Hungarian drugmaker Richter is set to hand over 28 billion forints or $74.4 million in extra taxes, thanks to a tax hike intended to balance the Hungarian government’s budget and get the deficit under control.
On Friday, Prime Minister Viktor Orbán announced the progressive increase of a windfall tax based on drug producers’ net revenues in 2022 and 2023. This tax would eventually amount to 8% of drug producers’ net revenues in excess of 150 billion forints or $398 million.
The decree was originally announced back in June, but the pharmaceutical industry was included only in December.
The tax amount taken in 2022 is representative of 14% of Hungarian drug maker Richter’s net profit over nine months. The drug company earned twice in net profits compared to the same period last year, benefiting from the exchange rate.
It should be noted following the announcement from the Hungarian government, shares from Richter went down by 4%.
The Pharmaceutical Industry Isn’t the Only One Expected to Pay
Windfall taxes were widely imposed by Orbán on a variety of sectors such as airlines and energy, insurers, banks, and others. This is in an attempt to lower the government’s budget deficit, which is predicted to reach 6.1% of GDP for the year.
This move is reminiscent of what Orbán did back in 2010 in an attempt to balance the budget and has investors rattled at the similar taxation. It is important, however, that recession is avoided, and the deficit reduced with the measures Orbán implements. There is a lot of speculation that inflation will increase to as much as 27% or more over the coming months.
Potentially Lower Operating Profit and Cash Flow for Richter
Understandably, Richter is concerned about the reduction in cash flow as the company also enters an economic recession. They expect to place the tax with ‘Other’ expenses when doing their end-of-the-year accounting. This will lower the operating profit for the company, therefore reducing cash flow as well.
High Revenues Expected for Richter
Regardless of the heftier tax, Richter is still predicted to have high revenues in the years to come. This is thanks to a new product recently approved by the Food and Drug Administration or FDA in the U.S. Called Vraylar (cariprazine), the drug treats MDD or Major Depressive Disorder. The product will be sold by Richter’s commercial partner in the US, AbbVie.
Due to a hike in the windfall tax imposed by the Hungarian government, Richter is expected to pay more in taxes. However, higher revenues are in the cards for the drug maker, with forecasts indicating a revenue of $741 million across European, Japanese, and Canadian markets for MDD by 2029.
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