Mental health awareness and treatment to help millions of people and their families
Drugs to treat mental health issues are a growing source of Richter’s revenue: the company derived €320 million, or 20%, of its overall 2020 sales, from drugs treating mental health issues. Growth is due to maturing conditions for its drug, cariprazine (sold under the brand name Vraylar in the US and as Reagila in Europe) as well as increasing awareness of mental health in general. According to the company, at the end of 2020 around 130,000 patients were estimated to be on cariprazine in the US, where it is approved to treat bipolar I disorder. A further 30,000 patients were being prescribed the drug in Europe, where it is approved to treat schizophrenia in adults. In addition to these approved indications, cariprazine has potential to be used for the treatment of major depressive disorder (MDD). Use for this purpose is in Phase III trials; approval would add substantial upside to the stock.
As well as selling medicines, Richter runs social research studies and mental health awareness campaigns. In 2020 approximately 25,000 physicians and other health care practitioners engaged in disease awareness campaigns organised by Richter in CEMEA. Most of its awareness campaigns are focused on unmet needs in schizophrenia treatment. Schizophrenia is a chronic psychiatric disorder that affects about 1% of the population, or an estimated 5 million people in the EU alone. The physical, social and mental burden is felt not only by sufferers but also by their families: research conducted by Richter in four eastern European countries found that family members struggle with a lack of information. They also often face major disruption to their own lives since caring for the patient requires significant time and dedication.
Reproductive health as a tool for women’s empowerment
With 23% of its 2020 revenues coming from the sale of oral contraceptives, birth control and family planning are very important for Richter too. According to data from health information company IQVIA, approximately 2.2 million women use Richter’s oral contraceptive, with around another 135,000 using its intrauterine contraceptive delivery system Levosert. Some of the firm's products are used in national family planning programmes such as those recently sponsored by the ministries of health in Moldova and Uzbekistan. Family planning is linked to positive outcomes including a decrease in the ratio of teenage mothers, lower abortion rates (including unsafe abortions), higher female education rates and overall women’s empowerment.
Data shows that educational programmes focused on sexuality, body change during puberty and availability of contraception significantly decrease the number of abortions. Richter is involved in sexual and reproductive health information and education programmes: from 2015, Richter, in cooperation with ÄGGF, supports the School of Contraception and Lady’s Talk programs in the CIS region, with the aim of decreasing unwanted pregnancies and abortion among adolescents.
On the other side of the coin, Richter helps women with fertility issues to increase their chances of getting pregnant with its fertility drug Bemfola. Used by over 500,000 women since its launch in 2014, Bemfola now accounts for 4% of Richter's total sales. Declining birth rates have led to ageing populations in most developed countries, which is a demographic problem. Thanks to IVF and other treatments, fertility is increasing in the over 40s age category, helping women who have postponed motherhood due to financial constraints or the need to advance and consolidate their careers to fulfil their dream of parenthood.
To strengthen Richter’s contribution to SDG 5 further, we believe the group could go beyond offering the above solutions and address women's empowerment from an operational standpoint further. This could be achieved by improving the ratio of female representation on its board and in top management.
Cheaper medicines to reach more people in need
One third of Richter’s revenues are linked to the sale of traditional generic or biosimilar drugs. These products are offered at a discount to the original drug they copy, making them more affordable for patients or the hospitals and healthcare centres using them, and thereby widening the reach of healthcare coverage. The price saving ultimately depends on factors including therapeutical area treated, number of competitors, local regulation and reimbursed status — Richter offers some generic drugs with discounts as high as 75% on launch, making the company's contribution to Target 3.8 of the UN SDGs particularly meaningful.
The market should value the positive impact
Investors in Richter should consider returns in terms of potential share appreciation as well as positive SDG-related impact. The group is delivering on its strategic transformation: this de-emphasises riskier CIS countries in favour of the US and the European Union, while also expanding the portfolio to include more profitable drugs and serving important SDGs. In our view the company’s shares are currently priced attractively in relation to cash-adjusted price-to-earnings levels. There are also catalysts that could lead to a rerating of the stock: multiples could expand in the event authorities approve the use of cariprazine for MDD indications, while the return on equity could also expand thanks to more efficient capital allocation and better profitability margins.