Why this pharma giant slumped to a three-year low

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Why this pharma giant slumped to a three-year low

While the drugs may still be working for Hikma Pharmaceuticals (HIK), its application for a generic version of GlaxoSmithKline's (GSK) Advair Diskus is certainly causing it problems and shares are in freefall.

Hikma reported last week that there would be delays in the approval process for the asthma drug and now does not expect to launch Advair in 2017. Subsequently, guidance for full-year 2017 revenues have been revised down to a range of $2-2.1 billion (£1.5-1.6 billion).

Last week's news that it has received a complete response letter (CRL) from the US Food and Drugs Administration (FDA) sent shares in a tailspin. They lost more than 10% of their value in just 48 hours to end the week at 1,759p.

The stock continued its downward spiral this week to close yesterday's session at just £17, and Friday's trading update was the icing on the cake for investors. Shares slipped 7.5% more to 1,573p this morning. That's Hikma's lowest level since May 2014.

The delay to Advair's launch, the firm says, will snip $120 million off 2017 revenues for its Generics division and a further $10 million downgrade was attributed to intensifying competition in the US. That means its Generics business will likely now generate $670 million this year, rather than the $800 million previously guided.

It is currently considering its response to the FDA's CRL and says it will update "as soon as practicable".

Full-year guidance for its two other divisions, Injectables – which include antibiotics and painkillers – and Branded – which are its branded products – remain unchanged.

It reiterated Injectables will be in line with 2016, while Branded should continue its mid-single digit revenue growth in constant currency in 2017.

Still, analysts remain undeterred. Stifel's Max Herrmann reckons the stock can recapture August highs at the £23 level, with his unchanged target price now suggesting potential upside of 43%. This despite "ongoing difficulties" in delivering the potential of its February 2016 acquisition of Roxane Laboratories.

Herrmann reckons the lowering of its Generics forecasts will slash 4% off Hikma's earnings per share. However, he remains "confident of Hikma's long-term potential, with generic Advair, first to file Zytiga and first to file Xyrem opportunities still to come".

A forecast 2017 price/earnings (PE) ratio of 19.6 times represents an 18% discount to its UK specialty peers and means the firm's potential is not currently reflected in the share price, Herrmann added.

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