GEDEON RICHTER PLC. CONSOLIDATED ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2020 TABLE OF CONTENTS MANAGEMENT REPORT ................................................................................................................................. 3 1. Chairman’s Letter to the Shareholders ................................................................................................................ 4 2. Corporate Review ............................................................................................................................................... 5 3. Investor Information.......................................................................................................................................... 11 4. Chief Executive Officer’s Review .................................................................................................................... 14 5. Strategic Initiatives ........................................................................................................................................... 16 6. Review of Operations ........................................................................................................................................ 19 7. Risk Management ............................................................................................................................................. 39 CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT .......... 46 INDEPENDENT AUDITOR’S REPORT ............................................................................................................ 47 Consolidated Income Statement ............................................................................................................................ 52 Consolidated Statement of Comprehensive Income.............................................................................................. 53 Consolidated Balance Sheet .................................................................................................................................. 54 Consolidated Statement of Changes in Equity ...................................................................................................... 56 Consolidated Cash Flow Statement....................................................................................................................... 58 Notes to the Consolidated Financial Statements ................................................................................................... 59 DISCLOSURES ................................................................................................................................................ 138 GEDEON RICHTER PLC. MANAGEMENT REPORT FOR THE YEAR ENDED 31 DECEMBER 2020 Gedeon Richter Plc. Management Report For the year ended 31 December 2020 1. Chairman’s Letter to the Shareholders It is with deep regret that I inform our stakeholder community that Baron William de Gelsey, KCSG, Honorary Lifetime Chairman of Richter’s Board of Directors passed away on 26 February 2021. Born in 1921 in Vienna, William left Hungary in 1939 to study at Trinity College, Cambridge. After graduating in natural sciences, he began his career in an industrial environment. In 1960 he turned towards investment banking, an activity which he pursued throughout his entire life. Even after becoming an influential member of the international banking world he always maintained close ties with his native country. I am in particular saddened because it is not only Richter that has lost one of its most committed ambassadors outside of Hungary, I personally am now also saying goodbye to a very close friend who was always there to extend a helping hand whenever I or any of his many acquaintances was in need. Hereby I bring to the attention of our Shareholders this Management Report for 2020. A year, which was marked by the unprecedented global challenge of a pandemic and the variety of restrictive measures addressing the spread of the disease. These measures were implemented across virtually all of the geographies Richter operates in. Notwithstanding the difficulties experienced during the year we can proudly report on certain achievements both at a strategic and on operational level. Among the challenges faced by Richter throughout 2020 those imposed by the COVID-19 pandemic and the measures taken by authorities as a response proved to have the most important impact on our business. With the health and wellbeing of our employees at stake our primary goal was their safety and protection while taking all necessary steps in order to prevent any disruption to the operations. I am in the position to inform you of the success of these protective measures implemented by our Management. We are pleased to report on meaningful achievements in most of our strategic focus areas. Cariprazine has become during the reported period a global molecule marketed both in the USA and in most markets of the European Economic Area; additionally in some Balkan countries. Aside from Russia and Ukraine, patients from most of the Other CIS countries have already gained access to our novel atypical antipsychotic. Singapore, Thailand, Israel, Jordan are countries where cariprazine is already on the market and Malaysia, Egypt, Saudi Arabia are those where the launch of the product is imminent at the time of publication of this report. Further marketing authorizations and subsequent launches are expected to continue throughout 2021. Two Phase III clinical trials are ongoing in the USA to determine efficacy, safety and tolerability of cariprazine as an adjunctive treatment of Major Depressive Disorder (MDD) which is expected to widen the therapeutic availability of the product. Our Women’s Healthcare (WHC) portfolio showed convincing growth by the end of the reported year despite a significant decline in sales levels reported for Esmya® sales. This core business pillar received a paramount strategic reinforcement in December 2020 when Richter announced the acquisition of Janssen’s contraceptive patch, Evra®, including worldwide rights ex USA. In February 2020 the European Medicines Agency (EMA) accepted Richter’s regulatory submission for a combined oral contraceptive, containing estetrol (E4) and drospirenone. In March Richter signed an agreement to license-in a novel molecule, Relugolix®, aimed towards the treatment of uterine fibroids and endometriosis. Regulatory approval for the territory of the EU in respect of the first indication had been previously sought by the originator company. Both the novel OC and Relugolix® are expected to be approved by EMA in the first half of 2021 and to reach first markets in the second half of the year. In addition to the above Richter extended in 2020 the scope of geographic co-operation for the novel OC to also include Latin American markets. Biosimilar operations also reported on a series of achievements during the year under review. Market success of teriparatide was reported both in Europe and in Japan and in spite of the challenges related to the pandemic and restrictive measures linked thereto its turnover exceeded by more than three times the sales levels achieved in 2019. After having acquired the tocilizumab asset and all the related rights from our Taiwan based partner, Mycenax in April 2020 a new co-operation for the development of this biosimilar for the Japanese market was agreed upon with Mochida in October. A decline in sales experienced by a number of branded generics and traditional products which includes the delisting of Cavinton in China and a credit note which was issued in respect of previously shipped supplies of Cavinton, Additionally, the ongoing price harmonization in Russia has led to a significant decline in sales of our traditional generic portfolio. All the above remarks are made based on figures recorded in HUF the devaluation of which has prevailed during the reported year. The Board of Richter is altogether pleased with the results reported. This is the opportunity to extend our appreciation for the sustained efforts of Mr Gábor Orbán, CEO, who together with his executive staff, managed to defend the strategic positions of Richter during such a difficult year and amidst unparalleled challenges resulting in further increase in shareholder value. Erik Bogsch Chairman 4 Gedeon Richter Plc. Management Report For the year ended 31 December 2020 2. Corporate Review a. Fact Sheet Richter Group is active in two major business segments, primarily Pharmaceuticals comprising the research and development, manufacturing, sales and marketing of pharmaceutical products, and it is also engaged in the Wholesale and Retail of these products. In addition, there is a third group (‘Other’) of companies comprising those members of the Group that provide auxiliary services to the former segments. Research, development, manufacturing and marketing of pharmaceutical products are the core activities of Richter and in this endeavour the Group is supported by a number of subsidiaries, joint ventures and associated companies. Manufacturing subsidiaries of the Group, which operate in traditional markets together with a broad network of trading affiliates that ensure a strong market presence, have together created the foundation for regional leadership and a global presence in the specialty area of Women’s Healthcare. Parent Company Data Headquarters 1103 Budapest, Gyömrői út 19-21., Hungary Mail address 1475 Budapest, Pf. 27., Hungary Phone +36 1 431 4000 Fax +36 1 260 4891 E-mail [email protected] Website