2.3 billion bidding war for Croatia's Pliva d.d., eastern Europe's largest drugmaker. The Danske Bank-Citigroup interest in pharmaceuticals is a sign that venture capital is feeling increasingly comfortable in eastern Europe, said Matthias Siller, who helps manage $1.4 billion in regional stocks at Raiffeisen Capital Management in Vienna. “It's definitely unique,” he said. “The strong cash-generating ability of these companies will continue to attract capital.” (Bloomberg)