Hikma Pharmaceuticals PLC (LON: HIK) – Recently received US FDA approval for KLOXXADO

Hikma Pharmaceuticals PLC (LON: HIK) is an FTSE 100 listed 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. Moreover, HIK operates through four reportable business segments – Injectables, Generics, Branded and Others. Moreover, it has a strong pipeline with over 500+ products, along with that, the Company has 30 US products under development.

On 06 August 2021, HIK expects to release interim results.

(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

• Widespread presence in the US – HIK has a strong foothold in the US as it is the 3rd largest manufacturer of injectables and one of the top 10 generic companies in the region.
• Increased revenue contribution from New Products – The company has increased its revenue generation capabilities from new product launches as the new product launches contributed 7% of the total FY20 revenue, in 2019, the new product contribution was 4%. Also, the Company plans to generate 10% of revenue from new products by 2023.
• US FDA Approval of KLOXXADO^{TM -} - On 30 April 2021, the Company announced that it had received FDA approval regarding a higher dose naloxone hydrochloride nasal spray as part of increased efforts to stunt surges in opioid-related deaths.
• Launch of generic Advair Diskus® - HIK had resumed the launch of the generic version of GlaxoSmithKline's Advair Diskus^®in the US after receiving approval from the US FDA for the new drug application submitted in January 2021.
• Expansion of US Injectables portfolio – The products launched since 2016 had made a significant contribution of around 27% in US Injectables revenue during FY20. Moreover, it expects to launch 10-15 products for the US Injectables market during FY21.

Key Risks

• Product Pipeline – The selection and development of products that are not catering to the market needs may lead to the reduction in the bottom-line profitability.
• API and third-party risk management – The operational performance of HIK might be hampered due to the failure to maintain the adequate availability of supply, quality, and competitiveness of API purchases.
• Acquisition Risk – The Company might not realise expected benefits from acquisitions and divestments.
• Product quality & safety – HIK is exposed to the risk of maintaining compliance with current Good Practices for Manufacturing (cGMP), Laboratory (cGLP), Distribution (cGDP), and Pharmacovigilance (cGVP) by staff.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Hikma Pharmaceuticals PLC.  

 Darhold Ltd is the most significant shareholder as it holds nearly 60.00 million shares as of 31 March 2021.     

Trading Statement (as of 30 April 2021)

• For the Injectibles segment, the Company had made accelerated progress with regards to the expansion of the global 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.
• HIK had demonstrated an increasing demand for the Covid-19 related products and a good performance of the new launches in the Generics business segment.
• The Branded business segment had progressed well with a focus on increasing the market presence of chronic care in Saudi Arabia. Moreover, it had launched the first locally manufactured oral oncology product in Algeria.

FY20 Financial Highlights (for the 12 months ended 31 December 2020, as of 25 February 2021)

(Source: Company result)

• The revenue grew by 6%, and the operating profit rose by around 23% at constant currency on a statutory basis during FY20.
• The Company had a robust balance sheet with net debt of USD 605 million as of 31 December 2020 and low net debt to core EBITDA of 0.9x.
• Moreover, the R&D investments represented almost 6% of revenue in 2020, having the growing pipeline of complex products.

Financial Ratios (FY20)

Share Price Performance Analysis

(Analysis done by Kalkine Group)

On 10 June 2021, at 11:50 AM GMT, HIK’s shares were trading at GBX 2,441.00, down by 0.20% against the previous day closing price. Stock 52-week High and Low were GBX 2,768.00 and GBX 2,086.49, respectively.

The momentum indicator RSI (14-period) is trading at ~57 levels. Moreover, 21-day EMA is sustaining below the current price, supporting the upside potential in the stock price.

Over the period of the last two years, HIK’s stock price has delivered a positive return of ~52.34%; and it has outperformed the FTSE All-Share Pharmaceuticals and Biotechnology index with a return of around 13.70% and the FTSE 100 index with a return of about negative 3.85%.

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

Business Outlook Scenario

HIK had kickstarted 2021 on a bright note and illustrated strong commercial capabilities with around 30 new products launched across the key markets. 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. The company had incurred a capital expenditure of USD 172 million in 2020 and plans to spend capex ranging from USD 140 million to USD 160 million in 2021. Overall, HIK is well-equipped to achieve sustainable medium-term growth for the shareholders.

Considering the impressive development pipeline, good return on equity for shareholders, decent revenue growth, strong profitability, robust cash generation, 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 2,441.00 (as on 10 June 2021 at 11:50 AM GMT), with lower-double digit upside potential based on 22.09x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

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