Egis Nyrt., the Hungarian drugmaker majority owned by France's Laboratoires Servier, said fiscal Q1 profit slumped 80%, hurt by changes to Russia's drug-subsidy system and a strong Hungarian forint.
Unconsolidated net income dropped to Ft 1.3 billion ($6.7 million) in the three months ended December from Ft 6.5 billion a year earlier, Egis said in a statement to the Budapest Stock Exchange today. Sales fell 5.9% to Ft 22.4 billion. The results were in line with analyst estimates. Egis Nyrt, based in Budapest, last month said it had missed sales targets in Russia, which accounts for a fifth of revenue, because of budgetary problems in the government's subsidized drug program.
In addition, the forint gained almost 12% against the dollar and 7% against the euro in the quarter, making exports less attractive. „The sales mix was profoundly different than in the previous quarter,” said Bram Buring, an analyst at Wood & Co. in Prague. The company sold more low-margin bulk products and fewer high-margin drugs to Russia, he said. Egis shares fell Ft 945, or 3.8%, to Ft 23,805 at 2:42 p.m. in Budapest. The stock has dropped about 9.1% this year. Egis sees Russian sales growing by about 15% this year, CEO László Marosffy told journalists at a press conference in Budapest. The company had revenue of $18.7 million in Russia in the quarter, an 8% drop over the year-earlier period. Sales to Russia's state drug program, the DLO, amounted to $368,000, down from $3.1 million, he said. In Hungary, where Egis makes about 38% of its revenue, sales dropped 23% to Ft 8.6 billion. The government forced drugmakers to lower prices on a number of products in the last six months of 2006.
Egis's Hungarian competitor, Gedeon Richter Nyrt, said yesterday its quarterly profit dropped 40% to Ft 8.1 billion. The company also cited the forint and weak domestic sales as the reason behind the decline. Hungary introduced new measures aimed at reining in spending on drugs by the state-monopoly health insurer. Drugmakers are forced to pay the government a 12% rebate on state subsidies starting January 1.
They must also pay a Ft 5 million registration fee for employees who sell their products to doctors. Should the government overspend its drug budget, as it has every year since 1994, drug companies will be responsible for paying down the overrun. The new package could lower 2007 profit by as much as Ft 3.6 billion this year, Egis CFO László Marosffy said last quarter. The company plans to discontinue 70 medicines this year as a result, Gál said last month. (Bloomberg)