Hikma hampered by intense competition in the US

Generic drugs are in constant demand because they’re simply more affordable than branded medications. The best-selling generics are also (invariably) the cheapest. This creates an environment of intense competition for the makers of these medicines, especially in the US, where patients and their insurers are always seeking the lowest-cost option.

Hikma Pharmaceuticals (HIK) reported lower revenue and profit for its generics business in the first half due to industry-wide competitive pressures in the US. This meant that its total sales were flat compared to the first six months of 2021, despite growth of 11 per cent and 9 per cent, respectively, in its injectables and branded drug divisions. 

The company’s net debt also increased to $1.2bn (£0.99bn), or 1.7times Ebitda, due to its acquisition of two injectable drug makers, Custopharm and Teligent, as well as a $300m share buyback programme. Injectables is now the best-performing part of the business – accounting for 44 per cent of total revenue. 

Generics, meanwhile, accounted for 27 per cent of Hikma’s first-half takings, down from 33 per cent the year before. The division is now outperformed by branded products in sales terms. 

Management has also pointed to a slower-than-expected ramp up of two new generic drugs as a reason for flatlining sales. “Over the medium term, we have a well-diversified pipeline of new products and we are focused on improving our product mix with an emphasis on more complex and specialty products that will improve the resilience of the business,” the company said.

With the shares trading close to 10-year lows at 11 times forward PE, Hikma could yet prove to be undervalued. But much depends on whether it can deliver on its pipeline promises. A speculative buy.