Hikma Pharmaceuticals warns generic drug delays will lower profit

Shares in Hikma Pharmaceuticals plummeted on Thursday after the drugmaker's overnight warning that delays to new US generic products would lower profits.

In a trading update for the first six months of the year that was released almost an hour after the London stock market closed on Wednesday, the FTSE 100 company said it expected core operating profit of its generics arm to be between $30m and $40m, compared to $46m in 2015.

It expects full-year revenue, including from its February acquisition of West-Ward Columbus, to be between $2bn and 2.1bn in constant currency, which reflects the growth across its three business segments of injectables, branded and generics.

Hikma said: “The revenue impact from the delay in certain new product approvals will be largely offset by higher contract manufacturing revenue.

"This change in the mix of revenue will have an adverse impact on profitability in 2016, which will also be impacted by higher than expected costs resulting from the acceleration in timing of certain pipeline-related litigation”.

However, the company upgraded its injectables segment’s core operating margin to about 38% from a previous predicted 36% because of a better product mix.

It reaffirmed its revenue growth expectations for the branded business reflecting the seasonality of the business, as branded revenue was up 1% on constant currency, or down 7% on a statutory basis, to $264m.

Jefferies analysts said the balance of the two guidance alterations would imply around an 11% downgrade to consensus earnings per share, "but we await first half of the financial year margins by division on 24 August and further clarity before assessing mid-term implications”.

As of 0919 BST, shares were down 14.36% to 2,285p. After the EU referendum Brexit vote, the company’s shares rose as it benefitted from weak sterling for its overseas earnings.

Citi said the pullback was anticipated and it had not broken its 'neutral' rating on Hikma.

”The shares are up 50% since falling to their low for the year in March and have now reached our target price. While we continue to like the long-term fundamentals, it is difficult to justify raising our target price given earnings per share estimate cuts and a 2017 PE of 24 times."