Gedeon Richter (LSE:0QFP, Financial) is a manufacturer of both branded and generic pharmaceutical products. In recent years, the company has been transitioning its business model to become more of a “specialty pharma” with a stronger emphasis on branded drugs, an area that requires more research & development (R&D) effort but historically has been more profitable.
We began purchasing Gedeon Richter in the first half of 2014. At the time, geopolitical concerns in Russia, Ukraine and other member countries of the Commonwealth of Independent States (CIS), which collectively accounted for over 40% of Gedeon Richter’s revenue, appeared to be overly discounted in the company’s share price. We took comfort in Gedeon Richter’s long history of local operations in the region, including local manufacturing in Russia, which should support its foothold there. Moreover, we believed the market underappreciated the prospects offered by Gedeon Richter’s women’s health division, its diversified exposure to regions with secular growth potential, as well as its R&D optionality.
Gedeon Richter performed well over our holding period. Market concerns about its Russia/Ukraine exposure appeared to be moderating, its operations and profitability remained strong, and the company started to see some positives from its branded pharmaceutical business. In the third quarter of 2015, Gedeon Richter, in partnership with Allergan, received U.S. FDA (Food and Drug Administration) approval for VRAYLARTM (cariprazine), which is used for the treatment of bipolar disorder and schizophrenia. Its original branded drug for the treatment of uterine fibroids, ESMYA®, has also gained share in Europe, the CIS region and Canada. Given these developments and the resulting share-price appreciation to our estimate of intrinsic value, we exited the position.
From the Brandes Emerging Markets Value Fund letter for the year ended Sept. 30, 2015.
