Hikma gets shot in arm from Morgan Stanley upgrade

Hikma Pharmaceuticals got a shot in the arm on Tuesday as Morgan Stanley upped the stock to ‘overweight’ from ‘equalweight’ pointing to increased confidence in the pipeline and an attractive valuation.

MS said its “deep dive” into Hikma's medium-term pipeline and long-term opportunities gives it increased confidence, and although it doesn’t change the near-term trajectory, it points to a pathway for sustained growth. This should lead to a multiple re-rating.

“We have uncovered what we believe to be 70% of Hikma's filed pipeline. Clarity on the nature and timing of projects removes a key overhang. Hikma's acquisition of Roxane was not only for its pipeline, but also its legal and R&D expertise, which helps position Hikma to deliver and enter a higher value add market.”

MS said it has worked its way through an 800+ list of pending generic filings and found that Hikma is well placed to capitalise in the long term.

It said a third of the list was made up of central nervous system drugs, which is an area Hikma has expertise in.

“We estimate a further combined value of $750m comes from scheduled and extended release drugs, two areas Hikma has been explicit in targeting. While we do not know if Hikma is behind these specific filings, these areas represent the generic opportunity set where Hikma is well placed and likely to pursue, providing a healthy long-term pipeline.”

In addition, MS argued that the stock’s valuation was compelling, as it has underperformed by 19% over the past three months and is now oversold.

The bank cuts its price target on Hikma to 2,200p from 2,500p.

At 1220 GMT, the shares were up 8.5% to 1,762p.