Hikma proves that generic copy is hard to churn out


Hikma proves that generic copy is hard to churn out. FT Opening Quote, with commentary by Matthew Vincent, is your early Square Mile briefing. You can sign up for the full newsletter here.

Hikma, the FTSE 250 drugmaker, provides proof of the similarity between late-stage pharmaceuticals and early-morning journalism: churning out some generic copy can be a lot harder than it looks.

Hikma’s shares have fallen by more than a third since US regulators withheld approval for its generic version of GlasxoSmithKline’s Advair respiratory treatment, back in May. And Opening Quote had to do several internet searches as and some tricky maths just to check those facts.

Since then, negative news from two other generic drugmakers, Teva and Mylan, has also weighed on Hikma’s shares. Mylan has just cut its its guidance to reflect difficulties and delays in launching its own Advair copy.

So pharma investors were hoping Hikma’s half-year results this morning might give an indication of its full-year revenues from generics. They did – to an extent that can only be paraphrased generically here:

Hikma said its 2017 group revenue will now be around $2bn in constant currency because it has had to lower its guidance for the generic drugs business – as analysts had predicted. It now expects generics revenue to be around $620 million and core generics operating profit to be around $30 million in 2017. Peel Hunt analysts had forecast generics revenue at $649m.

Hikma’s first half results also came in below some forecasts. Group revenue in the six months to June 30 was $895m, up 1 per cent – against consensus estimates of $932m. But group core operating profit was $176m, slightly ahead of a consensus forecast of $170m, and Peel Hunt’s £152m.

Chairman and chief executive Said Darwazah said:

“The Group has delivered stable revenue and profitability in the first half of 2017 in an increasingly challenging environment… The tougher market conditions did however continue to limit growth in our Generics business. We remain focused on executing our Generics strategy and we have strengthened the management team and further restructured the cost base to provide a robust and efficient platform to support pipeline execution and future growth.”

Hikma said it was continuing constructive discussions with the US Food and Drug Administration to address the questions raised about its generic version of Advair in May.It added that it made overheads savings in the first half that more than offset the additional operational costs of working on generic Advair.

Kingfisher, the home improvement retail group, is also finding a more generic approach to business somewhat challenging. Its “One Kingfisher” restructuring plan was meant to simplify supply lines and remove complexity from its businesses, which include Britain’s B&Q and France’s Castorama. But after it admitted that stock shortages had held back first-quarter sales, analysts at UBS said the five-year plan could slip by another two.

This morning’s trading update suggests that it has succeeded only in generic disappointment: sales fell at B&Q, and at its French stores, and in Russia and Spain. As a result, like-for-like sales across the group fell 1.9 per cent in the three months to June, compared to the same period last year.

However Screwfix, its UK based purveyor of bish-bosh kit to white van man, bucked the generic trend – reporting a near 11 per cent jump in like-for-like sales in the period, thanks to greater “digital capability” and larger specialist ranges.

Still, Kingfisher had to admit that there has been some disruption to the business from the ‘One Kingfisher’ plan to merge product ranges, supply chain functions and IT systems.

Véronique Laury, chief executive, said:

“B&Q’s performance was impacted by seasonal swings across Q1 and Q2. We have also continued to experience some disruption across the businesses, although on an improving trend.”

Meanwhile, Rank Group has proved that putting glitzy bells and whistles on generic casino and bingo websites works. Sort of. While its group revenue fell slightly, from £708m to £707m, in the year to June 30 UK digital revenues rose 15 per cent to £111.5m – and UK digital operating profit was up 63 per cent to £23m.

However, that was not enough to prevent a 7 per cent fall in statutory pre-tax profit, to £80m. On an adjusted basis, Rank said profits were up 2 per cent.

It blamed a “challenging UK retail environment” for a 1 per cent fall in like-for-like “venues” revenue – from bricks and mortar casinos and bingo halls – citing “a combination of macro-economic conditions, customer due diligence, venue closures and competitor openings”

And, finally, veteran pharmaceuticals investor Neil Woodford suffered further losses at Allied Minds, the intellectual property group he has backed heavily.

Pre-tax losses at the FTSE 250 company increased to $58.2m for the six months to June 30, compared with $52.2m for the same period a year earlier. Revenues were up over the six month period to just under $2m, compared to $1.3m for the first half of 2016

Allied, which specialises in turning research labs’ inventions into start-ups, announced a $146.6m writedown on the value of seven of its portfolio businesses in April this year, just months after convincing investors to inject another £64m into the company.

New chief executive officer Jill Smith announced an internal review of its investment strategy in the same month.

In its half year results this morning, Ms Smith repeated her plans to develop “more targeted investment strategies” and to work towards persuading investors unconnected to Allied to back companies in its portfolio.

Beyond the Square Mile

Asia-Pacific equities flatlined in afternoon trading, giving up earlier gains. The Hang Seng index was flat at the lunch break in Hong Kong while Australia’s S&P/ASX 200 had edged 0.1 per cent lower. Japan’s Topix was up 0.1 per cent.

The Japanese yen pushed back below the ¥110 mark in Asian trading on Thursday, firming 0.3 per cent to ¥109.85 per dollar.

The Australian dollar was wavering after early gains, up 0.2 per cent on the greenback to $0.7934

The dollar index measuring the currency against a basket of peers was off 0.2 per cent at 93.391.

Oil prices were recovering from 1 per cent-plus drops seen Wednesday for both major benchmarks.

International benchmark Brent crude was up 0.5 per cent at $50.53 a barrel after finishing Wednesday 1 per cent lower. Thursday’s level marked a 4 per cent fall since the end of July. West Texas Intermediate, the US marker, was up 0.3 per cent at $46.92 after ending the previous session down 1.6 per cent. It was down 6.5 per cent in the month to date.

Gold built on a climb of nearly 1 per cent overnight, spurred by the dissolution of Donald Trump’s business advisory councils. The haven rose 0.3 per cent in Asia trading to $1,287.24 per ounce.


Futures tip the FTSE 100 to open 0.1 per cent lower

In the US, the S&P 500 is also predicted to open 0.1 per cent lower.

Corporate earnings for Thursday include Allied Mind, Hikma, Rank Group and Kingfisher.

The economic calendar is light (all times London).

06.30: France July unemployment
07.00: Germany July producer prices
09.30: UK July retail sales
10.00: eurozone inflation
12.30: European Central Bank minutes

The markets at 07:43

Asian markets
Nikkei 225 down -26.65 (-0.14%) at 19,703
Topix down -1.18 (-0.07%) at 1,615
Hang Seng down -71.21 (-0.26%) at 27,338

US markets
S&P 500 up +3.50 (+0.14%) at 2,468
DJIA up +25.88 (+0.12%) at 22,025
Nasdaq up +12.10 (+0.19%) at 6,345

European markets
Eurofirst 300 up +9.99 (+0.68%) at 1,489
FTSE100 up +49.18 (+0.67%) at 7,433
CAC 40 up +36.36 (+0.71%) at 5,177
Dax up +86.82 (+0.71%) at 12,264

€/$ 1.18 (1.18)
$/¥ 109.86 (110.18)
£/$ 1.29 (1.29)
€/£ 0.9127 (0.9125)

Commodities ($)
Brent Crude (ICE) up +0.11 at 50.38
Light Crude (Nymex) up +0.04 at 46.82
100 Oz Gold (Comex) up +10.10 at 1,287
Copper (Comex) up +0.01 at 2.96

10-year government bond yields (%)
US 2.24%
Germany 0.43%

CDS (closing levels)
Markit iTraxx SovX Western Europe at 19.9bp
Markit iTraxx Europe -1.15bps at 55.24bp
Markit iTraxx Xover -3.98bps at 240.46bp
Markit CDX IG -0.09bps at 59.58bp

Sources: FT, Bloomberg, Markit

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