ii view: Hikma's positive start to 2021 and a drug approval

Its shares are up over 40% since pandemic lows and the dividend has been growing. Buy, sell or hold?

Early year trading update

Chief executive Siggi Olafsson said:

"2021 is off to a good start with performance in line with our expectations. Our broad portfolio of essential medicines, strong commercial capabilities and over 30 new product launches across our markets have supported this progress.”

ii round-up:

Drug company Hikma Pharmaceuticals (LSE:HIK) today flagged a positive start to 2021 and offered no major change to its full-year expectations. 

In tandem with its trading update, Hikma also announced the US Food and Drug Administration’s approval of its treatment for known or suspected opioid overdose. Naloxone hydrochloride, or Kloxxadotm, can be used to treat both adult and paediatric patients.

Hikma shares rose by more than 4% in UK trading, leaving them up by around 40% since pandemic induced market lows in March 2020. Shares for Covid-19 vaccine developer AstraZeneca (LSE:AZN) are up by around 12% over that time, while GlaxoSmithKline (LSE:GSK) is down around 3%.  

Hikma operates across the three divisions of injectables, generics and branded drugs. Injectables generated its biggest slug of sales over 2020 at just over two-fifths; followed by generics at just under a third and branded drugs the difference. 

Management continues to expect global Injectables core revenue to grow by mid-single digits and for its core operating margin to be in the range of 37-38%. Sales at its generics business are now expected to come in towards the upper end of its forecast range of between $770 million and $810 million, with core operating margin at around 20%. Revenue growth for its branded business is expected to remain in the mid-single-digit area. 

Hikma’s first-half results are due early August. 

ii view:

Hikma, founded in Jordan, supplies over 650 medicines and products globally. The US accounts for 60% of sales, with the Middle East and North Africa making up another third. Its portfolio of generic drugs includes pain medications, sedatives, anaesthetics neuromuscular blocking agents and anti-infectives. One in every six generic injectable medicines used in US hospitals are a Hikma product. During 2020 it paid a total dividend of 50 US cents per share, up 14% on 2019. 

For investors, a historic dividend yield of under 2% is below that of both AstraZeneca and GlaxoSmithKline. High sales exposure to the Middle East and North Africa could also leave if vulnerable to political unrest and change. 

However, another drug approval is clearly positive news. It recently resumed the launch of its generic version of Glaxo’s asthma treatment Advair and its own dividend payment has been growing in recent years, unlike that of both AstraZeneca and GlaxoSmithKline. 

Positives: 

• Diversity in both product and geographical location
• Launched 154 new products during 2020

Negatives:

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

The average rating of stock market analysts:

Buy