Hikma Pharmaceuticals PLC (LON: HIK) – Resumed the launch of the generic version of Advair Diskus^®.

Hikma Pharmaceuticals PLC (LON: HIK) is a United Kingdom-based pharmaceuticals and biotechnology Company, specializes in the business of developing, manufacturing, and marketing a portfolio of branded and non-branded generic medicines. The Company has four reportable business segments – Injectables, Generics, Branded and Others. Moreover, the Company is creating quality medicines for over 40 years. HIK is listed on the FTSE 100 index.

On 06 August 2021, HIK will release interim results for six months ending 30 June 2021.

(Source: Company presentation)

Recent trend of dividend payments - HIK had paid a final dividend of 34 US cents per share on 26 April 2021, while the ex-dividend date was 18 March 2021. The Company had already paid an interim dividend of 16 US cents per share, taking the total dividend to 50 US cents per share for FY20, which remained around 14% higher when compared to the dividend of 44 US cents per share paid during FY19.

Growth Prospects and Risk Assessment

HIK had 154 launches and obtained 201 approvals during 2020. Moreover, it has submitted around 377 regulatory filings to accelerate the progress of its product pipeline. The Company had made significant progress so far in 2021, benefitted from a broad range of portfolio of essential medicines and strong commercial capabilities. HIK had made more than 30 product launches in 2021.

Furthermore, HIK had accelerated its progress towards the expansion of the Injectables pipeline as it had recently announced the expansion of the licencing agreement with Melinta in the MENA region and the licencing of Combogesic^® IV from AFT Pharmaceuticals. With this, HIK would expand the pipeline of non-opioid pain management treatments. HIK would continue to increase its footprint of Branded division in Saudi Arabia related to chronic care through the recent launches. It had also launched the first locally manufactured oral oncology product to strengthen the portfolio in Algeria.

(Source: Company presentation)

The Company had invested around 6% of the Group revenue in core R&D during FY20.

HIK is undergoing several significant risks as the operations of HIK might get affected due to the failure to maintain the availability of supply, quality, and competitiveness of API purchases. HIK is also exposed to the risk of maintaining compliance with current Good Practices for Manufacturing (cGMP), Laboratory (cGLP), Distribution (cGDP) and Pharmacovigilance (cGVP) by staff. HIK’s top-line business might get impacted in case the Company was unable to realise expected benefits from acquisitions or divestments, licensing, or other business development activities. 

After understanding growth prospects and risk assessments, we will analyse some key fundamental and shareholders statistics of Hikma Pharmaceuticals PLC.

Recent Developments

On 30 April 2021, HIK announced the approval of KLOXXADO^TM (naloxone hydrochloride) nasal spray 8mg by the US Food and Drug Administration (FDA) for the emergency treatment of known or suspected opioid overdose.

On 21 April 2021, HIK resumed the launch of its generic version of GlaxoSmithKline's Advair Diskus^® in the US. It had already received approval from US FDA in January 2021.

Trading Update (as of 30 April 2021)

• For the injectables segment, the Company had witnessed robust demand for recent new launched products across the US, UK, and MENA since the start of 2021.
• The Generic business had also shown good performance so far in FY21 due to the benefits of a broader portfolio.
• Meanwhile, the branded segment had also shown resilient performance across Tier 1 markets – Saudi Arabia, Egypt, and Algeria.

FY20 Financial Highlights (as on 25 February 2021)

(Source: Company result)

• The Company had delivered a resilient financial performance, with an increase in core Group revenue of 6% YoY and core operating profit of 11% YoY during FY20.
• As per the business segment, Injectable business achieved double-digit growth in the core operating profit, and Branded division achieved good growth in revenue, driven by a strong recovery in Algeria.
• The Company witnessed a healthy balance sheet, with net debt of USD 605 million and low leverage at 0.9x net debt to core EBITDA as of 31 December 2020.
• Meanwhile, HIK had delivered robust cash flow from operating activities of USD 464 million during FY20. 

Share Price Performance Analysis

(Source: Refinitiv, Thomson Reuters)

On 06 May 2021, at 10:10 AM GMT, HIK’s shares were trading at GBX 2,331.00, down by 0.26% against the previous day closing price. Stock 52-week High and Low were GBX 2,768.00 and GBX 2,086.49, respectively.

HIK's prices are above an upward sloping trend line for more than a year and currently approaching the trend line support level. The momentum indicator RSI (14-period) is trading at ~47 levels. In the last two years, HIK’s stock price has delivered a positive return of ~31.76%; and it has outperformed the FTSE All-Share Pharmaceuticals and Biotechnology index with a return of around 13.50% and the FTSE 100 index with a return of about negative 2.75%. 

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

HIK had delivered resilient financial performance during FY20 across all business segments. Moreover, HIK had kickstarted 2021 on a bright note, broadly in line with the expectations. Subsequently, the Company had managed to provide FY21 financial guidance for its three business segments – Injectables, Generics & Branded. 

Looking ahead, in 2021, the Company expects global injectables core revenue to grow in the mid-single digits and core operating margin to be ranging from 37% to 38%. HIK had estimated Generics revenue to be in the top end in the range of USD 770-810 million, while it also expects the core operating margin to be approximately 20%. Furthermore, the branded segment revenue is projected to grow at mid-single digit at constant currency during FY21. HIK had anticipated FY21 capital expenditure between USD 140 million and USD 160 million. Furthermore, it expects the core effective tax rate to be between 22% and 23% and the Group net finance expense to be around USD 50 million during FY21. Overall, HIK is well-positioned to deliver sustainable growth in the medium term.

Considering the recent new launches, strong balance sheet, dividend growth, robust profitability growth, strong development pipeline, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Hikma Pharmaceuticals at the current price of GBX 2,331.00 (as on 06 May 2021 at 10:10 AM GMT), with lower-double digit upside potential based on 21.27x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*The dividend yield is subject to change as per the stock price movement.

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