Hikma Hit By Approval Delays, But Advair Diskus Generic Expected Next Year
Executive Summary
Jordan's Hikma claims to be a more balanced generics company after the Roxane acquisition, and expects 2017 approval of an Advair Diskus generic, but delays in US generic approvals held back profits in the 2016 first half.
Slower than expected approvals for products in its recently acquired US generics business, West-Ward Columbus (previously Boehringer Ingelheim GMBH’s Roxane unit), have been blamed for a decline in profits during the first half of 2016 at Jordan-based and UK-listed generics company Hikma Pharmaceuticals PLC.
“These products have now been approved but their delay had an impact on expected revenues and profit,” the company says in its 2016 first-half interim financial results, released Aug. 24. A profits warning was issued in early August by Hikma, which reported its core operating profit would decline by 14% (down 3% in constant currencies) to $176m in the first half of 2016, compared with the 2015 first half, now confirmed in the interim results. Overall operating profit declined by 38% (down by 27% in cc) to $121m in the 2016 first half, but revenues rose to $882m, up by 24% on an as-reported basis (up by 28% in cc).
The $2bn acquisition of West-Ward Columbus has been problematic for Hikma. In early 2016 Hikma negotiated a discount on the purchase price following the paying of higher than expected rebates by the business (Also see "Hikma Gets $535m Off BI's Roxane Over Rebate Discrepancy" - Scrip, 10 Feb, 2016.). And the US Federal Trade Commission, later in February 2016, ruled that Hikma had to sell three generic products – oral prednisone, oral lithium carbonate and oral flecainide – to satisfy competition concerns (Also see "FTC: Hikma Must Give Up 3 Generics For Roxane" - Scrip, 29 Feb, 2016.).
But the rationale for the purchase has remained clear, revolving around increasing the breadth of Hikma’s US business and adding more than 80 new products to its pipeline, in the face of increasing consolidation and competition in the generics sector, including such events as the sale of Allergan PLC’s generics business to Teva Pharmaceutical Industries Ltd. (Also see "Allergan Sees Growth From New Launches, Not Big M&A" - Scrip, 9 Aug, 2016.).
In its US generics business, Hikma has had an ANDA for a generic version of GlaxoSmithKline PLC’s Advair Diskus (fluticasone propionate and salmeterol) inhalation powder accepted for filing by the FDA, with a GDUFA goal date of May 10, 2017. Company executives said it was filed as a substitutable (AB-rated) product, and launch is expected in the second-half of 2017.
On Aug. 24, Hikma said it expected 2016 group revenues to be in the range $2.0-2.1bn for the full year, including 10 months of revenue from its US generics West-Ward Columbus unit, and strong growth in its global injectable generics, and in its branded products in the Middle East and North Africa (MENA) , the three segments into which Hikma divides its business.
West-Ward Columbus only contributed revenues of $193m in the 2016 first-half, and Hikma’s legacy generics business contributed revenues of $64m, compared with revenues of $79m in the first half of 2015.
As well as the approvals delay, revenues were also affected by the required divestment of legacy products, but partially offset by the growth in colchicine revenues. In the next few months, there will also be higher than expected costs due to the timing of pipeline-related litigation, Hikma said. Core operating profits in the US generics segment in the full year are now expected to be in the range $30m to $40m.
2016 A Transitional Year
Of course, 2016 was always going to be a transitional year for Hikma, with the completion of the Roxane unit acquisition at the end of February, and the steady re-introduction of injectable generics from Bedford Laboratories, a business that was acquired in 2014 after that company’s manufacturing facility was shut down in 2013. (Also see "Hikma to buy Ben Venue's Bedford Labs for up to $300m" - Scrip, 29 May, 2014.)
“We were pleased to complete the acquisition of Roxane at the end of February, and that has changed the shape of the group,” Hikma’s chairman and CEO Said Darwazah told analysts in a UK briefing held Aug. 24. “The acquisition has given us a balanced and diversified business model, and we are confident in the strength of our R&D and commercial capabilities,” he continued. “We will now focus on pipeline execution and development.”
Evidence of Hikma being a better balanced company was seen in the first-half results, with revenues coming almost in equal measure from its three businesses: US generics accounted for $257m or 30% of group revenues, global injectables for $357m or 40% of group revenues, and branded products in the MENA region for $264m or 30% of revenues.
Geographically the business is less balanced, with 34% of Hikma’s revenues now coming from the MENA region, 60% from the US and only 6% from Europe and the rest of the world, but Hikma is working on that too. Darwazah noted that Hikma was continuing to look for new markets and products for its global injectable business that would include developing a pipeline of differentiated and complex products, and the re-introduction of Bedford’s products, that could total 20 products by the end of 2017.
In Europe, new products and geographies are being explored, and strategic opportunities will be pursued in MENA, like the acquisition of the Egyptian company EUP earlier this year. Over 300 products are pending approval across Europe including in Spain, France and the UK.