Hikma Pharmaceuticals Plc. (OTCPK:HKMPF) Provisional Results 2022 August 4, 2022 5:30 AMm. ET
Participating companies
Said Darwazah – Executive Chairman and CEO
Khalid Nabilsi – Chief Financial Officer
Conference Call Participants
Darwazah said
Hello everyone. And thank you for participating in our provision of the 2022 interim effects. I’m Said Darwazah, CEO and CEO of Hikma, and I’m joined here by Khalid Nabilsi, our CHIEF Financial Officer. I’m excited to be back with you today to provide our first half effects and update them on our strategic progress. I will start it and then give the land to Khalid to provide our finances in detail.
Today we present really fake effects. Clearly, the first part of the year has been challenging with the continued effect of COVID, with increased festival and the effects of inflation starting to be felt across the company. But I am very happy that, despite this, we have published a set of effects that demonstrate the resilience of the Group. In a challenging environment, the differentiation of our business, our operational and sales force and the hard paints of our painters have allowed us to offer an intelligent source of our medicines to consumers and patients. in our markets.
The Group’s profit in the first part of the year was solid compared to last year and the Group’s main source of operating profit decreased by 4%. Expansion of single-digit earnings in our Injectables and Brands businesses. We continued to generate a smart point of operating money in the early part of the year and our balance sheet remains strong, even after the final of the Custopharm and Teligent acquisitions and the final touch of a $300 million percentage buyback.
This slide highlights the diversification of our Group’s profits and profits. We are committed to making an investment in our 3 businesses. When one company faces headwinds, the others always make up for it. As is the case this year, the strong expansion of Injectables and Brands makes it possible to compensate for the complicated environment of Generics. Our Injectables business is now our largest business, accounting for 44% of the Group’s profit and 61% of the Group’s main operating profit. It continues to have the highest margins in our 3 businesses, achieving a core operating margin of 39% in the first part of the year.
Injectables and branded products account for more than 70% of the Group’s turnover and more than 80% of the Group’s operating income. Both activities are doing well and have very positive customers for the future. for our Generics business, however, today, in this challenging environment, it is the smallest component of our business. I think it’s worth noting here that while our Generics team is having a rough year, they are doing a wonderful job of managing the challenging operating environment that affects businesses across the industry. They remained focused on operational power and load relief to minimize the impact on overall market conditions.
I believe the team’s extensive experience in the industry and our world-class production facility in Columbus are among those in the world. So while the profitability of generics is lower than we’d like, we’re now revising our outlook so that generic margins are around mid-teens for the whole year, this is still a smart margin for the industry. Not only is our company a well-diversified company in terms of profits and profits, but it is also diversified in terms of features and geographies, giving us a very forged expansion platform.
The group strategy we have been implementing for over 4 years remains unchanged, concentrating on the foundations, expanding our product portfolio and inspiring and empowering our employees. As we look at the long term, we will have to continue to focus on the foundations. of each of our activities. This means leveraging the investments we’ve made in products and production to make sure we get the most out of the very high-quality assets we have. The pipe is, of course, also essential and essential. they have for our long-term success. We will also continue to leverage our R operations.
Starting with injectables. Our Injectables business, with its broad portfolio, flexible, high-quality production operations and strong business relationships, is, in fact, differentiated. I should note that this is also our first company to achieve $1 billion in revenue, which it did last year. We are the largest supplier of generic injectables at the moment in volume in the U. S. We have grown our portfolio over the past decade from approximately 50 products to over 130. In addition to products, we have made significant investments in recent years in all aspectos. de this activity in order to ensure strong long-term growth.
I just talked about the acquisition of Custopharm, which is already contributing to the intelligent functionality of injectables in the first part of the year. With this acquisition, we have added more experience in the progression of complex and pioneering generics in the market, which will build us a more differentiated product portfolio. The acquisition of Teligent’s assets has allowed us to enter the Canadian injectable market, a facet of the business that we will seek to expand over time. We are also entering new markets organically, as we did in France in the first part of the year.
The continuous investment in production capacity has earned us the reputation of being a reliable and high-quality supplier, which helps us to form strong partnerships with our consumers and allows us to intervene in conditions of scarcity, to ensure the continuity of the source of vital medicines. to patients. Investment in production is also very important to help our developing portfolio and we load new lines and functions into our global operations. It also helps us take on CMO’s strategic activities, which have proven to be a successful strategy to date. they have also had a great start with our preparation business and have recently successfully completed FDA inspections at our Dayton and Cherry Hill sites, which will help us offload the remaining required state licenses.
While this business will be a small contributor in 2022, we have ambitions to become one of the leading suppliers of composite products in the United States and will work to grow this business gradually over time. And I have yet to discuss all the investments we have made in the MENA region, where we are building local injectable production plants in Egypt, Algeria and Morocco, expanding our product portfolio and gaining smart market share, especially for our biosimilars. So, as you can see, we have a lot to do in this sector and the customers to continue the expansion are excellent.
Our logo also provides very attractive expansion opportunities. We are well established in the MENA region, operating there for over 40 years and are now the fourth largest pharmaceutical company in the region. We are present in 18 markets with a giant local production footprint. We also have a strong and experienced sales force of around 2000 more people who market our products in the region. In 2018, we prioritized our markets to focus on those with the greatest potential. Saudi Arabia, Egypt and Algeria are doing well. We have also been strengthening our 2- and 3-tier markets, which have lately been smart participants for expansion.
And I am pleased to announce that Morocco, which in the past was a Tier 3 market, now has a Tier 2 market as we see smart expansion and a wonderful outlook in this vital market. We have a broad product portfolio consisting of products to expand internally, our branded generics, and the cutting-edge brands we license from global spouses. It is the strength and breadth of our advertising and production capabilities, combined with our local market wisdom, that positions us as a selection spouse in the region. The key to the long-term expansion of this company is the progression and execution of the pipeline. We plan to continue to signal new marriages for cutting-edge products and have also strengthened our R capabilities.
Today, we have a portfolio of high-quality products that we hope will supply a stable flow of corneal products in the years to come. For some time, we have said that we are moving from anti-infectives, our traditionally highly effective products, to more differentiated products, adding remedies for chronic diseases. Today, I am pleased to say that the investments we have made to build a more differentiated product portfolio are paying off. medicines used for chronic diseases, with chronic medicines accounting for approximately 56% of our portfolio today, up from 43% in 2016. Like the Injectables business, the expansion outlook for the brand business is very strong and we look forward to the momentum we’ve had lately. seeing continue until 2023 and beyond.
Now let’s take a look at generics. I know that the performance of the generics business in the first part of the year, as well as the outlook for the full year, is disappointing. The market is very challenging, value erosion remains severe and we are seeing more and more volume. erosion, which is expected to continue into the current part of the year. So this year is going to be a tough year, especially compared to the very smart year we had last year. But luckily our company is strong enough to weather this bad storm. We have a plant in Columbus and an experienced control team that has been focused on expanding power and lowering our prices to handle industry headwinds.
We are now heading for margins forged in the middle of adolescence for the total year, which is very respectable in this industry. More importantly, we expect the company to expand again next year. The key to this and expansion beyond 2023 is the launch of more differentiated products and the progression of our specialized activities. We continue to incorporate more differentiated and specialized products into our portfolio through R
In the near term, we have exciting launch opportunities that will help Generics return to expansion. These come with generic Xyrem, with a safe release date of January 1, 2023, and Ryaltris, which we plan to release in time for spring allergy. We will also seek to leverage our state-of-the-art production facility in Columbus to achieve further expansion through strategic contract production, a strategy that has proven to be a success for our Injectables business. We have enough capacity to help either our own activities or those of third parties. This is a great way to maximize the return on our invested capital and higher volumes will help us remain as competitive as possible in terms of costs.
Of course, to help our expansion plans and accommodate an expanding portfolio, we will need to continue to invest in high-quality production capabilities. We’re very smart at that. Year after year, we have consistently invested approximately 6% of our revenue in CapEx. These expenses are divided between Maintenance CapEx, which is imperative to maintain our superior quality criteria, and Expansion CapEx, which are used for our capabilities, develop automation, as well as expand our production and storage capacity. These investments have allowed us to build an extensive production network of 32 plants in 11 countries. This includes world-class services in the U. S. in Columbus for our generics business and in Cherry Hill for Injectables.
These U. S. -based sites are located in the U. S. The U. S. sets us apart from some of our competitors and allows us to respond incredibly temporarily to fluctuations in demand in the U. S. USA We also have an injectable products factory under development in Portugal that will be one of the largest producers of freeze-dried products. Sites in the industry, this type of specialized capacity is the most requested. At our Columbus site, where we are the leading supplier of nasal sprays in the United States, we also have two lines dedicated to dry powder inhalers and a facility dedicated to maximum potency products. In the MENA region, we have complex capsule filling machines, bilayer machines and the ability to produce maximum power and oncological products.
It is vital to note that we have local services in all of our key markets in the MENA region, each with a diversity of capabilities. These are just a few examples of what our investments have brought us to date. Our production force is one of our greatest assets and a key differentiator for us compared to our peers.
Moving forward a bit, I now want to live a little bit off some other lever for long-term growth, our pipeline. To drive growth, we want to make sure we constantly have new products in our pipeline. We have been running with our efficiency R
If we take a look at our priorities for each of the activities: At Injectables, we will continue to expand our portfolio of traditional products. We are also focused on new healing equivalents, looking for new doses, forms and ready-to-use products. are based on the progression of more complex differentiated products, such as long-acting injectables, suspensions, and complex product devices. At Branded, we will continue to focus on developing our rugged product portfolio with higher barriers to entry, as well as targeting the introduction of the first products to market and the first generics in our Tier 1 markets, and the introduction of lean practices in our R labs.
At Generics, we will continue to seek to build the complexity of our product portfolio by focusing on products with a superior barrier to entry, complex products that leverage our nasal spray manufacturing capabilities, inhalation and superior containment and, of course, on building our specialized portfolio. Approximately 75% of our submissions in 2023 and beyond will be eligible deposits of paragraph IV, an NDA or a competitive generic therapy.
This slide provides a review of what we have in our portfolio lately. For U. S. injectables, we have a total of 93 products in our portfolio, forty-five of which are already filed with the FDA. These products come in another bureaucracy and come with bags, prefilled syringes, powders and pens. For Branded, we have a total of 142 products in our pipeline, 79 of which are classified. and central nervous system. For Generics, we have a total of 31 products of which 11 are classified. These come with products forged in nasal, respiratory, and oral sprays. transparent plan for the extra progression of our products.
Now I will hand over the land to Khalid for our finances.
Khalid Nabilsi
Thank you Said and hello everyone. The Group delivered strong functionality in the first part of the year, reflecting the strength of our underlying business, supported by the breadth of our product portfolio, our exclusive production footprint and our recent acquisitions. We delivered strong functionality in Injectables and Brands business, which helped partially offset the drop in Generics. As a result, in the first part of the year, Group revenue remained solid at $1. 2 billion and Group fundamentals consistent with revenue source decreased by 4%. compared to $0. 965 in the first part of 2021. La Board recommends a provisional dividend of $0. 19 consistent with the stock, compared to $0. 18.
Now let’s take a closer look at the monetary functionality of each of the companies. Starting with injectables. The Injectables business recorded strong expansion in the first part of 2022, with gains of up to 9%, driven by our own earnings and the recent acquisitions of the Canadian assets of Custopharm and Teligent. In terms of biological expansion, Injectables’ profits increased by 5%. In each of our regions, in the United States, earnings are up to 14%. Following the effect of the pandemic, we are seeing normalized demand with a slow decline in elective surgeries. We profit from our broad portfolio of over 130 products, as well as our extensive and flexible production capabilities, any of which help us meet market demand and cope with shortages. We also benefit from Custopharm’s contribution, which we closed in April.
In Europe and the rest of the world, profit generation increased by 4%, reflecting strong demand in our own product portfolio, adding recent launches and a contribution from the acquisition of Canadian Teligent. In the MENA region, earnings declined by 1% on a reported basis and an increase of 1% at constant exchange rates. This is basically due to declining sales in Lebanon and Iraq, which was partially offset by successful new launches, as well as the strong functionality of our biosimilars as we continue to enter new markets. and increase our share of the existing market. We expect functionality to be weighted towards the current part of the year.
The core operating margin for injectables remains that of our 3 businesses, with a margin of 38. 8% in the first part of the year. This reflects an improvement in the product line and the contribution of the recent acquisition, which more than offset an accumulation in R expenses.
For example, we saw a smart call for chronic drugs in Algeria, Morocco and Iraq, which performed well in the first part of the year. We performed well in the personal sector in Saudi Arabia, driven by the call for products used to treat diabetes and multiple sclerosis. We expect government tenders in this market to accumulate in the current part of the year due to timing. The brands’ core operating margin was 21. 8%, compared to 20. 1%. This reflects an improvement in the combined output that more than offset the negative currency has a similar effect to the currency devaluation in North Africa. As a result of this strong performance, we expect earnings to be spread more lightly this year compared to previous years.
Revenue decreased by 18% in the first part due to the challenging competitive environment in the United States. spear. Generic core operating revenue stream decreased 42% and margin decreased to 17. 6% due to erosion as well as higher sales and marketing pricing as we continue to expand our advertising functions to a specialized development portfolio. We want to make sure we build a portfolio of differentiated products to ensure long-term sustainable growth.
In the first part of the year, we continued to advance our pipeline projects and invested $69 million in R
In the MENA region, $29 million was spent basically to load new injectable production capacity in Morocco and Algeria. And in Europe, we spent $10 million, loading new high-speed liquid filling lines in Portugal, as well as modernizing appliances in Italy and expanding storage. The Group continues to generate a smart point of money, with an operating money of $169 million. supply. The Group’s total debt increased to $1. 6 billion, reflecting an accumulation in our financing following our recent acquisitions of Canadian injectable assets from Custopharm and Teligent, as well as the buyback percentage.
Before we move on to our forecast for the whole year, I just want to tell you about the effect of inflation. In the early part of the year, we began to see the effects of the global inflationary environment on parts of our business. While we have controlled this to the extent imaginable by maintaining tight control over prices and seeking operational efficiency, we expect additional price accumulation due to inflation in the current part of the year. At the moment, I estimate that the effect of inflation on the Group for the full year will be approximately $20 million and this has been taken into account in the following forecasts.
For injectables, we continue to expect earnings expansion to be between 36% and 37% at medium to high and base operating margin at 36% to 37%. This reflects the strength of our core business, supported through our broad product portfolio and flexible production capabilities, as well as the contribution of recent acquisitions, which will more than offset us and prices are expected to rise in part due to inflation. For Branded, given the strong functionality in the early part of the year, we now expect an initial earnings expansion of less than 1 figure as reported. At constant exchange rates, we expect an initial earnings expansion for branded products of approximately 10 figures. be expecting the primary operating source of profit to be allocated more equitably during the year. This is an update of our previous tips.
For generics, given the ongoing demanding situations in the U. S. generic market. In the U. S. , we now expect revenue to be between $650 million and $675 million, a reduction from $710 million to $750 million, and a core operating margin of between 15% and 16%, approximately a 20% reduction. We expect the Group’s fundamental net cash expenses to be approximately $68 million and the base effective tax rate to be between 22% and 23%. We expect the Group’s capital expenditures to be between $140 million and $160 million.
This concludes the monetary section. I will now turn to Said for some final comments.
Darwazah said
Before concluding, I need to take a step back and take a look at Hikma’s strong earnings and earnings growth track record. I have been with Hikma since the beginning and it was exciting to see the company grow from a small local player MENA region to the multinational we are today, with over $2 billion in profits. Since 2017, our earnings have increased to a CAGR of 7% and our base operating source of profit to a CAGR of 13%. We also achieved an average return on investment of approximately 17%, demonstrating our ability to allocate capital and generate value, and redistributed money to shareholders through normal dividends.
Today, we have a solid foundation with a broad product portfolio and a wide diversity of new products. Our production footprint gives us the features and flexibility to meet the developing desires of our consumers and patients. And we have a track record of quality, which makes us a reliable supplier of critical injectable, brand-name and generic drugs globally. With all this, we see a wonderful differentiation and perspective for Hikma and our ambition is to continue to grow to meet the expansion trends you see here in our 3 businesses.
As we see headwinds in the industry in a division, we will have to keep an eye on the high corporate quality that Hikma has become. I am incredibly excited about our perspective and confident in our long-term prospects. to give you an idea of how we view corporate development in the medium term. We expect the expansion of injectable earnings to accelerate, driven through our investments in adjacent expansion spaces, such as composites, our access to new markets and our sales force, from R
Finally, our generics business will expand again in 2023, driven by new releases adding Ryaltris and generic Xyrem. By executing our strategic priorities, we will further diversify our business to achieve long-term sustainable expansion.
Thank you so
Q&A session
End of questions and answers