Today midnight is the deadline for President to sign the Drug Economy Law – according to the Office of the President of the Republic of Hungary. The President has 5 calendar days from receiving the laws passed by Parliament to veto them if he finds them unconstitutional.
Our view: We are not in a position to judge what are the chances for each outcome of the President’s decision, also because the arguments of the drugmakers were not made public. However, we would see some delay in the introduction of the heavily tax weighted drug reforms, if the President would not sign the Drug Economy Law as the Parliament would have to renegotiate the law. In case the President signs the Drug Economy Law, drugmakers will probably turn to the Constitutional Court, but in that case the laws’ measures will come to force. We see higher chance that the drugmakers’ arguments would be rather drug reform measure specific, than the objection of taxes that differentiate the drug industry from other industries (please note that the banking tax was found as constitutional today by the Constitutional Court).
We estimated earlier that the measures of the Drug Economy Law, which were passed by the Parliament last Monday, would weigh on Richter’s EBIT by HUF 4.6bn in 2007 and HUF 4.3bn in 2008 and on Egis’ EBIT by HUF 4.0bn in 2007/06 and by HUF 3.8bn in 2008/07. We see that the market has already folded in the law's impacts to the share price, therefore we would not expect major share price reaction to the President’s approval of this law.