Hikma Could Consider Exit Strategy For Generics Business

In candid comments made during the J.P. Morgan Healthcare Conference, Hikma has acknowledged that it could be considering an exit strategy for its US generics business after a tough year that has seen forecasts slashed amid heavy pricing and competitive pressures.

Last year, the firm made multiple cuts to its generics guidance as first-half sales dropped by 18%, with the firm’s overall turnover flat thanks to its well-performing injectables and branded divisions (see sidebar).

Executive chairman and CEO Said Darwazah – who stepped in following the departure of Siggi Olafsson earlier in 2022 (Also see "Hikma Searches For New CEO As Olafsson Resigns" - Generics Bulletin, 24 May, 2022.) – told Generics Bulletin late last year that the firm was taking measures to help the generics business recover. (Also see "Hikma Will Push Harder To Make M&A Happen" - Generics Bulletin, 10 Aug, 2022.)

But speaking at the J.P. Morgan Healthcare Conference, Bassam Kanaan – Hikma’s executive vice-president for corporate development and M&A – made clear that multiple options were on the table for the generics unit.

Asked directly whether Hikma would consider divesting the generics division, Kanaan answered that “given that we have two superb businesses” – in the form of its successful injectables and branded divisions – “we want to allocate our resources and our attention to those two businesses.”

“We do believe that the generics business is a solid business,” Kanaan insisted. “But having said that, I think we would like to leave all options open.”

“Right now an exit is probably not best value, given the state of the industry,” he acknowledged. “But there could be a way, in the future, to exit the business or to partner the business with somebody else, and have a minority [stake] where we can add value and then exit in the future with a much higher value for the business.”

The generics business has been under considerable pressure in recent years, with Hikma acknowledging that it has been “navigating a period of sustained price erosion” and with Kanaan conceding that “market conditions have been challenging for us, and in 2022 we faced severe price and volume erosion.”

However, he said, Hikma’s management team had been able to “respond to these headwinds by restructuring the business and reducing our cost base,” with the company now “seeing stabilization, and a little bit less price erosion.” This was not to say that erosion would not still continue, Kanaan clarified, “but not with the same magnitude.”

“The business, importantly, continues to generate healthy cash flows,” Kanaan observed. And to make the business more resilient, he said the firm would “continue to add more and differentiated products in our pipeline” through internal R&D, with a particular focus on respiratory products including dry-powder inhalers and nasal sprays.

Moreover, he said, Hikma would “continue to build our specialty portfolio” – on a foundation that already includes the Mitigare (colchicine), Ryaltris (olopatadine hydrochloride/mometasone furoate) and Kloxxado (naloxone) brands (Also see "Hikma And Glenmark Launch Ryaltris In US" - Generics Bulletin, 31 Aug, 2022.) – including through licensing and product acquisitions. By 2030, the firm says it is planning on generating around 30% of generics revenues from specialty products.

And ultimately, for the generics unit “we expect that there will be growth in 2023,” Kanaan summarized, with Hikma having recently launched its delayed Xyrem (sodium oxybate) authorized generic with market exclusivity for six months. (Also see "Hikma Delivers On Authorized Xyrem In US" - Generics Bulletin, 3 Jan, 2023.)

Injectables Face Limited Competition; CEO Update Expected Mid-Year

Away from its US generics business, Hikma was also asked about its injectables unit – with Kanaan in particular pressed on whether there was a risk that more competition could be seen on injectables as other players entered the market, with the potential for commoditization and heavier price competition.

But Kanaan said that while the “question is on our minds, we do not believe so.” Given the high barrier to entry – with injectables “much more sophisticated and [requiring] much more attention to quality” than traditional small-molecule generics – Hikma had seen that “not many companies can sustain the high quality track record that we have.”

Susan Ringdal, Hikma’s executive vice-president for strategic planning and investor relations, also weighed in on the matter, suggesting that ten years ago “people would have asked the same question,” but “we really haven’t seen many of those players gain traction in the space.”

“We see people coming in on one, two, or a small number of products,” she observed, but not in a significant way. And as a result, price erosion for injectables had remained low.

Moreover, Hikma saw opportunities for growth outside of its current markets, Kanaan suggested, in particular in Europe. While “it is a fragmented market, we are aware of the opportunity there,” he indicated.

Having recently opened a direct office in France, he observed, “we plan to penetrate the Spanish market also.” (Also see "Hikma Explores Fresh Opportunity In France" - Generics Bulletin, 14 Jun, 2022.)

“The board would like to take some time to make sure that the appointment of the CEO is the right one.”

Finally, conversation turned to Hikma’s senior leadership and the firm’s ongoing search for a new CEO to permanently replace Olafsson, who last year took over at Mallinckrodt following his tenure at Hikma. (Also see "Who’s Hired? Former Hikma Chief Olafsson Takes Lead At Mallinckrodt" - Generics Bulletin, 4 Jul, 2022.)

“The board has appointed an external search firm to look for candidates from outside – external candidates for CEO,” Kanaan said, while it was “also including internal candidates.”

“There is a search going on now, interviews going,” Kanaan indicated. “There were quite a few candidates identified with different types of experiences and backgrounds.” But “the board is still working on that.”

And asked about timelines, he suggested that at this point it was “tough to tell.”

“We would like to make the best decision – the board would like to take some time to make sure that the appointment of the CEO is the right one,” he emphasized. “So we are saying by the end of the first half.”