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Egis Q1 pretax profit declines on Russia - extended

Egis Nyrt, the Hungarian generic-drug maker owned by France's Les Laboratoires Servier, said fiscal Q1 pretax profit will be lower than expected because it missed sales targets in Russia.

Pretax profit fell to Ft 1.3 billion ($6.8 million) in the three months ended December 31 from Ft 7.2 billion a year earlier, the Budapest-based company said in a statement to the stock exchange today. Sales fell 5.9% to Ft 22.4 billion. „I would have expected somewhere around Ft 2 billion,” said Bram Buring, an analyst at Wood & Co. in Prague. „I'm pretty sure this will have knock-on effects for the other quarters.” Egis said revenue was less than expected from Russia, its biggest export market, because the state's drug-subsidy program delayed payments and reduced the list of medicines it would subsidize. About a fifth of the company's sales came from Russia in the fiscal year ended September 30, 2006. The company reduced scaled down its annual sales-growth forecast for Russia to 15% from 25%.

Egis's Russian difficulties compound the negative impact of new drug laws in Hungary, the company's primary market. Beginning this year, drugmakers have to pay a 12% rebate on government medicine reimbursements and a Ft 5 million registration fee for salespeople. The new rules may reduce Egis's annual income by Ft 4 billion, according to an estimate by KBC Groep NV. Shares in Egis fell Ft 500, or 2%, to Ft 24,410 forint at 3:40 p.m. in Budapest. Hungarian competitor Gedeon Richter Nyrt, which drew more than a quarter of its revenue from Russia in the first nine months of 2006, reiterated its forecast for Russian sales growth of 10%, company spokeswoman Zsuzsa Beke said in a telephone interview. „We are constantly having these kinds of problems on the Russian market. This is not a new thing,” she said. „We don't see any dramatic change in the level of unpaid receivables.” Shares in Richter dropped Ft 885, or 2.2%, to Ft 38,720 at 3:40 p.m. in Budapest.

Russia's state drug subsidy program, known as the DLO, overspent its budget last year, leaving it with about 30 billion rubles ($1.1 billion) in unpaid receivables, according to a January 17 report by Citigroup. „The DLO program was always the program with the longest deadlines for payment. They were always behind,” said Vladimira Urbankova, who analyzes eastern European pharmaceutical companies at Erste Bank in Prague. The program may wait until 2008 to pay off the drugs it bought last year, she said. Egis had costs of Ft 1.6 billion in the quarter because currency fluctuations lowered the value of money owed by Russia and other customers, the statement said. In November, Russia reduced the number of Egis's products on its reimbursement list to 27 from 40. The de-listed products make up about 4% of Egis's total sales in Russia, which reached $95.5 million last fiscal year, according to the company's financial report. Egis is scheduled to report full Q1 earnings on February 8. (Bloomberg)