Generics Takeovers Spectators at the Hunt

Hartmut Retzlaff, boss of leading generic drug manufacturer Stada, talks to Handelsblatt about the eyewatering costs of takeovers in the sector and the struggling Russian market.
Hartmut Retzlaff has been Stada CEO for 22 years.

Hartmut Retzlaff is the chief executive of the Stada pharmaceutical company. The 61-year-old has been heading up the publicly listed, midsize German generic-drugs manufacturer for 22 years. He spoke to Handelsblatt about Stada's string position in Russia, takeovers and criticism of his large salary and pension.


Handelsblatt: Mr. Retzlaff, there is an acquisitions frenzy in the generic-medication market. Market leader Teva is buying the former Actavis business; the Jordanian company Hikma is purchasing Boehringer Ingelheim's American division for generic medical products. Who is interested in your company?

Hartmut Retzlaff: At the moment, no one, but that is probably because our Russian business is slowing things down. But in the more than 22 years that I've been chief executive officer at Stada, there has been talk every year of a possible takeover.

And that never led to anything?

No, because with our brand-name products and our generic medication business, which in many countries is operated out of a single organization, we are definitely structured differently to other firms.

How do you assess the wave of takeovers in the industry?

It was foreseeable that many firms would have to take action, especially in the generic area – either as a defensive measure so as not to be taken over, like the American company Mylan, or under the belief that offense is the best defense.

Are you alluding to Teva, the market leader from Israel?

Yes. They have pursued various strategies in past years in order to grow. Now there is an emphatic return to the business with generic products.

Does that have an influence on Stada?

No. Teva acquired the old Watson-Actavis portfolio. I am quite familiar with it in the markets where Stada is active and I believe we are in a favorable position there. Plus, we are not active in the American market that is so important for Teva. In strategic terms, that deal doesn't impress me. What does get my attention are the high sums that are being paid.

Why? Many analysts greeted the acquisition with enthusiasm.

With generic products, everyone basically makes the same thing. The pipelines supplying a fresh supply of products are similar and the way I see it, the frequently cited synergy effects are marginal. I believe many takeovers are an attempt to boost company stock prices. I personally am not ready to pay astronomical prices to get short-term applause from shareholders. And in three years, I can be sure that write-offs will be necessary. I'd prefer to spare the company that burden.

Stada is the only large German producer of generic medication that is still independent, and it will very likely be a takeover target.

That doesn't worry me. If a takeover offer were to come, we would examine it to see whether it offers added value to the company and the shareholders. But we can also continue to do quite well by ourselves. We have a sufficient supply of new products in the generic sector through 2025, and our second commercial area of brand-name products is growing as planned. We see no need to alter our strategy.




Many firms are again consolidating their operations and spinning off some commercial aspects. Has Stada given any thought to giving up the generics business, for example?

We gave it some thought but decided against it. That would already be difficult in structural terms, because in many countries, both our generic and our brand-name products are marketed by the same organization. What is more, I see no reason to do so. The business is profitable and we will continue to bring 600 to 700 new formulations onto the market each year. Generic medical products remain our bread-and-butter business.

Is that also true for Russia, where you've had to begin writing off company assets?

We have a clear commitment to the Russian market and continue to put our faith in the long-term growth potential in the region. I think that a large percentage of companies involved in Russia see things the same way. We see a great opportunity to emerge from the crisis in a strengthened position, since we are firmly anchored in the region.

Political relations between Germany and Russia continue to be extremely tense. Do you continue to be optimistic about the Russian market?

I orient myself toward the figures. This year, Russia will grow organically, for the second half of the year, even in the double-digit region. We pay strict attention to costs, have imposed a hiring freeze and are orienting our portfolio to high-margin products. So I am still optimistic about Russia for the entire year. Even if, of course, there will continue to be the adverse impact of the exchange rate.

There was criticism at the shareholders' meeting that your salary has been doubled to €7 million ($7.6 million) even though Stada's profits have fallen by half.

The figure is simply incorrect. In 2014, I did not have an income of €7 million. On what basis would it have been possible to double my salary? Whoever reads the annual report carefully can find that out. My salary for 2014, including all my variable compensation, totaled €3.356 million.

And how did the different figures come to be?

Among other things, I have long-term goals. The reaching of certain intermediate targets from the period from 2010 to 2014 was linked to certain bonuses. They were paid yearly, but provisionally with regard to reaching the goals in 2014. After five years, an examination was made as to whether the payments were justified. That was the case and they were itemized once again. With a corresponding footnote. So for 2014, a fictitious overall compensation was listed.

And so how much higher did your salary actually rise in comparison to 2013?

The increase was insubstantial.

There was also criticism of your promised pension which at the end of 2013 added up to €35 million, something that even the best-paid manager of a DAX-listed company doesn't have.

There has already been extensive discussion on the supervisory board about the issue of pension promises. That has to do with the way my contract was drawn up in 1993, when I took on the job of managing director.

You once said Stada was a “somewhat better rabbit hutch.” 

Exactly. And I stand by that statement today. Back then, the company had 400 employees, achieved revenues of 200 million German marks and was in the red. In my contract, the pension provisions of my predecessor were taken over; they stated that 5 percent of the income would be reserved for my pension. Back then, it already wasn't bad, but over the course of the years it has built up. At that time, no one could foresee that the company would develop so successfully.

When the figures were made public, you then renounced €16 million.

Yes, but I did that of my own free will for the company, and not under pressure. The pension promises that would have risen once again were removed and are no longer included in Stada's financial reserves.

But you still have a pension of more than €30 million.

€32 million, to be exact.

That's a huge amount of money.

No one disputes that. But I also worked hard in these more than two decades. The company is well-positioned. When I took over the management in 1993, the firm was actually not capable of surviving. So I was also taking a personal risk and, unlike many other heads of management, didn't enter the executive suite of a smoothly functioning firm.

Now Stada shareholder Christian Strenger, who is known as a governance expert, is calling for a special examination in order to determine whether there was a violation of the dictum of appropriateness that is a part of stock corporation law. Does that worry you?

No, because the issue was intensively examined by external experts as well.

Will you extend your contract when it expires in August?

In principle, nothing stands in the way. But first I have to fulfill the terms of the current contract. I'm quite content with the job and the company, but there's still a little time to consider things in more detail. I've grown to love Stada too much to jump ship.

And who could be your successor?

I have two competent colleagues on the management board, both of whom handle their departments extremely well. But in the end, that's something for the supervisory board to decide.


Maike Telgheder is an editor at Handelsblatt, covering the health economy, pharmaceutical companies and chemistry. To contact the author: [email protected]