Good morning. I'm James Gordon, JP Morgan, European Pharma and Biotech analyst, and today I've got the pleasure of introducing the Hikma presentation, and we're gonna hear from Hikma's new CEO, Riad Mishlawi. Thanks a lot for joining us today, Riad, and look forward to the presentation.
Thank you. All right, I was told to project my voice because I'm too tall for the microphone. So, good morning. Thank you very much for coming here. My name is Riad Mishlawi. Very happy to be here today. This is my first time presenting at JP Morgan in the conference. I've been, as James has said, I've been, newly appointed CEO. I've been in this role for 133 days, but who's counting? Previously, I was the president of the injectables in Hikma for quite some time. Today, I'd like to give you a brief overview of the business and our recent performance, and then set out how we are going to look at the future and our various levers for continued growth. Just a couple things about our company.
We are a diversified global generic pharmaceutical company with three structured businesses, three impressive businesses, actually, all with leading market positions. The Global Injectables is our largest, with sales and manufacturing in North America and Europe and MENA. In MENA, we have the focused branded business, which manufactures and sells branded generics and in-licensed innovative products across the MENA region. And, the Non-Injectables retail generic business in, in the U.S., manufactured in the US and, marketed in the U.S. Underpinning each of our b usinesses are a broad portfolio of products and manufacturing strength, and a culture with a, with unwavering commitment to quality. This culture is embedded in everything that we do, and I think this is what sets us apart. Talk a little bit about the performance. Hikma has performed extremely well over the last five years.
If you see from those graphs, firstly, we have consistently delivered strong revenue growth and have achieved 5% revenue CAGR over the last five years. Despite some headwinds that we had in our generic business in 2022, we were able to turn it around, and we have all three businesses now performing really well. We will be announcing our results next month. More importantly, we have delivered consistent growth in EBITDA over the last five years, consistently achieving one of the highest margins in the industry, around 28%. Third, and finally, our cash generation is always very strong. This supports the very robust balance sheet that we have, that is, leverage really consistently low, will allow us to have a firepower to invest in our business, organically and inorganically. Trying to simplify what our, what our strategy is here.
I have been the CEO for this, as I told you, in this position for not too long, and I had been talking and meeting with everybody in our team to see what our strategy is, what we have to do. So the strategy that we have been following for the past few years is still very valid strategy, is still good. Albeit we can do something better. Maybe we can have some tweaks, maybe focus on execution, expediting some of the projects that we have, trying to see what we can do to continue doing what we've been doing, but just do it better. As we see here, our... Simplistically, we're looking at the strategy in three different pillars. The first one is excellence, and then diversify, differentiate, and lastly, people and responsibility.
Then we broke those down into six different levers, six different priorities. First one is enhance. Enhance is about focusing on our operating efficiencies, leveraging our expertise across the group, and ensuring the three businesses are operating in the best efficient and best efficient manner possible. The second one is leverage. Leveraging is more ensuring that we're maximizing what we have today. We have a very broad portfolio in all three businesses and excellent commercial capabilities. We will focus on what our customers needs and get the most out of the existing product base. Develop is very critical. You will see it in every strategy that we have. We're talking about development of products. Today, we invest about 6%-7% of our revenue in R&D, and we also have business development teams in each of the businesses forging partnerships.
We know we can't make everything ourselves, so partnerships is important. This way, we can enrich our pipeline with both our own complex generics and partnered ones. Expand is about doing more with our expertise. We have recently expanded injectables business into Canada successfully. We have gone into France, Spain, and the U.K. in the last two years, and we've been growing those markets consistently. We're growing other adjacencies in the business that we have. Contract manufacturing and sterile compounding is just to name a few. We think those will be meaningful in the future for the growth of Hikma. Our people, of course, are the bedrock of our success, and I believe by empowering our workforce and ensuring our culture is unified across the group, we will continue to thrive.
I have been meeting a lot of people across the company in recent months, listening to their suggestions, and try to leverage their ideas and their talent across all geographies. Finally, we act responsibly. We are a business whose purpose is increasingly to access, affordable medicine to everyone, and we will keep working on that, making a positive impact to the patients in our communities... So before I go on in details on how we intend to execute the strategy of each business, I want to step back and give you a brief description at a very high level of each of those three businesses. First one is injectables. Injectables is our largest business in terms of both revenue and profit.
This business manufactures and supplies sterile injectables across North America, MENA, and Europe, with over $1 billion in revenue, an impressive nine years, 9%, 10-year revenue CAGR. We're also consistently deliver industry-leading core operating margins in the mid-30s and above. The branded business is our oldest business and largest by manpower and by coverage. It was founded in Jordan over 45 years ago. We are one of the largest pharma companies in the region, with 20 plants and very broad portfolio of products. Many innovative companies are attracted to our presence and deep knowledge and expertise in the region, and offer us an opportunity to commercialize their products alongside with our branded generic products. We are seeing good recent growth in this business, excellent margins, and we're very excited for the opportunities ahead. Finally, the generics is our U.S. non-injectable business.
We have a state-of-the-art manufacturing facility in Columbus, Ohio, from which we supply a broad range of products to the US market. We have expertise in more complex products there, such as inhalation, nasal sprays, and we are one of the largest suppliers of nasal sprays technology in the U.S. Now, let's look a little bit closer on how we are going to apply the strategy in each of those businesses. Starting with this, with the injectables, is something that I know the most, so, firstly, we continue to invest in R&D. This is our future, so more products, more portfolio, increasing differentiation of our portfolio is going to be key. While the conventional pipeline is critical to our growth, we have been launching 10-15 products year-on-year, every year.
These are smaller products that we would try to complement them with more differentiated products, more complex, and more 505(b)(2) products. For example, we invested a lot in prefilled syringes, IV bags, and other ready-to-use products that are increasingly, we believe, is going to be in demand in the healthcare, by our healthcare customers. New adjacencies, we're always looking at areas, how can we benefit from our expertise? So we're looking at the adjacencies. I mentioned before, injectables. Right now, we're growing our sterile compounding business in the U.S. This is a natural expansion, extension to what we do today. We have great knowledge in sterile manufacturing, how to make them, how to test them, and the best practices possible.
To become a reliable player in this market is something that we are looking for. We think it is doable. We think that we can address an unmet needs of our customers in the hospitals. This is an exciting, large market, and we're confident of being able to build a leading position in the coming years. We're also leveraging our expertise and capabilities in sterile manufacturing and our quality records to build a contract manufacturing business. We have done this successfully over the years. We think we can capitalize on it and expand on it. Thirdly, this is a global business, and we are really focused on continuing to strengthen MENA and Europe. In Europe, for example, we're increasingly leveraging our global portfolio, as well as deploying dedicated R&D to the region to help drive growth.
Geographic expansion is a key theme of this business, and we are pleased that the progress is growing and being very positive in both U.K., France, and Spain today. In MENA, similarly, we have been growing very steeply there. We have seen our portfolio do very, very well. We're taking market share, we're growing in new markets. A great example would be what we did with our biosimilar partnerships with Celltrion. Now we're one of the leading companies in biosimilars in the region. Finally, we keep investing in more capacity and in-house capability. This is something that we believe we're good at.
We believe we're good engineers, we're good in manufacturing, we do it well, we do it with quality, with a great quality design, and we have done very well over the years. We have big manufacturing plants that have been producing more and more every year and adding to it. Last year, for example, we added two lines, one in Portugal and one in Cherry Hill. Those are fast lines running at 600 units a minute, if you can imagine. But those two lines are in place right now, and they are producing. Also, we're expanding our MENA injectables. We are building new plants now, both in Morocco and in Algeria, and soon we are breaking ground to build another one in Saudi Arabia.
Moving to the branded again, we're going to start also with R&D. Again, R&D, you'll see it in all of our businesses. It is the priority for all our businesses. Portfolio is going to be definitely a priority. We're gonna focus on developing more and more product in treating chronic diseases. This is an area where the growth of this business depends on these diseases, such as diabetes, respiratory, cardiovascular illnesses, as well as significant focus on oncology products. We have a dedicated R&D facility in MENA, and we always aim to be first in the market. It helps also because we do have also an API manufacturing facility, so we're able also to leverage our API capabilities to produce products that we will be the first on the market in this area.
Secondly, we continue to be an important part of the healthcare ecosystem in MENA. We regularly host events, panels, conferences, and bring together healthcare professionals and key opinion leaders to educate and build awareness. MENA usually is about 5-10 years behind the U.S., and we can leverage our knowledge in the U.S. and Europe, and try to implement them and leverage them in MENA. Business development is key in that division. We're increasingly seeing innovative companies looking to partner with us. We are one of the few one-stop shop for companies that don't have a commercial or regulatory presence in the area. We signed several agreements in 2023, and have many more in the pipeline. In fact, we just announced a new partnership this week with Guardant Health, to commercialize the next generation cancer diagnostic solutions for oncology.
It's an important growth area for Hikma. Again, we're trying to go from being a supplier of medicines to being a solution provider, as well. Finally, our manufacturing footprint in MENA is expansive, enabling us to cater to the specific needs of our markets and also benefit from our local manufacturing. We have several programs in place to expand capacity and also to add new manufacturing technology. We have added more oncology capabilities in the last few years, and are leveraging engineering expertise from across the group to increase automation and enhance efficiencies and scale. Today, we have a lot of projects going on in Tunisia and Algeria and Saudi Arabia. In all of our areas, we keep adding more facilities, we keep adding more technologies to make sure that our operation is extremely strong and efficient.
Finally, in generics, we have a lot of opportunities, we think, in that business. We're investing in R&D again. We think that we have an opportunity there. We have a lot of technology in that that we can utilize. We're adding more complex generics to complement our core expertise, such as nasal sprays and respiratory products. There's more work to be done to get our pipeline in shape. We're making sure that we leverage our capabilities in other parts of our business. We think that we have a technology that is unique in that division, and we want to capitalize and add more and more products through R&D, both organically and inorganically, through business development. The base business has a broad portfolio with some excellent products.
Our commercial team has been very effective in defending and expanding our leading positions in many of our products. We pride ourselves with our customer service, quick response times, and flexibility. Thirdly, we have our world-class facility in Columbus. If you haven't seen it, it's a great facility to see, which has excess capacity and can be used for contract manufacturing. In addition to making our own products, we're able to attract partners looking for US domestic and high-quality manufacturing. CMO can be a great foundation for that business. We're trying to leverage this and trying to see if we can create that pillar, that another avenue for growth for this division as a contract manufacturing. Finally, we have been steadily growing our specialty business, including our naloxone nasal spray, Kloxxado.
We are also looking to add more specialty product to this unit, through our own R&D as well as partnerships. We believe we can consistently deliver at least $100 million-$120 million of EBIT in this business every year, at minimum, with scope to increase this as we pursue more opportunities. Finally, bringing this all together, I truly believe that Hikma is in an excellent position for growth today. I'm excited to ensure we deliver on our strategy. We have three high-quality businesses, broad portfolios, an extensive manufacturing footprint, and unwavering commitment to quality. In addition to that, we have a solid balance sheet and excellent cash generation, that give us the potential to accelerate our growth plans and, of course, a track record of delivering value.
I'm excited for the future and look forward to continuing to deliver growth in 2024 and beyond. Thank you.
Thanks, Riad, and we'll now go to the Q&A part of the session. Does anyone have any questions from the audience? In that case, maybe I'll start us off with a question.
Sure.
So you mentioned relatively brief time spent in the role as CEO, what, if any, changes have you made as CEO? Are there any changes you foresee yourself making?
Well, I mean, the... I've been in the company for quite some time, so I, the changes that I'm doing is not really so, I don't think they are that severe or that changing, except I think we want to get to tweak it a little bit better, look at our strategy, see what we can do better. When I ran the injectable facilities and the injectable business, we really concentrated on technologies. We think technology, being able to do things that others can't do, is key. So we're trying to implement this throughout our all of our divisions. Trying to concentrate on R&D. I think R&D maybe could be better.
We should have—I think we could have done a better job in bringing out better portfolio, but it's not too late right now. We have, I think, the right talent to do it, but we need to focus on it, accelerate some of the projects. So I think, you know, looking at R&D, looking at the future, looking at being efficient, looking at, you know, at our strategy today, how we can tweak it, how we can accelerate it, is just basic things, and that's exactly what I'm concentrating on. Of course, people is going to be also key. Trying to see how can we organize ourselves to be more effective? Going around, we have many facilities around the world. As you know, we're global companies, 29 different facilities. Listen to the people, listen to suggestions.
They really know best, so listening to people always gives you good suggestions, and try to implement them, and maybe organize ourselves in the best way possible. So this is my focus for the next year or so.
Yeah, and do you see yourself at some point saying that this is like a particular plan that you launch or anything like that, or more just it's iterative as you go along?
A different plan, different, strategic plan?
Yeah, sometimes I see it as, right, this is my project, come up a nice name for it, and this is what I'm gonna do to revolutionize things. Could we see a Riad plan, or is this more just as you go along?
I'd like to find a Riad's plan. We're looking at what, what can we do? What can we do more? I think we have the money, we have cash. Our balance sheet is healthier than a lot of other companies. There are opportunities out there. I think the key is going to be: how can we find them, how can we jump on them, and how can we integrate them and do make value out of them? This is going to be our focus right now, but when we do that, that would be the Riad's plan, but that's what we're trying to do.
Thank you. So three divisions at the moment. You've got injectables, you have branded, and you have generics. But at times there's been talk about further divisions. One area I've heard you talk about before is compounding. So maybe it's worth just reminding people exactly what we mean by compounding, but then also, where is Hikma on this compounding plan?
Yeah, sure. So compounding would be one of the... It could be a division, but it's too small right now to call it a division. So I think it's in more in incubation right now, it's trying to grow. We started it as a greenfield. If you don't know what compounding is, it's just very, very simple. So we, you know, sterile manufacturing manufactures ampules, syringes, vials, bags, but most of those need another step before they actually get administered to the patients. They get compounded, they get mixed with diluents, whether it's sodium chloride, WFI, or gets sometimes QS, the right, to the right, concentration. So all that takes place usually at the hospital. Hospitals don't really like to do this. It's a big liability. It's something that they're not—it's not their expertise.
The FDA is becoming more and more demanding on the areas that you have to do this with, the personnel, the training, and the validation, and so forth. So compounding is the step where you actually take those products and turn them into ready to use for the hospitals, for the hospitals to use. We think it is very much natural extension to what we do. We make in our core business, those vials, those bags, and all we need to do is now get them to the step where it is easy to be administered, put them in the bags at the right concentration or syringes. So we thought this is very similar to what we do. We know those products well because we make them.
We know how to test them, which is really the hardest part about the whole thing. And we have the same customers that we use for our core business. So this is why we started this business, because as any greenfield business, this takes time. So we started a couple of years ago. It's growing, it's becoming better, but it does take time. We brought equipment. Equipment take one year to 1.5 years to be installed and be validated. We have 50 states that we have to be approved in. Now we have about 48, so we have a couple of states more. There's a lot that we have to do to get going. We have to get the trust of the hospitals to trust us.
It's important for the hospitals to trust us, because many times they have been burnt by suppliers that, you know, didn't really pan out to be the right quality. So they. It's hard for them to just switch. So we need to gain the trust. It's going to be a lot of legwork, a lot of, you know, actually, doing a lot of work from our point to get them to trust our quality system. But we really believe in this business, and we believe that, there's a lot of need for it, and we think that the future is, we're going to be one of the leaders in this business.
Thank you. As well as time, what about investment? Is this something that's gonna require a lot of CapEx, or might you need to make a lot of acquisitions to really get going?
For the compounding?
Yeah.
Well, it could be. We looked at acquiring other compounding centers. It does really accelerate through, but if you're going with a unique quality program, you need to convert this new facility that you buy, a new business that you buy, to your own quality systems. And then sometimes it's harder to get something that is already been entrenched. It's harder to get something like that and convert it. So we think that we can grow organically. We think we need to build more of those compounding centers as we go. It does require some capital expenditure, but I wouldn't think it is big, it's huge. I think the foundation is set right now.
It's going to be a lot of effort from the commercial side to get more clients, but I think from the operations side, we're pretty much set right now. Of course, there's always growth that we can do. There's always more, more equipment that we can buy, more centers that we can cover. The U.S. is a huge place, and we could have one on the West Coast, one in the South. This is something that we'll have to look at in the future.
How, how should we think about profitability if you move into compounding? For your efforts at the moment, what's the profitability profile? Longer term, what would it look like versus your existing businesses?
From the compounding, we again. It all has to do with volume, right? I mean, if the volume is healthy, the profitability would be great because we're backward integrated. So most compounders today, they buy from us or from companies that do the same thing that we do. They take that product, and then they convert it into a compounded product. In this case, we make the product. So we are backward integrated and forward integrated with our salespeople. So we do have all the setup to be very, very efficient and to have very healthy margins. It all depends also on volume, so we need to get that started. Once it gets started, I think the sky is the limit. I think the margins will be healthy. I think the business can be big business.
It does take time, and we are patient, and we are just supplementing this business and enforcing it, and we're very hopeful.
Thank you. Maybe switching to a different expansion area, which I know you're doing some already, but contract manufacturing, I think you do that within some of your existing businesses. But could that be an area that becomes a lot bigger in future?
Yes. Actually, contract manufacturing—we've always been doing contract manufacturing on the injectable side specifically. And the reason why is because when you build a line or when you expand in the injectables, it takes time until you fill the capacity. Injectables is different than non-injectables. In the oral solid, where you really need to invest heavily, you need to build a plant if you wanna expand. Line costs you, what, $20 million to install, and the plant, another similarly about $20 million. You have to have validation. You have to have regulatory approval. It takes time for you to build and add capacity, and then it takes time for you to get approval from all the regulatory agencies to utilize all that capacity. So you always...
As you grow, you always have excessive capacity or idle capacity until you grow more and get more products to fill that capacity. So we were always, basically selling this to contract manufacturing. So we had a small contract manufacturing business, but it was opportunistic. We want to make it more than opportunistic right now. We've been good at it. As you know, remdesivir was a great product that we had transferred in, in a very short time and, and got it to the market. We, we can do that a lot. We're doing now biosimilars, contract manufacturing, and we have a lot of people knocking on our doors. We have very nice, automated, plants, a good quality record. So what we want to do right now is expand on it, create a con...
independent contract manufacturing unit that actually, you know, capitalize on all the knowledge that we have. But not only in injectables, we're also looking at it also in generics. I think generics, we have the similarly, the same thing, good quality record, great capabilities, and we have a lot of people now, especially the multinationals, looking for local manufacturers with a good quality record to move their products into.
Thanks. So we've spoken about two potential expansion areas, as in compounding and contract manufacturing. It looks like the outlook for injectables and branded is quite healthy. But what about, if I call it, the problem child, as in generics, which is a tougher business in the U.S.? What are your thoughts about generics? Can that ever be a growth business, or is that more like a cash cow? What do you want to do with that part of the company?
Well, it can be. I mean, it is a business, nevertheless, you have to look at your weaknesses and strengths and try to fix your weaknesses and capitalize on your strengths, I mean, like any business. So it is not as easy as, for example, the injectables. You have four times more competitors. You have low-cost competitors that you have to deal with. You know, you have a higher cost being in the U.S. than somebody in India or China or some lower-cost countries, but you have to deal with all that. But you do have an advantage also. You have capabilities that other people don't have. You have technologies. I think we can add to that. I think we can add to the technologies that we have.
I think we have to invest more and more into this business in terms of technologies, in terms of products that are harder to make. You know, we do have a good head start right now with the inhalations and respiratory products. We have many of them, and I think we can add more to it. So I think I wouldn't say it's a problem child as much as an opportunity. I think we just need to focus on it. I think we need to create opportunities. I think we can see some today. We're a healthy company. We can add investment into it. We can add products, equipment, technology, all of that. We're very optimistic. We've done fantastic this year. I think next year looks healthy, too, and the future looks healthy.
As we bring more and more of that thought into this business, I think we're very optimistic.
Thank you. And you've got a fairly clean balance sheet, so what might you do with that? Which of the divisions are you most likely to supplement? Could it be you try and bring in more growth assets to generics to make that faster growing? Or do you play on your strengths and does injectables get the benefit?
Well, I mean, injectables is definitely the one to invest in. It's the priority, okay? But you have to invest in all of your divisions. But invest in injectables had very high returns through the years. In the last 10 years, as I told you, it's 9% CAGR. It's bringing in mid-30s of margins, the highest in the industry, I believe. Has a great foundation. Anything that we had added to it did very well. We've done several key acquisitions that we integrated well, and we benefited from. So we think any acquisition to this unit, if you do it smartly, and if you do it in the right way, I think it will benefit greatly.
Of course, we have branded business that's been doing great, and opportunities there also. We will, we will take this on. I think we want to utilize our balance sheet in, in the right way and in feeding all of our units, and, you know, similarly in the generics. But I think as a priority, I would say number one would be, injectables.
And is there a lot to buy out there? I'm not asking for specific assets, but are there companies that want to sell the whole company that are injectable, or is it more likely you'll be buying an individual product or licensing a product off a company?
... I think there are both. I think, you know, especially in this situation today, with the very, you know, tough financial interest rates, the debt becomes extremely burdensome to some companies. We've seen companies like, you know, Akorn and some of those companies that couldn't really handle it. We can see that some of the companies might be able to be out there for acquisition. We're looking at... We're talking to many. We're not leaving any opportunity uncovered or not looked at. Products also, we're looking at different products. We have, you know, as in MENA, for example, I think we signed about 12 last year of different products that we're bringing into MENA. Same thing with the injectables.
We have great products now, we're introducing some this year. We are trying to utilize our balance sheet in the best way possible. Yeah, acquisitions, it could be products, it could be a whole entire company, it could be capacity. You know, we're keeping our eyes open and we're looking at all options.
And how do you think about profitability for the injectables division? Because I think the margin at the moment, or at least in 2023 per your guidance, was higher than where you talked about the margin going long term. So do you think we're gonna see significant contraction in injectables margins anytime soon, or?
I don't think so. I think, what happens is, you know, as you grow your top line, depending where that comes from, so I did mention that we're growing US and we're growing MENA. And, sorry, we're growing Europe and we're growing MENA. And both Europe and MENA, you know, they operate on a high margins, but not as high as the U.S. So as you grow in that business, of course, it takes away from your margins, but your top line grows, too. So in dollars, you're growing more in dollars, but as a percentage of margin, maybe it's one or two percentage point less, but in dollar-wise, is more. So, this is why we're seeing it maybe, you know, going a little less, maybe normalized, as we call it.
We've been really carrying the very, very high margins over 36% for the past five-six years right now. And, you know, we're growing in areas where we can't maintain such a margin. So we think maybe as we grow higher or faster than the U.S., that will balance things out and maybe will decrease some of that margin. But I think we'll continue to be producing very healthy margins.
Thank you. Maybe a final question from me, which would just be the key things for us to look out for this year, what segment are going to be telling us?
Hikma is going to show you that we are performing well. We have a great strategy, and we're very confident that we'll be performing well over the next, at least three to four years. We have a lot of projects that are in the works. We're very confident that we'll turn some of the weaknesses around to strengths. We're gonna use our balance sheet to healthy acquisitions and healthy ways to enhance our business and continue to grow. So that's our results will come next month. We're confident to show you that all three businesses have been growing, and the years ahead look very, very healthy and we're confident we'll continue to deliver growth.
Great. Thank you very much. I think we'll wrap it up there.
Thank you.