Are you sure?

Richter earnings drop on lower margins and financial gains

Second-quarter net income of Hungarian pharmaceutical company Gedeon Richter fell 28% year-on-year to HUF 17.5 billion as margins narrowed and financial gains dropped, an earnings report released early Tuesday shows, state news wire MTI reported.   

Revenues rose almost 9% to HUF 119.9 bln, but direct costs of sales outpaced that increase, climbing nearly 15% to HUF 52.4 bln.

Gross profit increased just 4% to HUF 67.5 bln. Operating profit was down 4% at HUF 17.2 bln as Richter spent more on research and development, as well as administration costs.

Richter booked a net financial gain of HUF 1.9 bln in Q2, down from HUF 8.2 bln in the base period. Earnings per share came to HUF 94.

H1 income edges up slightly

In the first half of 2019, Richterʼs net income increased 2% to HUF 39.5 bln, propped up by a smaller tax bill, the earnings report shows. Revenues rose 8% to HUF 241.5 bln in H1, but direct cost of sales climbed 11% to HUF 104.0 bln.

HI gross profit was up 6% at HUF 137.5 bln. Operating profit dropped 4% to HUF 34.4 bln as R&D spending rose 13% to HUF 24.6 bln and administration costs were up 11% at HUF 13.7 bln.

Richter posted a HUF 7.1 bln financial gain for the period, up 24% from H1 2018. Richter booked just under HUF 0.5 bln in corporate profit tax, down 60% from the base period.

Milestone payment lifts revenue

In a breakdown of first-half sales by product, Richter said turnover of oral contraceptives rose 3% to HUF 47.1 bln.

Antipsychotic cariprazine generated the second-highest revenue, at HUF 25.2 bln, up 159%, lifted by a HUF 7.0 bln sales-related milestone payment. Excluding that payment, sales of the drug, marketed under the brands Vraylar and Reagila, would have dropped.

Sales of nootropic Cavinton declined 35% to HUF 11.9 bln. Sales of Esmya, Richterʼs treatment for uterine fibroids, fell 33% to HUF 4.2 bln because of restrictions placed on the drug after European medicine authorities concluded that it "may have contributed to the development of some cases of serious liver injury." Richter earlier booked a sizable impairment on the drug.

Russian sales down 8%

Sales in Russia, Richterʼs biggest market, dropped 8% to HUF 41.4 bln in H1. Richter attributed the decline to regulatory-related pre-shipments and said wholesaler destocking continued in Q2.

Sales in the United States jumped 101% to HUF 32.2 bln, boosted by the milestone payment linked to cariprazine turnover.

Sales in Hungary were practically flat at HUF 20.2 bln. In Poland, sales edged down 1% to HUF 12.7 bln as a mild flu season and tighter competition weighed on turnover of Richterʼs antiviral Groprinosin.

Sales in China fell 43% to HUF 9.1 bln, mainly because of pre-shipments of Cavinton in the base period.

Guidance revised upward

At a press conference after the earnings report was released, Richter CEO Gábor Orbán said revenue, calculated in euros, is expected to climb 5-6% for the full year. This compares to earlier guidance of 3% revenue growth.

Turnover in Hungary is set to stagnate, while sales in Eastern Europe fall around 5%, Orbán said. However, sales in Western Europe are set to expand by 10%, he added.

Guidance for sales growth in Ukraine is unchanged at 10%, and growth on Latin American markets is set to reach 0-5%. Sales in Russia, calculated in rubles, could decline 5-10%, while turnover is expected to stagnate in the other CIS countries.

Sales in China could decline by 20%, according to the guidance.

Orbán said Richter is working to bring cariprazine to more markets around the world. The drug is available in all countries in Western Europe, with the exception of France, the U.K. and Spain, he noted.

In addition, Richter will launch its new osteoporosis drug in the EU in the second half of August, the CEO added.

Orbán explained that compliance with a EU directive requiring a unique identifier (UID) for all drug packaging had reduced Richterʼs efficiency by an average 10% since February and would continue to impact output for the full year. The measure cut sales in the CIS and in Central and Eastern Europe by some EUR 8 million, he added.

Richter Chairman Erik Bogsch complained that the directive is "toothless" as more than half of small drugmakers have not even registered for the UID system and just 30% of pharmaceuticals on the market are in compliance.