Richter admits receiving USD 17m upfront payment from Forest Lab in 4Q

Richter received a USD 17m (HUF 3.5bn) upfront payment from Forest Lab in 4Q 2005, in exchange for an agreement to jointly develop Richter’s two CNS drugs, PR director Zsuzsa Beke told the press yesterday. We did not count on this payment in our model, which now leads us to lift our 4Q net profit target from HUF 8.6bn to HUF 12.1bn. Richter will probably report in the first week of February, so we are going to issue our detailed earnings preview later next week.

Please note that the one-off payment should have a positive impact of some HUF 187 on the share price. The stock increased HUF 1,000 (+2.4%) yesterday, probably on the expectation that future milestone payments might boost profits in the years ahead. However, since both products are now in the very early Pre-clinical Phase of testing, we do not expect further milestone payments for several years, at least until the (still uncertain) completion of the more important Clinical Phase I and Phase II tests. We maintain our sell recommendation on the stock.