Nizhpharm stands alone among Russia’s pharmaceuticals producers. Boosted by what it calls "effective management and our focus on the Russian pharmaceuticals market’s real needs," the company is the only one in the sector whose sales have increased in dollar terms since 1998.

In fact, Nizhpharm’s sales grew more than two-and-a-half times faster than the overall Russian pharmaceuticals market in 2002, reaching $33.1 million, up 28 percent from the previous year. Earnings before interest and tax grew nearly threefold from 2001 to $4.6 million.

Nizhpharm’s product range features more than 110 medicines of some 30 therapeutic groups and classes. Nizhpharm, based in Nizhny Novgorod, is currently focusing on the development of medicines in five main areas: gastroenterology, gynecology, neurology (rheumatology), urology and dermatoneurology. The firm produces generic and brand-name products and is the leader among Russian soft-form medicines, with 26 percent of the market in suppositories and 10 percent in ointments.

But despite its recent success, the company is not ready to rest on its laurels, according to General Director Andrei Mladentsev, 34, who joined the company at the youthful age of 26. The company is continuing to update its product range and develop new medicines. When coming up with new products, Mladentsev said, Nizhpharm takes into account what consumers want and stresses strong marketing techniques to get a jump on the competition.

"Tougher competition has made marketing and sales more important than ever," said Mladentsev, a radio-physics graduate of Nizhny Novgorod University. "Russian industry used to be focused entirely on production, but the leaders today are companies that have understood that aside from production, it’s also essential to develop business processes such as sales and marketing."

Mladentsev, who worked at the Federal Securities Commission and took part in drawing up legislation regulating the securities market, said he has attempted to bring a new corporate culture to the company since taking over. The company has changed immensely since that time.

"In these eight years, each of us has had to create his or her own skills and abilities, and some have developed and cultivated them, while others have not," he said. "Many of us who had no prior experience in the pharmaceuticals market have had to learn everything from scratch."

One thing Mladentsev learned early on was the complexities of the Russian pharmaceuticals sector and its relationship with the public and government regulators. Issues such as the increasing amount of counterfeit pharmaceutical production had to be addressed in an organized manner, he said, leading him to get involved early with the development of the Association of Russian Pharmaceuticals Producers.

"Every market needs self-regulating organizations in order to function, and based on this market need, the Association of Russian Pharmaceuticals Producers was formed," he said. "The organization is active and is developing along the right lines. It brings together leaders in the sector. We got together to learn more about each other and work out what we can do for the state and the consumers."

"The first thing we tried to do was work out just how much counterfeit production was going on," Mladentsev said. "This is a problem for the market in general, and so each company has a budget and staff specifically for fighting counterfeit production and preventing it from happening."

He said a combined effort is needed to battle the problem, and not just from the industry itself. "To be more effective, the state and its regulatory bodies have to take into account proposals from distributors and foreign and Russian producers," he said.

Another problem facing businesses in Russia is building trust in accounting procedures. Nizhpharm was the first Russian pharmaceuticals firm to go through an ISO international standard audit and get an ISO 9001 certificate from the International Organization for Standardization. "There’s no guarantee that we’ll remain the leaders as far as getting certificates is concerned, but I would be pleased for that to happen because it is all for the benefit of the consumers," Mladentsev said. However, he said it wasn’t easy to bring the company up to those standards.

"Earlier, many of our achievements at Nizhpharm were the results of sleepless nights and stubborn hard work, both by myself and a number of our key managers," he recalled. "When companies introduce the right systems, those systems can often sort out any quality or business efficiency issues. A number of our achievements today are the product of putting the right systems in place, and they have generated positive changes in the company."

Once a good system is developed, he said, it will continue to perform as new people come and go. "Now, because the overall system is good, regular workers who may not be able to come up with brilliant ideas will still do their jobs well and keep the company profitable because the right procedures are in place."

Although things are looking bright now, it hasn’t been an easy road for Nizhpharm over the past few years, especially in days immediately following the Russian financial meltdown in 1998.

"Nizhpharm survived the default in 1998," Mladentsev said. "But it recovered slower than we thought it would. It was only in 2002 that we really recovered from the crisis. I’m very happy with the business processes now under way at the company."

A key reason for the company’s recovery, Mladentsev said, was outside help. "In 1998, we found a strategic investor – the European Bank for Reconstruction and Development (EBRD) – that put money into Nizhpharm. They invested as a shareholder, not as a company making a loan. This was what helped us to get through the crisis."

The EBRD helped Nizhpharm grow and gain the attention of investors from throughout the world, he added. "Now we have among our assets a 100 percent subsidiary, Nizhpharm Ukraine, and we will soon have another subsidiary, Nizhpharm Kazakhstan. If we have 47 structural units within our company, that means we have 47 business processes, and we’re working on improving their effectiveness. This is why we’re getting so much interest from foreign investors," he said.

According to company data, the EBRD owns 25 percent of Nizhpharm, with a 36 percent stake belonging to company management and the remainder held by minority shareholders, both companies and individuals.

Mladentsev said he spends much of his time keeping efficiency and profits improving. He added that it is a rapidly changing environment that needs a constant search for ways to do things better. "Sometimes we do ask ourselves why we’re doing things this way and not another way," he said. "One of the main processes is to bring production costs down by raising labor efficiency. One of my headaches that I’m working on personally at the moment is reducing production time."

"The second challenge we face is developing a more evenly balanced use of production capacity. If you want bigger profits, you have to take bigger risks. That’s what we focus on – how to run the business better and keep profits growing. For a creditor or a potential investor, of course, it doesn’t matter so much how you run the company, but what the financial results are. Sometimes you can run a business well enough, but the financial results are not that impressive. You’ve got to keep searching for even better ways to get things done."

There are some peculiarities about the pharmaceutical industry that keeps managers on their toes, Mladentsev pointed out. Because of the lag time between developing a medicine and getting it on the market, some difficult decisions must be made along the way. "We have just recently begun improving our effectiveness in the area of new products," he said. "It takes a long time to develop a medicine and get it ready for the market. In the meantime, the market situation can often change. That means you need to have the courage to withdraw the medicine from registration and not tie people down working on something that will not be an effective seller by the time it reaches the market."

All of that, Mladentsev says, has made him somewhat of a philosopher. "There are postulates that reflect my philosophy and vision of how to run a business. If you work hard, you can become a good businessman. It’s good to have good teachers and read sophisticated books, but, in the end, business is a craft, and you don’t achieve success by reading books; you do it by applying what you have learned and by trial and error. You have to learn through your own mistakes. You can read about others’ mistakes, but it’s still your own mistakes that you’ll make. That’s probably the main aspect of my business philosophy."