Hello everyone, and welcome to the Hikma Interim Results 2022. My name is Emily, and I'll be moderating the call today. If you would like to ask a question on the telephone lines today, please press Star followed by the number one on your telephone keypad when prompted. I'll now hand over the call to our host, Susan Ringdal from Hikma. Please go ahead, Susan.
Good morning, everyone. Thank you for joining our call today. Hopefully you will have seen the pre-recorded presentation that's posted up on our website. The format for today will just be Q&A. In the room with us today, we have our Executive Chairman and CEO, Said Darwazah, CFO, Khalid Nabilsi, our Vice Chairman, Mazen Darwazeh, President of Generics, Brian Hoffmann, and President of Injectables, Riad Mishlawi. Said is gonna kick off just saying a few words, and then we're gonna open the floor for questions.
Thank you. Thank you, Susan, and good morning, everybody. Let's get the bad news out first so we can concentrate on the good news. Okay. This was a rather tough environment to work with. You know, supply chain disruptions, inflation, you know, price erosion and so on. Well, it was tough. In spite of that, we still managed to deliver sales equal to last year. Of course, the generics did not do as well as we expected. We explained this before, that some products that we were expecting to get approval for this year will be late to next year, and then with the significant price erosion in the market, the business underperformed. Again, it's with that in mind, we still delivered sales equal to last year.
Profit's down a little bit, and that's due to the high investment mode this company is in. Everybody will explain in the groups what kind of investments that we've been doing. We, you know, we bought companies. We started the compounding business. We are increasing R&D expenditure. We're increasing sales and marketing expenditure. So a lot of, you know, in Jordan, we're building new plants for the Injectables. So we're in a big investment mode, situation right now. The good news is that the divisions that are responsible for 80% of the profits, the Injectables and the branded, are doing very, very well and will continue to do very well moving forward.
We have invested so much in these two divisions, in products, in manufacturing, in new businesses that we are very confident that these businesses in the medium term will continue to do better than what they have been doing the last few years. We think that over the next three years, they will have good growth figure of maybe around 9% annually over the next three years, which is better than what we've been doing before. I also like to highlight that this is a very strong company. We have EBIT margins of 24%. We have net margins of 17%, which is extremely high in this industry. We have strong cash flow. We have very good balance sheet. The company is in a very, very good situation.
We are very, very optimistic about the future. We're ready to face the challenges that are out there. We know that the generics will be doing much better next year. As I said before, the injectables and the new and the brand businesses are doing extremely well. That's what I wanted to highlight. The generics did not achieve what we planned to achieve, as the reasons that I explained. However, 80% of the business is still performing on very high yield and doing extremely well with a lot of investment that everybody will be talking about, explaining what they've been doing. We are very, very optimistic about the future of the company, about the possibility for growth, next year and second half of this year. With that, we are open to the Q&A session.
Thanks very much. James Gordon for JP Morgan. Nice to see you all in person.
Hello, James.
Hello. I guess a question about generics. Why things haven't gone quite so well recently and why it gets better next year. I think the incremental thing maybe in the release, we already knew that there was some pricing pressure and that some new launches are not going as well as initially hoped. The new thing is maybe more volume erosion, so more competition has come into some of the business. Why has that happened recently? Looking into next year, is the outlook effectively the same as this year plus you add on Xyrem and Mitigare, or is there other things you think will get better as well?
Maybe I'll take that since Brian Hoffmann, President of Generics division. Let me first start off with the environment in the U.S. for generics. It's a very competitive environment now. Many of our competitors are struggling. When we look at our business, we found ourselves having to defend some of our business, and we've also had some difficulty growing some of our growth products. When you talk about defending many of our top products, we're the leading market share player. Some of our top products, we've seen increased competition, and we've had to make decisions about whether we defend at a lower price or whether we let some of that business go.
That's why we've seen some of the volume erosion, is we've made the conscious decision to let that business go because it's below our targets and profitability. That strategy has been working. That's how we've been able to maintain strong high-teens margins despite the volume loss. Now, if I go to the other side of the coin in terms of growing our business, you know, we had expectations for growing several products throughout the course of this year and continuing into the second half.
Given the level of hyper-competitive intensity, we found a lot of the incumbents really defending their market share more so than they probably would in a different environment. We've had challenges on our existing business and also challenges on some of the growth products which have resulted in the higher price erosion that we're seeing this year.
Roughly, I think, you know, the guidance implies down about 20% this year. Could we put 20% again for next year and that's our own estimate? Is it simplistic? Or do you actually think some of this, some of these recent pressures might abate next year?
Looking at next year, you know, we're very confident about returning to growth next year. I think we have some very good launches that we're really excited about. The first one being an authorized generic to Xyrem, it's a sodium oxybate-based product. We have a date certain launch of January 1st, 2023, and we have a six-month period of 180-day exclusivity. We're planning for that launch, planning for success there and looking forward to it. At the same time, we're also growing our specialty branded business. We launched our KLOXXADO naloxone nasal spray in August of last year. We look forward to continuing to ramp that product the second half of this year and going into next year.
We're also looking forward to launching our next branded product in RYALTRIS. We plan on launching that before the end of this year, and then setting us up really well for the allergy season in the first quarter of next year. Now, in terms of price erosion for next year, I think we can all make our predictions, and it's very difficult to do. Convoluting factor being the levels of inflation that we're seeing right now, and will that continue or will it not? I think there's probably some other people at the table who could better predict that than I can. If you do look at price erosion, let's say over the last 10 years, we do know that it's cyclical.
If you go back to 2014, 2015, those were some of the heights of the generics industry. Then you saw the big declines in 2016 and 2017, and had similar price erosion levels to what we're seeing today. We also saw the improvements from 2018 to 2020. Certainly my hope is that we're gonna see price erosion improve. The level that it's at right now, in my opinion, isn't really sustainable for the industry. Manufacturers will respond. Companies will look to rationalize their portfolios. We could see consolidation.
It's what we've seen in the past. You know, they try, they keep on deepening their loss and then they start giving up and, as you were gonna say, and they rationalize their portfolio, they manage an exit a part or a big part of the market. The market stabilizes and tries to stabilize again. Sorry.
No, that's great. You know, the other factor that I think could change the dynamics is also the FDA being much more active with inspections now post-COVID, both domestically and internationally. So what's important for us is that we're ready and able to capitalize on opportunities that we see. If there's disruption for any of those reasons, we feel very comfortable in our supply chain, our flexible manufacturing, and we'll look for those opportunities.
Brian, the issue of FDA is very, very important. The FDA has been very much behind its schedule on inspection, especially on the non-U.S. inspection. The facility we have in Columbus is, you know, has not only passed every inspection with flying colors. The FDA actually uses this facility to train their their new inspectors. It's a very high quality. We have seen activity now. The FDA is starting to put out Form 483s and warning letters to many of the companies outside the U.S. Again, that's another reason why prices, I think, will improve in the next, you know, period because there will be companies that will be getting warning letters and not be able to ship products.
I just wanted to follow up on that point of cyclicality, just 'cause the prior CEO kind of brought that up at full year results. Feels like just with the buying structure in the U.S. having changed in 2015 or around that time with the emergence of the consortia, there's not a lot of data for us to kind of like go back and check. Is it a matter of competitors who are no longer profitable, like, slowly coming out of the market, going bankrupt and kinda then we get to the other side of this? I know you talked about a normalized margin in the generics business in the past. Is that possible to think about? Or I mean, sorry, in injectables.
Is that possible to think about in generics kind of, like, should we think of this as an absolute trough margin and kind of a normalized margin is more like the low 20s%?
Yeah, you're absolutely right. You know, customer consolidation, you know, took effect in 2014 and 2015, and we really saw the impact of that in 2016 and 2017. You've got a relatively small sample size to look at the cyclicality post then. But you do have the improving market conditions in 2018, 2019 and 2020, you know, following that really difficult period in 2016 and 2017. I think that gives you something to point to hope that things improve. You know, we think we can build on the margins where we're currently at now. And that's due to really our growth strategy. You know, we're looking to focus on more complex generics, and also specialty brands.
These are the areas that have higher barriers to entry and therefore more attractive margins. That's where we're making our investments for the future so that we can continue to grow and to continue to expand our, not only our top line, but our bottom line as well. Riad, I don't know if is there anything you'd like to talk about in terms of price erosion with injectables?
I mean, it's the same thing. It's the same industry. It follows the same model, except for the injectables is maybe a little bit different. It's less players are on the market, more barriers to entry. But also there is a lot of shortages there because of exactly what you're saying. You know, because of the limited capacity in injectables, it gets to a point where people start exiting non-profitable products, and that creates gaps. Some of the products that are really low margins at one point become all of a sudden the higher margins because everybody exits the market. This is a factor that we go through and we see it, and it affects the shortages and all that. It is not as much because of all the other elements as a generic, but, you know, we see it as well.
Thanks. Can you just wind it back a bit? We've got straight into the nitty-gritty, but we haven't addressed the sort of elephant in the room. There's been a relatively abrupt CEO change, so I just wanna hear from you, Said. What is the message to the troops, to the C-suite? You know, is the strategy exactly the same as when Sigurdur left it, or have you made any tweaks in terms of your message to the company and how you wanna do business going forward? That's my first question.
Right. When Sigurdur joined the company from the beginning, Sigurdur said, "I am committed to a period of about four years." It was just like a big surprise for us to leave. He came in and he wanted to do a lot of changes when he first came. I said, "Sigurdur, this is not a company in trouble. Why don't you take your time, relax, get to know the company, get to know the structure, why we have this structure, and get to know the team." Six months later, he came and said, "We have totally arrived. There's zero need for change." It's the same team leaders that were leading the divisions before Sigurdur joined us are still leading the same team. We had some more people join.
You know, we strengthened the company's strategy systems and so on. It's you know, the core of the people, the core team members are still there. There hasn't been really a change of strategy during Sigurdur 's time or after he left. We are obviously trying to enter. You know, we have very clear five-year plans for every business. I think it's clearer for the injectables and the branded, but the generics also have a clear plan. They want to strengthen their specialty product and so on. Riad and Mazen will talk more about the business. There isn't really a major change in the company. I always remind everybody that you know, I've been with this company for 40 years, and I was still the Executive Chairman with Sigurdur running the business.
I was available all the time at the delivery. I attended all the briefings. I attended all the team meetings, all the strategy meetings. We didn't, at least internally, we didn't feel like there was a big change when Sigurdur leaving, and so on. As you know, we have committed that we will be looking for new CEO. We are in the process of looking for a new CEO. Could be somebody internal, could be somebody experienced. The process will go on within this year.
Okay. My next two questions, one for Mazen and one for Riad . Just on branded, it's been. We know the strategy. You've kept the investment, and you're trying to improve the portfolio. It feels that with the H1 results, we're starting to see the benefits of that. Historically, Sigurdur in the inside as well as Sigurdur have been sort of, you know, it's not coming anytime soon. Just when, you know, when do you see the fruits of your efforts in terms of improving the top line at MENA and also the margin? That's question number one.
Well, to answer your last two, for me within that point, we are a very understanding company. We have a new strategy in place. We have now a 22 manufacturing. We are the only company in the MENA that have had a consistent level of the market as a local company with strategic shifts. Now as you all know that it's a few decades of technology, how to use better data in the MENA for a joint company. We have a very strong sort of market to it. That is what we did in the MENA during the last quarter is about actually market survival management, survival salesmanship, and product portfolio. Now we have 80% of our sales in the MENA are coming from new products or long life style products rather than entry packages.
This is a shift that we have been building gradually. Now, remember the MENA is not one market. It's 18 different markets, and we have to have 18 different structures and it's 18 different managements, and we have different currencies. With all of this, with all of the currency fluctuations, with all of the restrictions that governments are imposing on these markets, we are able to grow. It is one of the best growing companies in the MENA. You can see clearly from the data. We are well-positioned, and we are increasing our margins as we go forward. This is why we say we will continue growth in the MENA, and now it starts paying off the investments that we have done during the last couple of decades.
Riad, did I hear Said say that the outlook for injectables is now 9% high single digit? Does that assuming or including the impact of your compounding efforts, Custopharm , or would that be an addition? I'd be interested to know your confidence in that level of sustainable growth.
How we see the injectables, you know, there are lots of organic and inorganic. We're looking at. We have done a rapid expansion of our portfolio through R&D and through business development that we feel is gonna be coming to fruition very, very soon. We have expanded our manufacturing plants and still continuing expanding this capacity that we think we're gonna put it in use. We're looking at expanding geographically as you can see, we have gone to Canada, we went to France, we're on our way to Spain. Adjacent businesses also, you know, mentioned the compounding, the other things that we're thinking about. We put all that in perspective, which we're continuing with the same growth that we've been projecting, and we've been doing for the past few years. We think we're going to continue strong.
You know, we're putting all that together. We're trying to absorb all the other costs that also Khalid mentioned, and the difficulties that we have in inflation and all other things. With all of that continuing, we're still going to deliver the same results.
In the past, you've always said a commitment or you've committed to, on one hand, recognizing that the margins are very strong right now but not sustainable, but saying that low- to mid-30s% is a sensible target for this business on an ongoing basis. Is there any change there in terms of profitability objectives?
I think we've always said that the normalized margin is going to be mid-30s%. All the plans that we have continuing growth in our business, continuing growth and expanding our market is going to deliver such margins. Of course, if we have an opportunity, it's gonna as we are seeing now, if there are certain opportunities, let's say for contract manufacture or certain products, then there's an upside to the normalized margin as we are seeing today.
Normalized margin.
35% is very abnormal in the industry.
You're comfortable that situation that we are with you actually now, where you have very slippery slope. Your comfort level with those sort of --
Yeah, we feel very comfortable. I mean, what we have done and continue to do, I think we have confidence in what we're doing and continue to do.
I think that the really, almost every manufacturer. You know, we bought Germany in the past to learn about oncology, and then we built a huge oncology plant in Portugal, and we said we were going to close it. The reality is we've had to upgrade the German plant 3x or 4x already. Both plants are open. The same with Italy. We wanted to learn about lyophilization. We built a huge lyophilization plant in Portugal. We've had to upgrade the Italian one. Whatever we can make, there's huge demand, and we are in a very major growth mode. We're building new plants now. We're changing a lot of the equipment, constantly changing equipment to faster, you know, higher speed, faster speed. With the injectable, we're, you know, very comfortable that there is this, the demand will continue.
The last thing that Khalid said, we see big business or potential for a CMO, and we're talking about very, very profitable business. The compounding, I think Riad understands it the most. Maybe he can explain a little bit about that. Obviously right now we're in a big investment mode, and we'll be starting to see the benefits of that in the second half of next year, and then move on from there. It is a big investment. It is a big facility. I visited last month. Extremely impressive. It's a big facility. It's a major investment. It's a major expense right now. So even with absorbing all these expenses that we're, you know, investing, we're still delivering, as I said, 17% and 24% margins. We've been delivering 38% in the headlines. You wanna talk a little bit more about the compounding?
Compounding, we have to remember first we did not buy a business, we created that business. So that's where we started, which means that you have to not only recruit the right people and train them and get to know the business. If you don't know, it's a new business to us as well. We need to get the regulatory approval. That takes time, especially with this environment. You know, FDA is very, very busy. They have a big schedule. We really worked it a lot for them to come and visit us, which they did finally a few weeks ago. We have to get every state approval, 50 states, and each one has different requirements.
We have to get hospitals signed up to our system because, as you know, our core business, we don't sell straight to hospitals. We mainly do the wholesalers. We have few. Now we have to put thousands of those hospitals in the system. All that takes time, and all that needs to be built. We are in the mode of getting all that prepared. We feel that, you know, in a few months after everything is all the foundation has been laid out, we should be getting very interesting. It's a business where there aren't too many people in the market. It is a growing business.
If you show the right attributes that everybody is looking at in compounding, I think it'll be a great advantage.
Thanks. I've got a few more, but I think I probably refrain with the mic and answer.
Moving on to questions from the phone lines. Our first question today comes from Keyur Parekh with Goldman Sachs. Please go ahead.
Hi. Hopefully you can hear me okay, and thank you for taking my questions. Going back to the Generics business, could I please understand better the bridging, the building gap or the bridge kind of between where you leave off in 2022 and your confidence of growth in 2023. If we take the midpoint or the high end of your 2022 guidance, what do you expect to be the impact on your base business in 2023? What do you expect to be the contribution from the two new launches? And is there anything else from a delta perspective between those numbers? That's kind of question number one, and then I'll have a follow-up question as well, please.
I think, thank you for the question. So we're not ready to give guidance yet for 2023, but I think I can speak to those components at a higher level. If you take where our guidance for this year, we expect to build upon that next year, both top and bottom line. You know, you should put into your model some price erosion for next year. Then on top of that, we have some very attractive product launches, which we're looking forward to. I mentioned the authorized generic version of Xyrem. We're launching our specialty branded product RYALTRIS, and we're gonna continue to grow our injectables and community health franchise. That will help us to grow into 2023. Those are really the major components. Unfortunately, I can't give you know, direct contribution numbers.
As a follow-up to that, your visibility on this business seems to be incredibly low as envisaged by the guidance downgrade twice over the last three months. I'm just curious why you feel the need to provide growth guidance for 2023 sitting here in August, and what drives your confidence that you have that visibility on the base business?
Yeah. You know, when we first provided guidance for this year, we thought that there was a strong potential for us launching our generic version of Xyrem this year. Based on the trends of Xyrem in the market, our market decline trigger was not triggered. Now we're focused on our date certain launch of January 1st, 2023. A disappointment obviously that we don't have that launch this year, but we get to benefit from it next year. It gives us more clarity on planning, which is very helpful, which gives us a lot of confidence rather than looking at reports every month.
Now we have sort of the defined period of launch, which we think is really helpful, from a planning perspective. The base business, as always, your existing business does face competition. It's natural to look at next year and that we will see some price erosion on the base business. You know, my hope is that price erosion improves next year from where it is this year. Our new launches, together with, you know, stabilization of our base business and also some new contract manufacturing business that we brought on, will all help us to grow into next year.
Lastly, both Said and you have spoken about the cyclical element of the pricing dynamic in this market. What is the risk that this is actually structural and not cyclical?
You know, I would say the structural environment that you're referring to is primarily due to customer consolidation, where the top three customers control about 90% of the volume. We've been now operating in that environment for over seven years. We're pretty used to how that works, and I think the entire industry has adapted to that. You know, I think it's more of cyclical trends that drive this forward because the structural changes have already occurred.
Yeah. I'd like to add. You know, again, I've been in the, I've been doing this generic business since 1990. It's almost 31 years now. We continue to see that. The two things that we spoke about earlier, one is the regulatory environment. We know that the FDA is way behind on their inspections, especially on their foreign inspections, especially on their inspections to Indian companies. They have started moving up now, and they will be under pressure to increase the number of inspections. As they do that, we know we will see warning letters, and we know we will see Form 483s. You know, if you look at a big chunk of the cyclical business in the past, the shortages that happened in both the oral and the injectable were due to regulatory issues.
We don't discount them. They are still there. The other issue we talked about is when margins become so low, companies first try to defend it because they have raw material, because they're already committed, because they're already manufactured. Once they get rid of the supply, the inventory and so on, they stop manufacturing products that they use. The number of people making the products go down. Now, will it be the same pattern of cyclical movement? We don't know. There will be cyclical movement, there will be changes in the market. We've seen. As I said, we've been seeing it happen for such a long time, and I think it will continue to happen. Maybe in a bit different ways than before, but it will continue to happen.
Thank you. I'll get back in the queue.
Thank you.
Our next question comes from Harry Sephton with Credit Suisse. Please go ahead.
Brilliant. Thank you very much for taking my questions. I have a few on the injectables business. In the first half, you saw about two launches in the U.S., but 29 launches in Europe. I think that the h istorically, the message has been that you'd look to prioritize new capacity really for the U.S., which is your most profitable market, and that actually Europe was really the lowest priority market. I just wanted to understand the dynamics of such strong launch activity in the European market and then potentially some weakness relative to your historical levels of launches.
Could we see a much higher weighting of new launches in the U.S. in the second half of this year? Then I had a question on your biosimilars strategy as well. Some of your competitors have mentioned the importance of cost advantage in the U.S. biosimilars market. You signed a couple of in-licensing agreements. I just wanted to get your thoughts on why you think this is the right strategy for Hikma. Do you expect that you can still be competitive on price despite your limited control on the manufacturing costs on these in-licensing agreements? Thank you.
Well, the first thing is that we are committed to still launch in the United States between 10-15 products this year, although we only launched two. In the process, in the next few months to launch 5 and then continue to get that number 10-15 we're committed to and we will deliver. The delay between the first half and the second half has to do a lot. It's not really the priority. It's the launches that we do in Europe are different than the ones that we do in the U.S.. U.S. launches are brand new molecules. In Europe, some of those launches are existing molecules that went from one country, and we launched that same molecule in another country.
You'll see us, for example, launching the same product that we have in Germany, but we launched it in France now. We consider that a new launch. In the U.S., it's new molecule. To make a new molecule requires you to do validation batches, three validation batches. It require you to do the reports. Everything has to be done before you launch the product. You have to prepare for it. You have to make sure there's a lot of regulatory steps that you have to go through. This is why typically, if you look back to maybe the last two to four years, we're always heavier on the second half in launches than the first half. I think this is a typical year.
It's not atypical, and we will be getting what we have committed to between 10-15 in the U.S.. The attention that still continues to the U.S., it is our most profitable country market, and we continue to give it a lot of attention, especially when it comes to new products. Your question about the biosimilars, we are in the process of building a portfolio. We know that going to the market with a biosimilar with one or two products is going to be cost challenging because the detailing and the sales force that you are going to build is going to be very expensive.
The more products they can carry with them to detail, of course, the better and the more efficient it would be. We are looking at a lot of partners. We're talking to a lot of partners to build that portfolio beyond the two products that we have signed. The cost structure is definitely something that you consider, but I think the deals that we have made and we continue to make, we really look at that very closely. We look at the history. A lot of the people that were the first in biosimilars faced that. The advantage that we have now, we learn from them, and we learn that, you know, where it starts and where it ends up with all the erosions that happened, quick erosions that happened in the structure. We're trying to build that in our agreement with the partners.
If I can add to that, remember in the MENA, we've now how many years we've been, biosimilars?
Now it's, we started 10 years ago. We started launching about five years ago the registration process. Now we've been five years in the MENA.
We have good experience there. The products are very successful. I mean, we are not manufacturers of them. We're bringing from Celltrion. They're very profitable. They're very successful. The partners that we are choosing, and you can take a look at them, they're very well-known partners that have very strong history, strong manufacturing history, and are in low-cost countries. We believe that we'll be very, very competitive, and the deals that we have made will ensure that.
Brilliant. That's very helpful color . Thank you.
Our next question comes from Max Herrmann with Stifel. Please go ahead, Max.
Great. Thanks for taking my questions. A couple, if I may. Firstly, just again on the generics division, but a little bit on the move into the specialty pharma arena. Clearly, given the erosion you've seen with the business, now in 2017, 2018 and now again, in the current year, does that not make you feel that the move into specialty pharma should be accelerated, if anything? What are your views on capital allocation into that? Secondly, just coming back on the question you talked about in biosimilars in the U.S., obviously, on COMBOGESIC, that's sort of your first potentially marketed injectable product. So I wondered whether that sort of... I know it's not a biosimilar, but is that your first foray into building a sales force behind a product in the injectables? Just get some feel for that. Thanks.
All right. I'll start off with the generics question. You know, when we look at our business, we're still supporting our generics business, but we also wanna do more of complex generics such as our generic Advair products. We believe that combined with our investments in specialty branded and also some very profitable CMO business that we have helps kinda insulate us from the more commoditized type generics. We're investing in all three areas. You know, what we like about our specialty branded business is that, you know, we've got more clarity and more of a runway. We have IP protection, and there are higher barriers to entry for developing these products. Our KLOXXADO nasal spray, for example, requires specialized manufacturing technology that not many players have.
We're looking to leverage that for other products. We're excited about the potential for our specialty branded business, but we're still supporting our generics business with a focus on complex generics. We're also growing our contract manufacturing business, which we believe as we continue to expand in those areas will help to give us more predictability and more insulation to some of the cyclical price erosion. Riad, do you wanna?
Around COMBOGESIC, we are excited about this product. This was supposed to be approved the third quarter of this year. As you know, the company got the CRL, not critical one. It's related to packaging, nothing about the data or the clinicals. It will be delayed a few months, but we are prepared for it. There's a lot of studies that are being done, interviews with doctors, nurses, trying to look at the data. We are really excited. The more we look at the data, the more we think that this product is very good product, especially with the environment of opioid now in the United States. I think it will give doctors an alternative way to control pain.
Also, the good thing about it is this product has been launched in many markets. It's been launched in almost all the markets in Europe, in Australia and New Zealand, some parts of South America, and we are learning from those markets. We're looking at the data from those markets to see how doctors are reacting to it, how the pricing, the uptake, how it's behaving. We're using all that data to make a very good launch in the United States. We're excited about it. We feel next year we are going to be busy trying to roll this out in the market.
In terms of c apital allocation, it's about. It's in terms of capital allocation, if we find the right opportunity and investments, I think we still have the firepower to do close to $1 billion in acquisitions or in opportunities that we see fit within our strategy. We are, we don't have limitations.
Can I just push back on the sort of move to specialty? 'Cause it's been pretty pedestrian if you take, you know, the launch of Mitigare as your first foray into that. Given the repeated now, you know, and you guys are talking about it being a cyclical market where, you know, yes, you will expect recovery, but you'll then end up another period coming back into this erosion. Your move into specialty pharmacy has not been fast enough, and shouldn't you be putting more resources behind that to accelerate that? That was, I guess, my question really?
Yeah. You know, colchicine our Mitigare franchise was really a success story for us. That was really our first foray. We launched the product in 2014, and it's still making some meaningful contributions to our business today despite the entry of multiple generics on the tablet dosage form. That has given us a platform to start to build from. Our strategy in specialty right now is we've got two verticals, one in PCP and ENT allergy, and the other in community health. We've launched our first product into community health from the branded standpoint with KLOXXADO, but we also have our addiction therapy services and also our naloxone injection, which all are going into that channel.
We'll launch our next pro-product in the PCP ENT allergy channel later this year with RYALTRIS, and then we have two additional products behind that. We are growing from more of a steady measured perspective, you know, rather than. We're trying to grow that business in a way which we always remain EBIT positive. As we know, when you launch new brands, it requires an upfront investment. You need to invest in a sales force, but we're trying to do that in a way where it's not a drag on the rest of the business. Our specialty as well as our generics business are really working together. They're utilizing the same manufacturing, the same overhead.
We're trying to do it in a steady way, which make a positive contribution to the overall division as well as the Hikma Group.
We are looking at several products that require them to add to the specialty portfolio that we have. The company is committed to invest when we do find something that makes sense to add to that portfolio. We, as I said, are looking at a few as we speak.
Great. Thanks very much.
Hi. Emily Field from Barclays again. Just a couple of clarification questions. I'm sorry, I missed this in the prepared remarks. Just was it in the 9% CAGR for injectables over the next few years on top line, is that right? Then, on this point about FDA inspections, is that specific to generics in that there's, you know, probably a lot of underinvested plants out there that will face remediation actions? Has the FDA being on the sidelines prevented any new launches also? Is that also kind of holding back growth? Thank you.
No, I don't think the FDA being on the sidelines has prevented, because the FDA has been very active approving products. But I think once they start moving faster in foreign inspections, we would be seeing the Form 483s and when that will happen. The first part of your question is the 9%?
Yeah, just for clarification. That's 9% top line CAGR for the next two years in Injectables?
And MENA.
Okay. Okay, thank you.
Because that would be the numbers.
Thanks. James from JP Morgan. Just a question on Xyrem. I think when you updated the guidance to reflect the Xyrem delay before, the magnitude of the downgrade was something like $160 million or something like that. That's what the product would have done in terms of revenues in the second half of this year. If the launch is on the first day of 2023, you'd presumably have that and then something in the second half. Is that a safe assumption? Might have had a little bit of market shrinkage, or do we need to completely rethink how we think about what the Xyrem opportunity is? How much should we put in our models, and can we take what you were gonna have in 2022, add a bit to get in 2023?
Yeah. You know, I can't answer it directly in terms of, you know, what we should model for next year. What I'll say directionally is the revised guidance didn't solely reflects generic Xyrem. It also reflected changes to the overall portfolio. All that was incorporated in the revision of the guidance. You know, it's a very meaningful opportunity for us. We do have a significant royalty to Jazz, as during that six-month period while we're the AG, and it's an escalating royalty based on sales. You know, that's probably as much color as I can give right now.
Thank you. Maybe just a follow-up to that, which would be, so the first six months is just U.S., but then without giving that number, but in terms of how much lower than whatever that number would be in the first half, might it be in the second half? Do you think the second half is gonna be a big erosion, or how do you think about that?
Yeah. It's the first six months we'll be exclusive. There are a number of other filers that would have the ability to launch on day 181. We do expect a significant decline in the second half of the year as it becomes a multi-source generic market.
Just a quick one for Said, or yeah. I'm sorry, Said or Khalid, sorry. Balance sheet. I mean, you tried to buy back to signal that you felt the stock was not reflecting the fundamental value. Given that that didn't do much to the share price, your appetite to do more, or would you like to keep that balance sheet strong to deploy for the business? Any appetite to do something further as it relates to share buybacks?
No. Do you want to?
Yeah. No, no update on the share buyback. At the moment, we did the $300 million. I think, as a management, we prefer to keep some firepower to do further, I would say, investments and strengthen our business. If the opportunity comes and we think that we need to do it further, the board will evaluate and then will consider.
One follow-up for Brian. I know you're not gonna talk in detail about generic Advair or Vascepa, but just conceptually, should we now be thinking of these two products as ex-growth and stable at best, or do you still believe they can be growth products?
Let me take them both individually. You know, icosapent, you know, last year we were the first generic to launch. We enjoyed a period of being, you know, a de facto exclusive generic for that product. Since then, more competitors have come in. Apotex has come in, Dr. Reddy's, and we expect Teva to come in as well. With icosapent, we've been working with our API supplier and alternate API suppliers so we can gain additional volume. Our hope is with that product that we can continue to gain market share now that our API volumes are increasing. Pricing has become more competitive.
I think we look at that as more of a volume opportunity at current or potentially lower pricing levels when new entrants come in. With generic Advair, you know, we still see growth opportunities with that. Unfortunately, the brand is still controlling about 50% of that market, and then the AG another approximately 16%. I think there's still an opportunity for generics to make more penetration into that market overall. We are working on developing the third strength of generic Advair, the 550 strength. That one only represents 20% of the market. When we get that approved next year, that will put us in a better competitive position to take on more market share.
Thank you.
Our next question from the phone lines comes from Paul Cuddon with Numis. Please go ahead.
Hello there, team. Sorry I couldn't be there in person, and thank you very much for squeezing my questions in. I have three quick ones. I mean, focusing firstly on injectables organic performance of 5%, to what extent are you seeing any impacts from staffing shortages that have been cited, particularly in med tech, but are also applicable to your injectable business as well? On the generic business, I mean, where do you see the potential for future efficiencies given all of the increased investments that are going in on the branded side? Finally, I mean, how do you see the economic outlook in MENA versus the U.S., given the potential for kind of improving healthcare spend, specifically in MENA and how does that benefit your presence there? Thank you.
Well, from the injectable point of view, shortages are now part of our business. They just come and go, but they don't go away completely. They just change ranking. If you look at our 10 top products, in the last five years, maybe controlled substance will be in the top five this year, and shortages will happen. Pfizer is gonna, they're having problems with their manufacturing, and they stop the product. You know, we become number one, and they become number three, and then the year after, you will see it the other way around. It is not something that it is just part of the business, and you have to manage it.
I think we have an advantage that more than 90%, I would say 95% of the products that we sell are products that are made in our facilities. If we can have the nimbleness and the fast reaction to those shortages, we can definitely, you know, capitalize on opportunities where the product, the market needs it, and nobody else is making it, and maybe we can get a bigger market share. It is not something anymore that is strange to us. It is just something that we have to manage, keep a close eye on. Our growth wasn't really related to this, I would say particularly. I think we just managed our business well. We had significant contract manufacturing as we have talked about.
We had expanded our capacity, and we capitalized a lot in bringing more volume into the market. New expansion markets are contributing some to our business. We've had a lot of other elements, I think, that helped us in our growth, not only the shortages. Definitely shortages, managing the inventory, managing the market, knowing when to be out is just absolute part of the business in injectables.
The question was more on the nurse staffing shortages and ability to kind of actually deliver your injectable medicines, not specifically on the injectable products themselves.
Yes. Staff shortages, I think the whole world is struggling with, and we are struggling as well. Especially in places like Portugal, that tourism has picked up a lot this year, and they're grabbing a lot of our staff into the tourism industry. We were lucky. I mean, we are definitely struggling with it. We're feeling it very strongly. We're doing all kind of job fairs and going to universities and trying to get staff as much as possible. We're struggling with it, and we have a lot of ways and doing a lot of different ways to go about it.
You know, I think what we have done well in the last few years is we invested a lot in robotics. Although we depend a lot on labor, but our lines can operate with minimal labor, in comparison to other facilities that I've seen. We've done a lot of new equipment. As you know, if you're following us with the last five years, we have put a lot of new facilities on, new equipment on. Whenever we do that, we get the best of the best, mostly robotic and mostly not so dependent on labor. That gives us an advantage. Not to really downplay the fact tht labor shortages is a problem. It's been a problem with us, and we're struggling with it as like everybody else.
I think part of the question is your customers, nurse shortages, physician shortages, is that affecting your business? I mean, the --
We know that some hospitals and we know some clinics are struggling. We've seen it also from our competitors. Fresenius has said that publicly also. They're struggling with the viruses having that. It is not only us. It's industry-wide. Yes, I think hospitals and nurses and clinics are all struggling with it. Do we see it directly in our business? We don't feel it as much. It might be bigger than we think. I think everybody is suffering from it.
Okay. I'm happy to address your question on generic specialty and how do we make that more efficient. There's really two ways to do that. One is by increasing your sales of your existing products over time, and the second is by adding additional products utilizing the same sales force. Our strategy is to do both. We have two franchises I mentioned before, our community health franchise, our PCP allergy franchise. Our community health franchise supports our colchicine product. That's a fairly lean operation. It's a fairly small sales force.
It's concentrated not only in the retail market but also the state government market. As we continue to grow sales of KLOXXADO over time, we'll see that sales and marketing spend become more efficient and our margins expand. Within PCP allergy, we have currently our Mitigare colchicine products. I mentioned we're launching RYALTRIS soon. As those products ramp, you'll see the efficiency there. Also we plan on bringing two additional products to the market there in vilazodone and epinephrine. We should have four products in the PCP allergy market, which then makes that sales and marketing spend much more efficient.
The MENA economic prospects, as you know, we are in tier one markets in the MENA. If you look at the breakdown of our sales, we see Saudi Arabia is the second market that we have sales of in terms of volume after the United States. As you all know, the prices of oil are going up now, which will have more expenditure of the government for the healthcare prospects. This position us in a very good position because we are now one of the top players in Saudi Arabia. We're number four or number five in terms of market share. We have a huge manufacturing platform, and we're investing, like Said said, been heavily investing in manufacturing sites. We've been investing in infrastructure for distribution. We have our own company in Saudi Arabia, and this positions us in a good position.
Taking into consideration all of the headwinds of the currency fluctuation in the Arab world, especially in Egypt, in North Africa, we have been able to mitigate that risk by also increasing our product mix and by diversifying our manufacturing bases in these countries. This is why we will continue to see growth in that area, and we'll see more expenditure from the governments in that area. The expenditure will be directed more towards the tender business, which we are well-positioned to be in that category because we are considered as a local company in all of these markets.
Great. I think we don't have time for any more questions. Do you wanna say any last words, Said, before we leave?
I mean, again, f or me, I always tell the guys, I mean, since we first started doing business, a company that makes 15% or more net returns on sales is a comfortable company. Once you go below 15%, you start like spinning your wheels. You know, you're tired, you're on a treadmill running but not going anywhere. At 15% +, for me, that's the cutoff point. That's where you start being very comfortable. This is a company that's making 17% in a bad year. So it's still a very comfortable company. We're in a very strong position. Profits of $210 million the first six months. So it's, you know, a well-positioned company to continue to grow in the future.
We've had a bad year in generics, but as you know, Brian said, he's very sure next year will be a good year. The two other divisions that are responsible for 80% are in extremely good positions to continue growing. You saw me make that commitment of you know growth in Injectables. We're in a good position. I'm very excited about the future of Hikma and the continued story of growth of Hikma. Thank you, everybody. Thank you.
Thank you.
Thank you.
Thank you everyone for joining us today. This concludes our call. You may now disconnect your lines.