Richter Gedeon-Q1/22 earnings beat consensus estimates

• Richter posted clean EBIT of HUF 37.5 bln (+54% YoY) on net sales HUF 168.1 bln (+19% YoY) for Q1/22, exceeding consensus estimates of HUF 161.1 bln and HUF 32.8 bln, respectively, but it lagged behind our estimate of HUF 41 bln due to lower than projected Russian and other US sales than royalty revenue from Vraylar.

Key positives:

• EU15 sales exceeded our estimate by ca.7% (+30% YoY in HUF) on the back of faster than projected Evra sales and newly introduced WHC brands.
• WHC sales increased by 18% YoY mainly thanks to Evra sales and accounted for 34% of total phara sales vs. 35% YoY.
• Consolidated gross margin improved from 55.5% to 57.1% YoY on the back of higher royalty income from Vraylar and Evra, and was ahead of consensus estimate of 55.7%.
• Clean EBIT margin was 22.3% better than consensus estimate of. 20.2% and increased from 17.3% YoY thanks to higher Vraylar, Bemfola and Evra sales, as well as newly launched Women’s Health brands (Drovelis:, Ryego) and biosimilar products (Teriparatide). Vraylar sales rose to USD 84.4 mln vs USD 69.2 mln YoY and USD 97.7 mln QoQ.
• Clean EBIT margin on other drugs than Vraylar increased to 8.9% from 4% YoY but declined from 10% QoQ, reflecting continued efforts to improve the profitability of traditional branded products and profit contribution by new novel WHC and biosimilar products.
• Richter said that FX impact on sales were positive to the extent of as much as HUF 1.6 bln in Q1/22, realized financial items were positively impacted by FX movements due to the weakness in the HUF against key currencies at the end of the quarter.
• OCF increased by 64% YoY as a result of both higher operating income and better W/C management.

Key negatives:.

• Other US sales than royalty revenue from Vraylar lagged behind by 8% our estimate as turnover recorded form Plan B / Plan B One-Step emergency contraceptives remained virtually flat.
• In Russia, the drug market environment was a very hectic in the first making any prediction for revenue very difficult due to a) a sharp devaluation of the RUB against the EUR and HUF; b) an overall 23% price increase to non-essential drugs portfolio at the end of the reported quarter with a negligible impact (0.5%) for the first quarter; c) significant stockpiling at final consumer levels in March (In the first two months of 2022 retail pharmaceutical sales in Russia increased by more than 33% in RUB terms primarily due to price increases).
• OpEx increased more than expected due to higher energy, shipping and wage costs, with S&M and R&D expenses representing 19.3% and 10.1% of consolidated sales.

Gross margin on pharmaceutical products increased from 67.4% to 68.5%. If not accounting for Vraylar, Reagila, Evra and Bemfola gross margin on pharmaceutical products remained flat at around 58% on our estimate.