ii view: Hikma Pharmaceutical – a Covid-19 winner

Demand for its products has been strong, and now it is to make a Covid drug for Gilead.

First-half results to 30 June 2020

• Revenue up 8% to $1.13 billion
• Operating profit up 15% to $284 million
• Interim dividend up 14% to 16 cents per share
• Net debt of $511 million

Chief executive Siggi Olafsson said:

"We have delivered strong first half results, which are ahead of our initial expectations and reflect good progress in each of our three businesses.  These results are a testament to the steadfast commitment of our people, who are working hard to ensure high quality and affordable medicines are available to patients throughout the Covid-19 pandemic.  Our performance demonstrates the breadth and resilience of our portfolio, as well as the vital role of the generic medicines we supply.  We have a positive outlook for each of our three businesses and look forward to the second half with confidence."

ii round-up:

Maker and supplier of non-patented drugs Hikma Pharmaceuticals (LSE:HIK) today raised its sales forecasts as demand for products to treat other conditions which can aid Covid-19 was expected to continue into the second half.

It raised sales expectations for both its two biggest divisions of generic and injectables drugs, with the latter going from low single digit growth to mid-single digit. The announcement of a manufacturing agreement with Gilead (NASDAQ:GILD) to produce remdesivir, a prescription drug conditionally approved for the treatment of Covid-19, also feed into the mix. 

Hikma shares rose by more than 10% in early UK trading having risen by around a fifth year-to-date. Shares for cancer drug maker AstraZeneca (LSE:AZN) are up just over 10% in 2020 while shares for shingles vaccine maker GlaxoSmithKline (LSE:GSK) are down by a similar amount. 

Hikma sells generic drugs including pain medications, sedatives, anaesthetics, neuromuscular blocking agents and anti-infectives.

Sales for injectable and generic drugs rose by 43% and 33% in the half year to $485 million and $369 million, respectively. Sales for branded products were up by 24% to $275 million. In 2019, the USA accounted for nearly 62% of group sales, the Middle East and North Africa a further third. 

The Jordan founded company declared a half year dividend of 16 US cents per share, an increase of 14% over its 2019 interim payment. 

ii view:

Hikma supplies over 650 medicines and products globally. Headquartered in the UK, it employs over 8,000 people across more than 50 countries. It currently manufactures hundreds of generic medicines in the US and supplies over 275 branded generic medicines in the Middle East and North Africa and emerging markets.

In 2016 the company received a Drug Shortage Assistance Award from the US Food and Drug Administration (FDA) for its role in preventing or alleviating drug shortages.

For investors, an estimated forward price/earnings ratio of 17.7, above both its own three-year average and that of rival GlaxoSmithKline, suggests that the shares are not excessively cheap. The historic dividend yield of under 2% is also below that of both AstraZeneca and Glaxo. But the dividend payment has been growing, unlike both its larger rivals in recent years, while its healthcare provision in the middle of a virus pandemic offers its own attraction. 

Positives: 

• Diversity in both product and geographical location
• 78 new products launched during the half year

Negatives:

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

The average rating of stock market analysts:

Buy