Hikma's shares plunge after cutting full year revenue forecast on asthma drug launch delay

Hikma Pharmaceuticals plc (LON:HIK) tumbled to the bottom of the FTSE 100 after slashing its full year revenue guidance due to delays on the approval of its generic version of asthma drug, Advair.

Shares dropped 4.29% to 1,626.0p in morning trading. 

The company confirmed in a trading update that it does not expect to launch the generic version of GlaxoSmithKline plc’s (LON:GSK) Advair this year. Hikma plans to manufacturer the drug using Vectura’s inhaler and a drug formulation.

Earlier this month Hikma and Vectura received a complete response letter (CRL) from the US Food and Drug Administration categorising the drug as ‘major’, which means the application will require significant amendments.

“This assumes we do not launch our generic version of Advair Diskus in 2017 and reflects the intensifying competitive environment in the US,” Hikma said in a statement.

As a result, Hikma has slashed its forecast for generic drugs revenue for fiscal year 2017 to US$670mln from the US$800mln it estimated in March.

The revision to its guidance for the generic drugs business means the company now expects total revenue to be in the range of US$2.0bn to US$2.1bn, compared to a previous forecast of US$2.2bn.

Hikma, however, expects to see a slightly improved 2017 profits in its generics business after incurring extra operational expenses related to Advair after achieving cost savings. 

Himka maintains guidance for injectables and branded divisions…

Hikma maintained its full year expectations for the injectables business for revenue of between US$800mln and US$825mln.

New product launches, including former injectables under its US business Bedford Laboratories, offset rising competition on certain products.

In the branded business, the company continues to expect underlying revenue growth in the “mid-single digits” in constant currency in 2017, boosted by a pipeline of new product launches in key markets.

On a reported basis,  however, Hikma reiterated that it predicts branded revenue will rise in the “low-single digits” and core operating margin to be broadly in line with 2016, due to the impact of a 51% devaluation of the Egyptian pound against the US dollar.

The pharmaceutical firm was founded in Jordan in 1978 before expanding into Egypt, the US and Europe.

Hikma still a ‘buy’, says Cantor

The company has also had teething problems following its acqusition of Roxane Labarotories last year, with delays to to several product launches, Cantor Fitzgerald noted. The recent CRL from the FDA on Advair suggests the drug won’t be available until 2018, adding further pressure on the generics business

However, Cantor reiterated a ‘buy’ rating and target price of 2,500p, saying Hikma is “more than just an Advair generic and we note continued strong performance from the sterile injectables business and seasonality within the branded business”.

“To be fair to Hikma we always viewed the Advair generic opportunity as more of a windfall recognising that competitive pressures on the franchise are growing (from cheaper non-substitutable alternatives like AirDuo’s authorised generic to GSK’s fixed triple arriving later in 2017).” the broker added.

Cantor said he availability of a generic Advair is probably still a question of “when and not if”.

Following Hikma’s update, Cantor now expects full year profits to be a “slight improvement” on the previous year, compared to the “significant improvement” it had anticipated earlier.

In March, Hikma reported a 21% drop in full year operating profit to US$302mln, as its generic business reported an operating loss of $14mln. The loss in the generics business was partly due to exceptional items of US$33mln related to acquisition and integration costs of US generic prescription medicine provider West-Ward Columbus.

At the time, chief executive Said Darwazah said Hikma expects the generics business to achieve “significant growth in revenue and profitability in the coming years as we focus on pipeline execution and portfolio optimisation”.

– Adds share price reaction, broker comment – 

Story by ProactiveInvestors