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Richter: Hungarian court decision allows re-launch of osteoporosis drug

19.01.2006 9:25
Autor: KBC/Patria

The Budapest District Court has finally decided in favour of Richter in a legal case between the Hungarian company and US pharma giant Merck.

In late 2004 the Hungarian Patent Office, in line with other patent offices in Europe, ruled that the active ingredient of Merck’s osteoporosis drug Fosamax (alendronate) was not a novel molecule and therefore withdrew the patent rights. However, Merck immediately appealed against the decision and attempted to extend the patent protection on Fosamax. In April last year, however, Richter and Teva decided to launch their generic versions, which led Merck to file a legal action for infringement of Fosamax’s patent rights. Last summer, therefore, the Hungarian court decided to force Richter and Teva to withdraw their generic versions, given the lack of a legally binding ruling on the Fosamax patent. However, the court also required Merck to make a deposit of HUF 3bn for compensation purposes, should it eventually lose the lawsuit.

According to Tuesday's legally binding ruling of the Budapest District Court, Richter is now free to sell its generic alendronate product Sedron in Hungary, while US drug giant Merck is expected to be obliged to pay compensation. The press speculates that effective compensation for Richter for the seven-month withdrawal of Sedron from the market could amount to HUF 500m.

The Hungarian market of anti-osteoporosis drugs amounts to HUF 10bn (some USD 50m) annually, of which Merck's Fosamax alone accounted for HUF 5.5bn in 2004. Since Richter set the price of Sedron 30% below that of the original product, it could reach more than HUF 1bn annual turnover in two years’ time.

Please note that we have not yet factored in the compensation payment in our model. As a one-off item, this should increase Richter’s EPS by some HUF 30. However, it is not yet clear to us whether this will boost 2005 or 2006 profits. For valuation reasons, maintain our Sell recommendation on the stock.

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