Business daily Világgazdaság speculates that next year Hungarian drug subsidy budget target could be HUF 365bn. Press speculated earlier that government aims to set a target of HUF 320-330bn for 2007.
Our view: We see that even if some uncertainty is related to the news, it could have positive implication on Egis and Richter, as we see drugmakers contribution could be significantly lower on the back of lower than expected gap of the Hungarian drug subsidy budget. According to our estimates, this budget target level could lift our 2007/06 Egis net profit estimate by HUF 2.7bn (or by 18.8% from HUF 14.5bn to HUF 17.3bn) and our 2007 net profit estimate for Richter by HUF 3.1bn (or by 7.5% from HUF 40.8bn to HUF 43.9bn).
If the information of the newspaper is correct, drug subsidy budget gap could be HUF 45bn lower than we have seen previously (based on earlier press speculation, we have calculated with HUF 320bn budget target and HUF 440bn effective subsidy needs resulting in a HUF 120bn gap to be financed mostly by the pharmas). Based on the figure of Világgazdaság, we see the gap could be only HUF 75bn (assuming the actual spending at HUF 440bn). Since the overspending of the Hungarian drug subsidy budget has to be financed exclusively by the drugmakers above 10% overspending or above HUF36.5bn gap, any decrease in the subsidy budget gap above this level could lower their contribution directly. Calculating with 7.2% share of Richter and 6.5% share of Egis we have arrived to a positive EBIT impact of HUF 3.2bn and HUF 2.9bn respectively.