Morgan Stanley upgrades Hikma to 'overweight'

Investors are underestimating the profit contribution from generic Advair, an asthma treatment, and the probability of generic Vascepa, which reduces the risk of stroke and heart disease, being launched in 2021, Morgan Stanley said.

The investment bank switched Hikma to 'overweight' from 'equal-weight' and raised its price target to £26 from £22. Morgan Stanley raised its base-case forecast for 2022 earnings before interest and tax by 15%, which it said was 12% more than consensus.

The peak sales opportunity for the two drugs is $204m (£162m) in 2022 with a $160m profit gain, Morgan Stanley said. The combined benefit of the two prospective launches is £3.50 a share, driving most of the price target upgrade.

"Stripping out both launch opportunities would value Hikma in line with the current share price, which suggests to us that the market is underestimating the profit contribution from gAdvair and pricing in a low probability of GVascepa being launched in 2021," Morgan Stanleys said in a note to clients.

Hikma's market value has fallen 17% since the end of May, supporting Morgan Stanley's view, the bank said. Risks to the thesis include a delay to the gAdvair launch and losing an appeal brought by Amarin, the manufacturer of Vascepa, which lost patents in the US in a March court ruling.