Gedeon Richter PLC (RICHTER) Earnings Call Transcript & Summary

Before we start the presentation, the usual technical details and disclaimer. We will be using presentation slides for this conference call, which we published this morning, and it's downloadable on our website, gedeonrichter.com. After the formal presentation, there's going to be a Q&A session where you will be able to ask questions either using the chat function or the raise your hand functionality of Microsoft teams. And finally, 2 comments or disclaimers that, first of all, there is a cautionary statement in our presentation about forward -- potential forward-looking statements. And secondly, this presentation or this call is being recorded. With that, I would like to hand it over to Gabor, who will walk you through the details of the periods.

Thank you very much, Robbie, and thank you, everyone, for joining us on this August morning. I admire your dedication and your interest in our company, there's 38 of you in the meeting. So I appreciate very much the attention that you're giving us. Sorry about the technical delay, the reason for it has to do with our moving into the new office building, everything about the new office building is great, except for the small technical glitch that we had. Thank you again for your patience. I have not said these words in the past 6.5 years, but I think it's time for me to say them. I think the numbers speak for themselves this time. So we'll do our best to make your time worthwhile by giving a bit more color on the first half of the year, addressing your questions and also, in particular, trying to clarify the impact of the M&A deals that are behind us on the numbers that we expect to see this year and the numbers we expect to see going forward. I'd like to begin by giving you the broad overview, well on track to achieve our targets this year. For the sake of -- for the sake of James, let me say that again, we are well on track to achieve our numbers this year. We guided for low to mid-teens with at constant currencies. If we look at the headline figure, it's 14%. So we're within that range and even filtering out the exchange rate effects, we are at 12.5%, which is bullseye, right in the middle of the range between 10% and 15%. So we are well on track to grow revenues this year by low to mid-teens. When it comes to the clean EBIT, there's, of course, a seasonal effect here. So we shouldn't expect us to deliver exactly 50% of the expected clean EBIT in the first half. Vraylar is on an upward trend, and so are some other important contributors to clean EBIT. What we have done so far this year is EUR 350 million, up by 22% from last year. And if you go on to look at EBIT and free cash flow, you will see very similar numbers, which shows that large swings and external shocks were much less prevalent in first half of 2024 than what we saw in previous years, and I think this is for the best point of view of our ability to deliver value to shareholders. Moving on, I will not be burdening you or bothering you with lots of text. I'll skip this slide and leave you to discover the details here. I'll go straight to what I think is a very important mission for Gedeon Richter, which is improving the quality of life of women by executing transactions that will allow us to provide access to innovative medications to more and more women. And secondly, by pursuing CSR projects that aim to broaden access, especially in areas where marginalized groups -- I'm sorry, I'm just trying to get rid of the background noise. Whoever's is not on mute, please put yourself on mute. So those 2 ways of providing access to health globally. The first one, of course, has to do with the acquisition of Mithra's business, what remained of it and the acquisition of BCI kinase platform library of molecules and a small team that we can integrate into our R&D capability. And in that way, we are building up our women's health original R&D capability in order to provide new innovative solutions for women in the 2030. So we're well aware that the R&D pipeline in women's health is largely empty. We have picked up the late-stage projects in recent years that were -- that carried the promise of elevating therapeutic standards for women in the near term. And there, we have an absence of development efforts globally, which we intend to compensate for by investing into the women's health R&D pipeline ourselves. As in the case of neuropsychiatry, we'll not be able to complete a full-fledged R&D project and take it all the way to registration alone. We can only do that if we have partners, but we have a very positive outlook on partnering. And we have a very strong track record of partnering and this should not be any different in the case of women's health. So this is the story in the connection with Mithra and BCI. We have acquired global rights for [ E4 ], an original compound. We expect royalties to come out with the U.S., japan, we have acquired our own royalty liabilities in the meantime. And the next step for us is to, well, launch, register the product with our partners, Fuji in Japan. And then to register and launch Donesta, the menopause product globally. Secondly, our CSR efforts recently has focused on providing better access to health for marginalized groups in Africa and in Europe. In Africa, the effort is centered around the capital of Mali, Bamako, where civil NGO is building up with the help of Gedeon Richter as what they call A House of Hope, which is a shelter for disadvantaged and vulnerable women. And these women will have access to psychological, legal and health counseling as well as educational programs that allow them to live a healthier and better life. The construction is now underway. It's not ready yet. But starting next year, we hope to be able to provide those services to underprivileged women in Bamako. Secondly, teenagers living in extreme poverty in Hungary will be provided with professional care and professional health care in marginalized areas of Hungary. A total of approximately 700 students were engaged already in the first half of 2024, and we'll be continuing that effort to have discussions on sexual education, adolescent changes, intimate hygiene, relationship awareness, family planning, contraception, abortion avoidance, et cetera. All of that will contribute to a better quality of life for these good women. And this effort will contribute to the immense of patient -- for lack a better term of these women socially. And the elevation of these young women in terms of social opportunity. So those are the CSR efforts that we recently started and we are very proud of. Moving on to financial highlights briefly because you must have studied this slide already. We've seen 14% increase in our revenues in the first half compared to the same period last year. With the exchange rates filtered out, I've already mentioned this is 12.5%. That's a very good number. We'd like to keep that rolling for the remaining 2 quarters, we see no reason why we could not achieve that target. We're well on track to get there. If you look at the distribution by business segments or business units, you'll see that in contrast to the first quarter, all 4 contributed in a -- to the double-digit growth rate we achieved in overall. That includes General Medicines, which is caught up nicely compared to the first quarter, where General Medicines was kind of stagnating owing to, well, 2 main factors or 3 main factors. The first was the ruble headwind; second seasonal flu being a bit less, critically less pervasive or less problematic than in previous years; and thirdly, maybe most importantly, the timing of shipments in Russia at the end of last year, our preshipments which caused the Q1 figure to be lower than it otherwise would have been. When it comes to the regional patterns or regional breakdown, this exact story is what becomes evident to you, only Eastern Europe, which is dominated by Russia not literally, of course, the number is dominated. Otherwise, Eastern Europe, thankfully is not dominated yet by Russia, sorry for that silly job there. The point being Eastern Europe went down, everything else went up and that Eastern European stagnation, let's say, or flat figures in Eastern Europe have their roots in the preshipment in Q4 into Russia. When it comes to the exchange rates in this period, you'll see that in the first quarter, the ruble was still a big headwind worth EUR 7 billion, half in top line. In Q2, on the other hand, the ruble stopped being headwind. In fact, it contributed positively EUR 900 million. And the half weakness that we saw in those months through the U.S. dollar and the euro exchange rates, in fact, offset the entire negative impact, upcoming from the ruble and the overall total exchange rate effect was EUR 6 billion plus at the top line level. You'll find the business unit breakdown here, not much else to see other than what I have told you already. I'd like to give you some detail on women's health because the figures that you see here are extremely positive. And I'd like to leave a cautionary note, this may not be sustained in the full year for 3 main reasons: One is the Mexican tenders that had a outsized impact in the first half; and the second was the Chinese preshipments that will probably not be repeated in the second half, which means that both of those drivers are best seen as one-offs. I said there would be 3 factors. Well, there's only 2, I'm afraid. The rest of the factors are strong underlying growth in our main brands with one exception, and that one exception is our fertility brand, Bemfola, where we encountered supply chain issues. In fact, what we encountered was a perfect storm of 3 factors, all of them impairing our ability to service our markets. One of them is faulty packaging material, second disruption in our suppliers' deliveries; and third, our own ability to manufacture quality product, which meant also that there was some write-off connected to Bemfola in this first half of 2024. So with the exception of Bemfola, which we have largely now repaired or fixed, and so we are only going up from here. The exception of Bemfola, all of our brands have delivered very positive performance. Moving on to costs. The one message that I would like to give you here is that we have kept our costs in check. The efforts of past efficiency projects have started to show in our numbers when it comes to cost of goods and sales and marketing, you see operating leverage in exploited here as the brands grow, but sales and marketing costs do not follow in a similar manner. We told you that R&D spending would go up and it has gone up. It increased by 15% in the first half. This is completely in line with plans. We are looking at a EUR 30 million plus in our R&D budget, EUR 30 million extra spending in the plan. And briefly, we'll touch upon the impact of M&A -- of our M&A transactions on the R&D budget a bit later -- sorry, clean EBIT is the next point I'd like to discuss briefly. It's up by 21%. The one -- the contribution from business units is, I think, very balanced. Biotechnology continues to require EUR 5 billion in funding. This will remain the case until tocilizumab Phase III clinic is completed, which is expected in the first half of next year. General Medicines increased its contribution and so did women's health. Strong growth here with the exchange rates no longer keeping or [ detracting ] from profits is what contributed most to these figures. CNS continues to deliver as expected, there were certain disruptions in the United States in the earlier part of the year, but as we have reiterated their plan. So we have no reason to challenge those figures, and we have always delivered an extremely strong performance, and they're expected to do the same this year. Below the line, I will ask Istvan, our CFO, to clarify the numbers that you see on this slide.

Good morning, everyone. As the title shows the single largest contributor to the fact that the clean EBIT is very close to our net profit in this half year due to the large unrealized FX gains. So if you walk through the bridge from clean EBIT to net profit, you see that, as Gabor mentioned, we had large -- relatively large write-offs in the second quarter. EBIT still at HUF 126.5 billion, which is very good. And we had a large FX gain, FX losses, HUF 21.4 billion this year which is due to the fact that the Hungarian Forint started to deteriorate -- devaluate and the Russian ruble did not depreciate further. So this is HUF 21.4 million out of which own HUF 1.2 million is realized. So it's [indiscernible] says that more than [ HUF 20 billion ] is unrealized yet. The next interesting thing, which you won't see next quarter, this large contribution of associates, which was HUF 5.9 billion for out of which HUF 4.4 million is coming from Richter-Helm. Only 1 month of Richter-Helm income was included into the clean EBIT from now on all the proceeds from Helm will be accounted, not here in this line associates, but the revenues and at the end of the day, the clean EBIT. And we had a very difficult or complicated tax situation. As you can see, we had a lower-than-expected tax, the second quarter, that's mainly due to this extremely complicated M&A deal we did with Mithra, where the complication came from the fact whether we have already had large immaterial assets from Mithra which we acquired. So it led to a lot of revaluation restatements according to IFRS rule, and that's related to this deferred tax income. And that's why the second quarter effective tax rate was extremely low, but that's not through the forthcoming quarters. So this is purely due to the M&A transaction. So we are very happy about the net profit. The next slide, which is about the cash flow. You can see that we had a very strong operational cash flow before net working capital changes. Net working capital changes were HUF 36.5 billion, which is large, but the good news is that in the second quarter, the core operation net working capital did not increase in a material way. So the 100% of the increase compared to Q1 came from this M&A transactions, mainly from Mithra. So operational cash flow came at HUF 121 billion in. As you can see, our CapEx expenditures, time-wise, very low. So that's not the -- so annual CapEx won't be twice as much more than that we're planning. So it was a seasonal factor here. So free cash flow was HUF 111.4 billion. And if you look at the application of cash flows, you can see that this quarter, acquiring intangibles were negligible. There was a very large HUF 130.2 billion for an M&A spending in these 4 transactions Formycon, Helm, Mithra and BCI. We paid HUF 78.8 billion on dividend and still in the first 3-month of the year, still we continued the share buyback program, which was HUF 6.9 billion. So overall, our cash reserves declined by more than -- around HUF 100 million. We usually show in this slide is cash conversion cycles, and we started to mention since third quarter last year that these numbers are highly distorted due to the divestment of our Romanian small and wholesale business. Now this quarter, we had an additional distortionary effect, which is basically the -- related to M&A, which is that Mithra had large inventory levels and large receivables and payables as well. So if you look at the cash conversion cycle development, both compared to the previous year and the previous quarter, those are horrifying in a sense but if you filter out these 2 impacts, it shows that cash conversion cycles compared to the last year in a comparable manual decline deteriorated 34 days and compared to the last quarter, 12 days, we are not happy about that. And one of the largest program in the company to deal with this issue. But the, the headline figure shows a worse picture than the actual developments [ number ] in this quarter.

Thank you very much. I'd like to spend a few more words on our pipeline. In particular, I'd like to mention the submission of our denosumab, filed dossier to the European Medicines Agency. This is an important milestone in the life of the Biotechnology business unit, but also in the life of Gedeon Richter because it's by far the most complex dossier that we have ever filed. And the reason the dossier contains large-scale clinical data, the dossier was compiled by Richter and Richter [indiscernible] no partner contribution was made to this -- filed this time and also it is filed in 2 indications, as you know, denosumab is an oncology and rheumatology indication. So both indications were filed in this round. We're looking forward to feedback from the -- from EMA in the first half of next year, and then we can hopefully launch denosumab in the second half. On a less positive cheerful note, we terminated the development of our 706 compound in Prader-Willi given the data that came back from Phase II, which indicated for the sake of simplicity, I will just say indicated that the therapeutic window was too narrow for the compound to be able to be both efficacious and safe at the same time. The data reflected a lack of efficacy in driving hyperphagia lower. So we will not be continuing the development of this compound. Also sad news is the termination of our -- one of our preclinical projects [ Richter-1 ] for those of you who are well versed in the CNS mechanisms of action. [ Richter-1 ] was very popular target, but we have found that it will not be worthwhile taking it into clinic. When it comes to the rest of our pipeline, we are moving forward with cardio and anticoagulant generic registrations, and we have a number of projects in technology development, also a couple of new ones, mostly in general medicines. The next thing I want to show you, yes, is this last slide that outlines largely what I have spoken about already, but also the impact of the Mithra and BCI acquisitions on the R&D workload that we have in front of us. First of all, we have to complete the clinical trials on Donesta and start registration in both Europe and the U.S., there's a good probability that we can register this product in both geographies. The question is rather on the side of what the label is going to be, how restrictive it might be. And this is the most significant risk associated with this product and our plans to take menopause treatment to the next level. I'm very optimistic, but the transaction itself did not attach any meaningful value to Donesta being a star product for the simple reason that we have just risks that we have to tackle both on the regulatory side and also the extent to which the market will find this product attractive. It means that the transaction itself contained the calculations behind the transaction contained the economics of a contraceptive product, U.S., Europe and Japan. Because there is work to be done both on the post-marketing studies of contraceptive combination Drovelis and Donesta. Our [ Liege ] team will be funded on top of the existing planned R&D budget in the amount of roughly EUR 30 million. I'd like -- I want to come back to this because I get the sense that this has not been sufficiently clarified to all of you. The impact of the transaction itself fund revenues is roughly EUR 20 million. There's a EUR 30 million extra R&D costs this year, which means that the revenue impact is about 1 percentage point, and the EBIT impact is about EUR 10 million. This is compared to the initial guidance that you have been given. In the medium term, however, the transactions will lead to a positive cash impact. So I will not like to leave you with the idea that these are not -- this was not a cash accretive transaction, it is. Already next year, it should contribute positively to cash flow because some of it will be recycled into the R&D pipeline. But more than -- there will be some left to generate positive cash flows also. The same is true for the Richter-Helm transaction in February. But while the facility itself will require some funding in a few million in the very near term. So in the next 1 or 2 years, this will be more than offset by the teriparatide cash flows, which are an order of magnitude higher. In summary, I'd like to thank you for following our efforts and our results. I'm very proud of the fact that we have outperformed analysts' expectations this time without being accused of a -- sandbagging in our planning, one commentator went so far as described our plan, our guidance as ambitious. Thank you for that. I think it was ambitious, and I'm proud of having delivered on that ambitious plan and even having outperformed it so far this year. I'm very confident that we can continue along those lines, the rest of the year. So thank you for your attention, and I'll hand it back to Robbie.

Yes. Thank you very much, Gabor. And now we are ready to take your questions. So as said before, either through the chat or through raise your hand function of MS Teams. And again, as usual, Alistair Campbell is going to be the first. Alistair, you can go ahead.

Great. And a really good start to the year. And maybe I could just come back to that women's health care performance. Obviously, you flagged some one-off issues in there. But just to get a sense of that, can you maybe give us a sense of the Mexican tenders and China shipments, broad magnitude. And was that in any specific product areas? And then the other thing is just looking at the women's health care margin for the first half of the year, the clean EBIT margin is low 20s running ahead of historic trend. How much of that is linked into the one-off items? And maybe just give us a sense of where you think the clean EBIT margin drops out for the full year? And then just finally, on share of profits from associates and JV, that looks like obviously for the second half, that will change dramatically as those M&A elements work their way through. So what should we be thinking about for H2, something like EUR 1.5 billion-ish is a kind of H2 run rate on that would be helpful.

Thank you, Alistair. Those are highly relevant. And consequently very difficult questions. On the preshipments, yes, it is concentrated in a specific product. The Mexican tender is an Evra tender. And the Chinese preshipments are emergency contraceptives. Both highly margin-intensive brands that has -- that have contributed to the improvement in margins in the first half. The precise impact from this will be given to you by Laszlo Kovacs, our Chief Controller. Please give us a few numbers.

It's approximately about EUR 3 million and EUR 4 million that we see in this tender because in previous year, these tenders were relevant only in the second part, starting from July and April. So it's per month, EUR 3 million or EUR 4 million, adding up to around EUR 10 million -- EUR 10 million or EUR 12 million from April to June, that's the precise number, what we can see.

Thank you, Laszlo. On the second part of your question, Alistair. I think there are 3 components or maybe 4 components to the improvement in women's health margins. The ruble I've mentioned already, it did have some impact. The second was a better quality growth in women's health compared to the previous year with Ryeqo and Drovelis driving sales whereas in the previous year, some low-margin, high-quantity tender business dominated at least the contraceptive revenues. By dominating, I don't mean attributed the majority of, but it was still had a higher weight, significantly higher than in this period. The third point I'd like to make on the women's health margin question, is the operating leverage, by operating leverage, I mean the existing sales and marketing organization is it operates with better ratios because it is now growing to a scale that improves the unit with the relative -- the relative margin intensity of the business as a whole. The third one is -- it's the fourth one now. The fourth one is the impact of efficiency projects that were completed in the past. Those efficiency projects have to do with operational excellence in manufacturing, but also technology improvements, changes in synthetic routes to replace high-cost API with a lower-cost API, while keeping manufacturing in-house. But there are also examples of replacing in-house manufactured API with externally sourced API. All of those contribute to margin improvement, and there is more of that to come in the coming quarters and possibly even years. So that was my answer to your women's health margin question. On the third one, I'm hoping that some of my colleagues can help out how it -- below the line items will start [indiscernible].

That's great. So the Richter-Helm, if you look at the numbers, we estimated that it contributed in the first half, HUF 4.4 billion. And in the first quarter, it was HUF 2.2 million. So HUF 2 billion-ish around the quarter will be the impact, which will be routed, I mean, from now on, rerouted to the revenues and clean EBIT as well.

And what stays here for the second half is, as you said, it's probably [ HUF 1 billion-ish ] for the second half of the year, which is coming from other participations, equity participations since [indiscernible].

And on the women healthcare, I mean, from my perspective, I mean, how I would summarize that, yes, there are sort of one-offs here and there. But overall, I think it's fair to say that the business is running ahead of our plans both top line and margin wise, and we hope that, that's going to continue for the second half of the year. Second question is coming from Victoria Lambert. Victoria, it's over to you.

Yes. Thanks. My questions are to do with the biopharma business. So I think you mentioned it at the beginning of the call, but I didn't -- I think I missed it. Just on the tocilizumab, the Phase III, when will this be completed? And are you still expecting to launch that product at the end of next year? And then the Terrosa that grew really well in H1 overall. Do you expect a similar growth rate in H2 and also just how we should think about the CDMO business because that's pretty volatile in terms of the growth rate? And just a higher level last question about your strategy, for how you're going to compete with the big pharma guys in denosumab in Europe?

Thank you for those questions, Victoria. Tocilizumab is in Phase III. Phase I has been completed successfully. So we're looking forward to completing Phase III in about 6 months' time. And we hope to file early next year. Like you said, launch is possible even late next year or shortly thereafter. The CDMO indeed is volatile. Our CDMO activities are increasingly concentrated in the German facility. And the capacity has been doubled there, given very strong customer interest. And the Hungarian facility is becoming less and less focused on CDMO as the internal pipeline starts filling the capacities. That's not been capacity extension here with the exception of the fill and finish facility, which now has 3 lines up and running. Terrosa is flattish, I would say, it's reached its peak and our focus is to maintain market share and keep current revenues rolling. This was also the underlying assumption when the acquisition was agreed or the calculus behind the Helm transaction, never assumed any growth in Terrosa. Laszlo, would you like to add some thoughts to Terrosa?

What you can see on Page 24, there is a dramatic increase, but it's purely driven by preshipments to one of our partners. So that is increasing our numbers. And the second factor is some of the royalty income as a result of the acquisitions already accounted as revenue. So these factors that fully supports what Gabor just told you before.

On -- then also -- how are we going to compete with big pharma, our focus on rheumatology osteoporosis and on a side note, with the higher prevalence of these conditions in women is, I think, giving us commercial edge in Europe. The tricky part is, I think, the United States where the higher similar substitution and biosimilar uptake generally is not nearly in steady state. So there, we'll have to navigate the initial difficulties with a lot of special care. I agree that the U.S. denosumab sales effort will be -- will have to be a big one.

And perhaps just on the CDMO, I mean, you are very right, you see this huge volatility in quarterly revenue is that we are looking into our accounting practices here, whether with approvals, we can smooth this out to how we account for projects because in the underlying business, there is no such big volatility, what we are reporting now. But now we -- given [indiscernible] 100% control of ours, then we are reviewing how we are reporting for that. So hopefully, that's going to be helpful. I hope we answer your question, Victoria. In that case, we move over to Gabor Bukta, you're next in line, Gabor.

So I have 2 questions. One, you may have mentioned that you kept the cost, which results in high margins. But can you clarify whether this is in absolute terms or relative terms? And the second one is if you have any plan to turn the cash conversion cycle because it is about really high and where would you be happy with the cash conversion cycle and when can you reach that level based on your expectation?

Thank you for the compliment. And indeed, I was maybe not clear enough when it came to the costs. We kept costs in check compared to plan, mostly and in relative terms, definitely, in absolute terms, no. The company is growing too fast for the cost to be kept constant in absolute terms. With some exceptions. Cash conversion, yes, I think you rightly point out that there is room to improve. We are facing the triple [indiscernible] of high inventory, high impairment on that inventory and loss business as a consequence of not being able to service our markets fully. We have now since the early part of the year, redoubled our efforts to deal with this. The first thing that will happen is avoiding loss business. So it will not be cash conversion cycles going down. It will not be impairments going down. It will be servicing our markets properly. The next thing that hopefully we can achieve is avoid all those impairments that are connected with our, let's say, extraordinary efforts to supply, and the third milestone on this journey is when inventory levels can also come down. They will not go down massively but its structure will be such that the cash conversion cycle can be lower than what it is today. I tend to agree with you that we have work to do here, and we are well -- it's well underway.

Okay. But just given the relatively high inventory level, can I expect a low single-digit quarterly impairment related to this?

Yes. Yes. Yes. No higher than that. Still, it's higher than what we see as tolerable or [ ideal ] or what is necessary in the steady state. But yes, until we sweat it out some write-offs are unfortunately in the cards, yes.

So next question is coming from Michael.

It's Michael Castor at Sio Capital. I have a couple. I'll ask them one at a time. First, for Richter-Helm, you described the change in accounting. Right now, it's booked as profit from associates. When it becomes part of Richter fully, given that its profit currently, will that HUF 9 billion to HUF 10 billion be profit fall to the bottom line? Or was it HUF 9 billion to HUF 10 billion of revenue with costs associated with that.

That's actually, a little bit less than that. On an annual basis, it's up to EUR 20 million, more like EUR 15 million to EUR 20 million, so up to HUF 8 billion to an annual basis. And that is now below the line and that will be reported or actually it's already reported for but it's only 1 single month because, because of the transaction at the very end of May. So 1 single month is already consolidated, and that's coming above the line. It's reported under the biological segment as a revenue. It's a royalty revenue. So basically, there is no cost or no meaningful cost associated with this revenue.

Second question is on biosimilars. There's so much effort call that's required for the development of these. Is there any possibility that denosumab or tocilizumab could have U.S. FDA submissions with a partner?

Yes, absolutely. Denosumab is already partnered. The partner is Hikma, and we are getting ready to file also for the U.S. registration. This is what I spoke about in response to Victoria's question that the landscape in the U.S. is not particularly friendly when it comes to biosimilar substitution and uptake. So we'll have to really get [indiscernible] are successful product. When it comes to tocilizumab, we do not have a partner. In the U.S., we have a partner in Japan. And so the play in the case of tocilizumab was to split the cost with the Japanese partner and use the Japanese data to register the product in Europe, the tocilizumab is much less used in the U.S. The share of total tocilizumab use is significantly lower than your typical biosimilar or biological drug. So the opportunity there is smaller and for that reason, we have not so far been able to find a partner for tocilizumab.

Then on tax rate, I'm familiar with many of the global changes but not enough to keep up with the impact. So when I think of Pillar 2 in the Hungarian one-off taxes as all of those come into play for Richter, both this year and in the long term, what is a reasonable long-term tax rate, if there were not to be any more global changes?

15-ish, the Hungarian tax rate due to the global tax rate is 15% minus the eligible deductions. So in the long term, we can safely assume that it will be somewhere around 15%, slightly below that, gradually converging to 15%. The rest of the countries where we have operations will be profitable and the global tax rate is more than 15%, that will be. So that's why in -- on average, this 15% is a good estimation.

Great. And the last question I had is if you could speak a little bit about the Bemfola dynamics and your expectations going forward.

Bemfola is a fertility drug and the fertility market is growing. It's among the few within the women's health space that is actually growing and our market share is relatively low. So we have room to grow there. What we have to fix is our supply situation. As I said, it has a number of factors that we have to deal with. But we'll fix that by next year and the decline we saw this year will be of -- will be undone and offset. And I'm hoping that we can start growing in Bemfola.

So the reason for the low market share is because of supply constraints?

For the low market this year is supply constraints, for low market share in previous years was the fact that there was a dominance by the originator, still, which we are, some of us and some other companies, started eating into, and we were in the process of taking over some of the leadership positions in some of the markets when those supply headwinds started emerging.

And I think the last one today, the last question's is Dawid Górzynski. Dawid, go ahead, please.

And of course, congratulations on your decent results. And the question is about our generic or General Medicines segment because as I say it was important contributor of -- for this performance this quarter? And question is on Xarelto generic 7 that you said in the presentation you launched this quarter. Could you quantify if a little bit performance of this drug or maybe indicated to markets where it was launched. Do you think that like contribution from this drug is -- will be sustainable in the future? And lastly, on patent risk for this product? Do you see some? And that's all from my side.

Thank you for that question. Rivaroxaban is one of the examples of fronts going off patent that provide opportunity for the generics players in Europe. It's one among of many, I have to say, those who saw no opportunity in General Medicines or generic small molecules have been, I think, proven wrong by the recent successes in some of these generic launches. Rivaroxaban is a bit of a outlier in the sense that we still have patent issues in certain markets that prevent us from properly launching the drug. That said, there are not that many competitors and are not -- there's a lot of value to be created by replacing the originator with generics. This effort is focused with 1 or 2 exceptions on the Eastern half of Europe. So Poland, Czech Republic and Hungary and everything to the right from there. And yes, we see it as a meaningful addition to the General Medicines portfolio. I would rather not quantify this at this point, but it's a significant opportunity relative to the generic volumes and revenues out of one brand. It's on its way to become an important brand.

Okay. Could you please maybe comment on, if you have seen some effect of wholesalers stockpiling this quarter with this new generic or the sales is sustainable?

I'd say it's a much more complicated picture than just wholesaler stockpiling, it's really -- in some markets, they haven't even been able to stockpile. So just wait and see. It's not really at its business-as-usual phase.

Just one thing Dawid, that we never really given, in generics, we never really given product level sales guidance. And I don't think we would like to do that. It's more likely as the portfolio is evolving and our strategy is taking shape that we are thinking about coming up with a couple of new KPIs, which will help you to follow how we are progressing and what we are doing.

For example, we would like to raise the revenues from new products in the Generics segment closer to 10%. It's also one of my bonus targets for this year. So that's just to show you how serious we are about it.

Thank you so much. And yes, I remember your approach to Generic segment and also I appreciate these comments.

And actually, there is one more reading in line, James, I'm sorry, I couldn't see you there previously. So please go ahead with your questions.

Firstly, on guidance, and please can you clarify what is underlying and what isn't? I guess, since giving guidance at full year, which has since been reiterated that mean obviously more strategic activity. So I guess you called out the EUR 10 million impact from Mithra and R&D at the EBIT level. But do we need to consider, for example, the impact from Helm and given that's EUR 8 billion below the line, which would be consolidated with no impact and this deal was announced in March? And second question is we're obviously embedding higher R&D from recent deals, but how much more do you need to invest going forward, either in absolute terms or as a percentage of sales? And then my third question is you've done a lot of M&A recently. How are you thinking about that and broader capital allocation priorities going forward? And then finally, just on the inventory impairment, how much of this was essentially within your control? And can you explain in detail what's happening here when we might get that to normalize?

Thank you very much, James. Let me cover the first question. So the impact of M&A in our guidance. So guidance was and is without the impact of M&A. So what we are reiterating that basically on the -- on a like-for-like basis, the M&A impact is an addition in terms of top line that will approximately add 1 percentage point to sales growth or a little bit more than that, and that's a combined impact of Mithra and the Helm transactions. And likewise, it's clean EBIT that's a combined impact of Helm and Mithra. So actually, the Mithra negative is a little bit more than EUR 10 million because it's not only R&D expenses that we are incurring in Mithra also other operating expenses. So it's a combined negative impact of all transactions for the second half of the year, and that's going to be around EUR 10 million actually give and take, because it was just like a couple of weeks ago when we took over these companies. And this is coming on top of the like-for-like guidance. So EUR 725 million, EUR 750 million, that's a -- basically based on the existing work at the beginning of the year, existing business, M&A, you have a negative impact of approximately EUR 10 million on top of that.

Let me follow that up by addressing the rest of your questions, James. In women's health, the R&D budget will look more like a normal business units, a typical business unit R&D budget, meaning the R&D ratio to revenues will be moving closer to 10%. For a number of years, the ratio was very low for the simple reason that we were in a search and development model. We mostly paid license fees, milestones and royalties instead of R&D spending. Now that will change because there's no partner from whom we could source those kinds of deals. So expect the R&D budget to increase to a share of revenues closer to 10%. And this is not only to cover the [ last ] development, it's to invest into preclinical pipeline that hopefully can generate the projects that can be registered as new chemical entities in the 2030s. Your next question was on capital allocation. Well, we have, I think, done significant deals so far this year and we see similar ones in the -- on the radar for the rest of the year, which means that the positive cash flows that we expect to earn will serve to replenish the cash reserves to broadly the same levels as we started out at the beginning of the year. That's my expectation for the cash balance and this is equivalent to saying that we will not be holding cash this year either. We didn't last year, and we will not this year. Your last question was on inventory impairment, which, again, I have to stress, it is a very lot logical and relevant question for you to raise. My -- unless something major happens, my feeling is that the impairment level in the second half will be less than it was in the first half. But this is yet to be determined. And these are just broadbrush figures. I'm giving you this hint because I don't want anybody to think that impairment is now going to explode at the rate that you have seen it rising recently.

I guess just to clarify that last question. I'm not sort of worried about what the impairment is in the second half. I'm just more sort of trying to understand the fact that we have this sort of series of impairments. How much of that was just a function of the markets and the situation that you're in or how much of that was actually sort of operationally within your control? Just to kind of understand a bit more of the backdrop to that.

Yes. A lot -- I'm sorry to say a lot of it was within our control, and we will make sure that we will control it better from now on.

Thank you very much. I think that concludes the conference call today. Thank you much for all your questions, for interest and participation in the call. Anything else you need help, please reach out to IR. Any other questions left unanswered, we are here to help. Otherwise, we're going to be seeing you in 3 months' time, enjoy the rest of the summer. Thank you very much. Bye-bye.