In March, Hikma’s (HIK) management was confident the group’s unbranded drugs division could generate $800m of revenue in 2017, a 32 per cent increase on the previous year. That confidence has disappeared. Three warnings from the division in the past eight months mean sales are now expected at $600m, while operating profits look likely to drop from the $35m reported in 2016.
Hikma is not the only drugs maker facing an uphill battle in the unbranded (generic) space. US peer Mylan recently reported a 2 per cent fall in total third-quarter sales, Israel’s Teva slashed its dividend and Sandoz – Novartis’ (Ch:NOVN) generics business – warned on full-year sales.
The problem? These companies are all at the heart of a campaign to drive down the price of medicine in the US. The Food and Drug Administration (FDA) has been handing out new generic approvals at record pace to increase competition and lower prices. To make matters worse, increasingly ambitious family-owned drugs makers in India have stepped up manufacturing, undercutting prices further.
For Hikma, these pressures are particularly problematic as the company has invested a lot in its unbranded drugs business. In March 2016, the group spent $515m of cash and gave away 40m new shares to acquire the generics unit of Boehringer Ingelheim. That year, a further $76m was invested in expanding the manufacturing capabilities of the generic and injectables divisions.
Meanwhile, the problems with the launch of the group’s unbranded version of GlaxoSmithKline’s (GSK) top-selling asthma drug, Advair, are worse than previously feared. Hikma and its partner in the project, Vectura (VEC), are at loggerheads with the FDA regarding the results of the drug’s final-stage clinical trial. According to Panmure Gordon analyst David Cox, this is highly unusual for a generic drug launch.
Hikma and Vectura don’t expect to resolve the issue before the end of March 2018, by which time a competitor could have already launched its own generic version of Advair. “The time to market is particularly important with generics,” explains Panmure Gordon's Dr Julie Simmonds, “therefore the further delay is unfortunate”. Mylan and Sandoz have both already submitted their own versions of the drug to the FDA, meaning Hikma/Vectura is likely to be the third to market, at best.
