Hungarian drug maker Richter nudged up its 2011 revenue forecast after reporting higher-than-expected first quarter net profit on Wednesday, boosted by stronger sales to its main Russian market.

The company expects consolidated revenues to rise by 0-5% in euro terms this year, above its February guidance for no change over €998 million generated last year, Chief Executive Erik Bogsch told a news conference.

"For Russia, we said 5% growth in February, we would like to raise this now to a range of 5-10% (in euro terms), so this will be better than in February," Bogsch said. "The area where we see the biggest uncertainty is Hungary, we do not change our forecast for reaching last year's sales levels," Bogsch said, referring to uncertainty over government plans for steep cuts in the state drug fund.

Earlier on Wednesday, Richter reported a 3.2% decline in its consolidated first-quarter net profit that beat market expectations as strong sales growth and higher net financial income offset a rise in operating costs.

Subsidy Cuts
Net profit for the first three months came in at 11.17 billion forints ($56.77 million), down from 11.54 billion in the same period a year earlier but above analyst forecasts for 10.47 billion in a survey by financial news website portfolio.hu.

But higher sales and marketing expenses dragged operating profit down 9.3% to 10.23 billion forints.

Sales and marketing expenses rose by an annual 48% in the first quarter, while research and development costs rose 11.4%.

That curbed operating margin to 14.4% in the first quarter from 17.8% in the same period of 2010.

"We expect negative trading impact as both gross margin and EBIT margin disappointed," said analyst Michal Konarski at KBC Securities, warning of a potential further decline in profits due to the government's planned subsidy cuts.

The company warned in February its profit would decline this year due to higher marketing and research and development costs after two big acquisitions late last year.

Richter acquired German firm Grunenthal's oral contraceptive portfolio for €236.5 million in November and Swiss-based biopharmaceuticals company PregLem Holding for up to 445 million Swiss francs in October.

"Despite the jump in operating costs we believe management will do its utmost in the remainder of the year to lift operating margin to the planned 16% from 14.4% currently," said analyst Attila Vago at brokerage Concorde.

Looking ahead, talks with the Hungarian government - which wants to reduce the 300 billion forint-plus state drug fund by 120 billion forints by 2013 - will have a significant impact on Richter's results.