Morningstar | Hikma's Fiscal 2018 Performance Bolstered by Broad Revenue Growth and Cost Controls
Hikma's results were slightly better than we expected during the second half of 2018. We do not anticipate a change in our fair value estimate as the company's fiscal 2019 guidance is mostly in line with our prior forecasts, and we are maintaining our no-moat rating. While the company's $850 million-$900 million injectable revenue outlook surrounds our prior $872 million forecast for 2019, Hikma's injectable profitability guidance range of 35%-38% falls just below our previously forecast 39%. Separately, management's 2019 generic revenue expectation of between $650 million-$700 million falls slightly below our prior $720 million forecast, while the segment's expected mid-teens core operating margin guidance is in line with our expectations. Hikma's mid-single-digit branded revenue growth guidance aligns with what we previously forecast, as we expect the segment should benefit from relative emerging market brand recognition.Hikma's profitability remained relatively healthy overall during the period. The group's consolidated core operating margins increased by roughly 246 basis points relative to the year-ago period, thanks mostly to improvement in generic segment operating margin. While we are encouraged by the recovery in generic profitability, we note that this was partially due to lower generic R&D expenditure, which implies a narrowing product pipeline for the segment. The generic profitability uplift helped to offset relative margin weakness in both the branded and injectables segments (down roughly 10 and 255 basis points, respectively) where the company increased R&D expenditures. We think the company is right to bolster these more defensible portfolios, given the higher barriers to entry for injectables. Meanwhile, the company is continuing its generic Advair trial of roughly 1,500 patients. While we recognize the significant market opportunity for this product, we remain skeptical that Hikma will ultimately be successful.
Hikma Pharmaceuticals is a pharmaceutical company engaged in developing, manufacturing, and marketing a range of branded and non-branded generic pharmaceutical products across the U.S., the Middle East and North Africa, and Europe. Co.'s business segments are: Injectables, which sells specialized generic injectable products, including sterile liquid, powder, lyophilized and cytotoxic products; Generics, which sells non-injectable generic products that include amoxicillin, buprenorphine, butalbital, acetaminophen and caffeine, colchicine, and fluticasone; and Branded products, which sells branded generics and in-licensed products including Amoclan®, Blopress®, Omnicef®, Prograf® and Suprax®.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
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