Down 50% since March but still a 'buy'

It's now been two years since Hikma Pharmaceuticals sealed an eye-catching $2.65 billion (£2 billion) acquisition that transformed its position in the US generics market.

The purchase of Ohio-based Roxane Laboratories, which was founded in 1885, represented a "scarce asset" which would be difficult for Hikma to replicate on the same scale and to the same level of quality.

Since that deal conditions have been anything but helpful, with the harsh pricing environment in the US generics market causing the company into another downgrade of forecasts on Thursday. Shares tumbled by another 17% and now stand at their lowest point since the end of 2013.

Hikma cut its generics revenues forecast for 2017 by $50 million to $620 million, having been $800 million earlier this year, while core operating profits in this division will now be around $30 million. This compares with Cantor Fitzgerald's earlier forecast of $37 million.

The company said the downgrade reflected the impact of increased competition on prices and volumes, with the tougher conditions expected to continue into the second half. This has been offset by increased demand for certain products and further portfolio optimisation.

The downgrade comes on top of frustration over Hikma's recent failure to secure US regulatory approval for its generic version of GlaxoSmithKline's asthma and lung drug Advair. The company remains in discussions with the US Food and Drug Administration.

Brian White, healthcare research analyst at Cantor Fitzgerald, said the decision to acquire the Roxane generics business had been a painful one to date.

The Roxane deal added 88 products in specialised and niche segments of the market, including oncology, respiratory, extended release and controlled substances. The deal also enhanced Hikma's pipeline by adding 89 R&D projects.

Despite the difficulties, White continues to have faith in the company and has retained his buy rating alongside a target price of 2,200p. He added: "The Roxane business is one which should perform better than traditional oral generics businesses given its focus on complex formulations."

Hikma's operations are based around its three business units of injectables, generics and branded, primarily in the Middle East and North Africa region, where it is a market leader, the US and Europe.

Sales guidance for branded was also reduced on a reported basis with revenues and profits expected to be the same as 2016, compared to a previous modest single digit growth expectation.

Earnings per share in today's half-year results rose 12% to 28.8p, while the company maintained its interim dividend at 11p a share.

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