Hikma lifts guidance on generics division revenue surge

A strong first half for Hikma Pharmaceuticals (HIK) has prompted the FTSE 100 company to raise its full-year guidance, even as it lapped a particularly strong start to 2021.

The Covid-19 crisis has arguably shone a light on the advantages of in-country medical supply chains and cheaper medicines – attributes epitomised by Hikma, which produces non-trademarked generic drugs when its pharma rivals’ patents expire.

Management highlighted the resilience of Hikma’s portfolio, as well as its “flexible manufacturing footprint”, as factors behind its performance for the six months ending 30 June. The group is the third-largest generic injectables manufacturer in the US, and one of the country’s top generics suppliers overall – meaning that it has been well-positioned to supply drugs during the global crisis.

Giving a sense of Hikma’s broader scale, it has 31 manufacturing plants around the world and seven research and development (R&D) centres. It makes and markets products across the States, the Middle East, North Africa and Europe.

Half-year sales for the group’s generics division rose a third to $400m (£288m). Its smaller branded business posted growth of just over a quarter to $319m, while injectables reported an improvement of more than two-fifths to $492m – a slight easing of the 43 per cent increase observed in the comparative period.

Specifically, US injectables revenue slipped 8 per cent to $318m. Hikma said that this reflected lower demand for Covid-related products, increased competition and the slow return of elective surgeries – many of which were postponed or cancelled as healthcare resources were directed to the front line of the pandemic last spring.

Helpfully, European injectable sales rose more than a half to $97m. But the shift in products used in the US meant that the division’s gross margin dipped 3.7 percentage points to 55.5 per cent.

Overall, Hikma posted a 10 per cent rise in operating profits to $326m.

Hikma has continued to focus on R&D and building out its pipeline. The generics unit launched four products in the first half including ‘Advair Diskus’, a generic version of GlaxoSmithKline’s (GSK) inhalant therapy whose roll-out was paused earlier this year. Injectables launched 44 products including nine in the US, while branded launched 39 products.

Bosses’ projections for the injectables and branded divisions haven’t changed, but they now expect generics’ revenues to be in the range of $810m-$830m for the full year, up from $770m-$810m.

Broker Numis expects adjusted operating profits of $612m with EPS of 186¢ for 2021, up from $566m and 171¢ in 2020. Buy.

Last IC View: Buy, 2,377p, 18 Feb 2021