ii view: Hikma Pharma targets $2 billion US market

Over 700 products and now a new injectables business. We assess prospects for this FTSE 100 company. 

Launching a new US injectables business

President of Injectables Riad Mishlawi said:

"There is substantial demand for outsourced sterile compounded medicines among the thousands of hospitals we currently serve, representing a large opportunity to meet a growing and not fully met need within the US health care system." 

ii round-up:

Pharmaceutical company Hikma (LSE:HIK) today detailed plans to expand its injectables business with the launch of a new outsourced sterile compounding unit in the US.

Sterile compounding is the process of combining, mixing, or altering ingredients to create medications in ready-to-administer formats tailored to the needs of healthcare providers. The growing US market for sterile compounding is now estimated to exceed $2 billion annually.

Hikma shares were little changed in early UK trading. They're down 20% in the past five months, but have gained by over 20% since pandemic market lows in March 2020. Shares for Covid vaccine maker AstraZeneca (LSE:AZN) are up by a similar amount since the Covid crash. Shares for GlaxoSmithKline (LSE:GSK) have risen by around 15%, while shares for pet drug maker Dechra Pharmaceuticals (LSE:DPH) are up over 80%. 

The new outsourced Hikma unit will be called Hikma 503B. It is registering for state licenses across the US and expects to be operating nationwide by the end of 2022. 

The new business builds on Hikma’s position as the second-largest supplier by volume of generic injectables to US hospitals. One out of every six generic injectable medicines used by US hospitals is a Hikma product. 

Injectables generated Hikma’s biggest slug of sales during 2020 at just over two-fifths. That was followed by generic drugs at just under a third, and branded drugs the balance.

In a trading statement in early November, Hikma flagged some volatility from the ongoing pandemic, but management did reiterate its full-year guidance to achieve another year of growth.

Annual results to the end of December are due 24 February. 

ii view:

Founded in Jordan, Hikma today develops, makes and markets a range of branded and non-branded generic medicines. It provides over 780 products to patients globally. Its therapeutic categories include anti-infectives, cardiovascular, central nervous system, diabetes, oncology, pain management and respiratory. Employing over 8,500 people, it operates across more than 30 manufacturing plants. In 2020, the US generated its biggest slug of sales at 60%, with the Middle East and North Africa accounting for a further third and Europe and Rest of the World the balance. 

For investors, a high sales exposure to the Middle East and North Africa could leave it vulnerable to political unrest and change. A historic dividend yield of under 2% is also below that of both AstraZeneca and GlaxoSmithKline, while the level of elective surgeries remains below pre-pandemic levels, dampening some demand. 

More favourably, Hikma offers both geographical and product diversity, with this latest announcement extending the latter further. The first-half dividend payment also rises 13% to 18 US cents per share. In all, and with the current consensus analyst estimate of fair value standing at £27.85 per share, reasons for long-term optimism appear to remain. 

Positives: 

• Diversity in both product and geographical location
• Launched over 150 new products in 2020

Negatives:

• Currency translation can hinder performance
• Key Middle Eastern markets can suffer political instability

The average rating of stock market analysts:

Buy