Richter Gedeon - Great Expectations

Gedeon Richter - Earnings Revision
Rating: Accumulate (unch.)

Target price (12-month): HUF 7,600 (prev. HUF 6,300) 

Current share price: HUF 6,930

 

We raise our 12-month TP to HUF 7,600 a share from HUF 6,300 for 3 reasons: 1) rolling over our TP 2) incorporating a new risk-adjusted estimate for royalty income on Vraylar (including possible one-off sales related royalties), and reviewing the FX impact due to the persistent weakness in the HUF.

We estimate that Vraylar is worth HUF 4,550 a share (60% of TP). When establishing our fair value estimate for Richter’s royalty stream from Vraylar we attached a 50% probability to the case that indications for bipolar II depression and MDD, currently in Ph III clinical trials, are approved. We note that if these indications are also approved it could add another HUF 520 a share (+7) to our 12-month TP estimate. Having said that, we believe this would take time to add to earnings. We stress that it is very difficult to predict exactly how successful any Richter’s drugs being currently in the pipeline will be in the future.

Our new TP leaves a 10% upside potential from the current share price. We note that there might be significant upside risk to our TP owing to Vraylar. Keeping CoE at 9% and the USDHUF exchange rate constant at around the current level our TP grows HUF 1,000 a share on every USD 500 mn increase in Vraylar’s US peak sales on our estimate.