Hungarian drugmaker, Gedeon Richter plans to increase its sales by 10% in 2006, the CEO, Mr Erik Bogsch told to the press yesterday. They see 5-10% sales growth in Hungary, above 10% growth in the EU, 10% US-dollar term growth from Russia and a decline from their US sales. The slowing growth of the high margin Russian sales could have a slight negative impact on the gross profit margin.
In Hungary, Richter launched three new products from the beginning of 2006 and plans to add 2-5 additional drugs from the second half. Part of them serve to replace older drugs. A potential risk factor for Richter’s Hungarian sales is the approaching end of a 3-year drug subsidy agreement with the Government. Merck lost a patent infringement claim against Richter and thus Richter is expected to receive compensation for half-year suspension of the production and distribution of one of their drugs, Sedron (which is a generic version of Merck’s anti-osteoporosis drug). Richter has already relaunched Sedron to the Hungarian market.
Mr Bogsch sees the R&D to sales ratio at 12% this year, although they undershot their 10% target in 2005 by 1.3%. The Company expects their Hungarian capex need to be roughly HUF 25bn, while they also expect spendings of USD 2.5m on their Indian manufacturing plant and some USD 30m on acquiring the remaining stake (37%), to gain full ownership, in GZF Polfa, their Polish manufacturing company. Richter added that, in 2005, their foreign manufacturing units were earnings dilutive but contributed positively to the top line.
The CEO sees 25% payout ratio, which would imply HUF 590 dividend in 2006 per share.
We do not believe these news will have a significant trading impact but nonetheless provide useful guidance for the revision of 2006 forecasts. We reiterate our Sell rating on the stock.