Hello, everyone.
Welcome everyone to Hikma's interim results Q&A. We have Said Darwazah, our CEO, Khalid Nabilsi, our Chief Financial Officer, and Riad Mishlawi, President of Injectables and our incoming CEO. Welcome, everyone. We hope that you have all had a chance to review the presentation, and we will use this session for Q&A. For people in the room, if you have questions, please take the mic off the table and answer your question using the mic. With that, I hand over to Said.
Again, good morning, everybody, and welcome to Hikma's results for the first half. As you can see, we think that every division has performed extremely well. The injectables have shown good growth, and Khaled will explain later that there were some extra costs on that division. He will explain in detail what they were, but the growth in sales was good, launch of products was good. We were able to launch a lot of what we call 505(b)(2) products. These are products typically that are new to the market, so they are like in between a generic and a branded. For instance, Cefazolin is usually used in 1 gram, and that's the originating. That doesn't come in a stronger strength.
We got approved two and three grams, two and three grams. It's something new for the hospital, and there are many, many products that we got approved. They're really good products, but they need a little bit of promotion. They're somewhere between, as I said, the branded and the generic, but we think that they will do extremely well because they really address what the patients need and what the hospitals need. Europe did extremely well, MENA did extremely well, and the US is, is, is doing fine. It's picking up, and Riad will say a little bit more later on.
MENA, again, although we have some very, very difficult headwinds with the currency situation in Egypt and Sudan, unfortunate happening in Sudan, we still managed to give a very good result with growth of.
Almost, 17%. Yeah.
That, that, that is very, very good. We, we were able to deliver a lot of the oncology tenders in the first half, so that gave a big, big boost, and those are very high profitable, high, very highly priced profitable products. The generics, the two things, obviously, first was that the, the, the, the portfolio, the original portfolio has done much better. The question everyone is asking is, "What is going on in that market? Are the prices improving, or... " The reality is it's a mixed bag, at least from our perspective. We've seen some products' prices still go down, and we've seen some product prices in, go back or, or, or stop being reduced. For instance, Amoxicillin, because of the shortages, is, is priced better and many others.
We've also seen an uptick in volume. Even the ones that had price reductions had a lot of the other major increases because of the volume increases. Obviously, demand is ticking up again. We believe that there is softening now. I don't think there will be a lot more pressure. We are seeing the FDA still doing the foreign inspections, still issuing out the warning letters to many of our competitors, which obviously can create more opportunities and shortages moving forward. Cash flows.
Fantastic. Yeah, growth of 31.something.[crossword]
Everything is, is, is good. We're ready. I'm ready to hand over to Riad. Riad is ready to take. Riad, actually. Get up. Come on. I'm ready to hand over to Riad. It's been very smooth transition. Obviously, everybody knows him in the company extremely well, so there have been no glitches at all. With that, I will hand over to my colleague, and they can give you some more details.[crossword]
The question, or you don't, because Riad and Said gave a good, I would say, brief about all of the segments. I think maybe we'll open it up for Q&A. I got in the branded business.
I don't know.
Hi, it's Victoria Lambert from Berenberg. I'll start with the first most obvious question, which is just about how Hikma may benefit from some of the supply issues that there may be from the tornado impact on Pfizer, from their North Carolina facility? Yeah, that, that would be helpful.
Well, I mean, we have to start by saying that it's a really unfortunate event. I hope that will not cause shortages to patients. We did communicate to a lot of our customers, you know, if they face any shortages, that we'll be willing to step in. As you all know, you know, our capacity has been utilized well.
... is a very temporary, if it happens, we still haven't seen the impact yet. If it does happen, that will be temporary, and we will have to kind of take it one by one and see if we can step in, and how can we step in, and what would be the, you know, the, the, the, at the end of the day, the consequences of, of, of this event. We haven't really seen a substantial update right now, or demand, increase in demand. I think Pfizer has multiple facilities, and as they did communicate to the market, that some of those products are made in several facilities, and they might be able to, to produce in other facilities, I'd be able to see that it's panicking. Customers are not panicking.
You know, the, the picture seems very horrific, you know, and, and we know a, a parenteral plant, a aseptic plant like this, you know, without a warehouse, even if you have the production facility intact, you still need to do some fixing before you go back to production. It will take some time. Whether this is going to yield to significant shortages that will, you know, will spill out to us and, you know, or, or opportunities for us or not, we, we still don't know.
Yeah, I'm pretty sure that they, they, at least capacity will be so much like to see. Which control, I think other parts around, around the globe.
Please grab the mic, sorry.
Sorry, uncertain . Just to push you, Riad, on that, the prior question and on. We don't want to give us your exact capacity utilization right now, but ballpark, can you give us a sense of how tight it is or flexibility to maybe step in? Thank you.
Well, the good thing about it is that we always seem to be ahead of the, ahead of the curve in, in some way. We did install two fast lines in our both facilities in Portugal and in Cherry Hill. The Cherry Hill line went, went online. The Cherry Hill line went online a month ago, a month and a half ago. It will take some time to ramp it up, but it's a very fast speed line. It will give us significant increase in capacity, liquid capacity. An identical line is being installed today in Portugal, and that will be online in a matter of, I think, by the end of September. We are adding capacity to the system.
We operate by making sure that all capacity is utilized, in any, in any circumstances. As you know, when you have a temporary opportunity, you're not going to drop your own product to take on this, and then have to come back. It takes a while to come back. We, we really manage those things very delicately. I think you're just watching, we know that we're adding capacity to our facilities, and if it happens, that we can pick up some more, some more capacity, some more opportunities from this, we'll- we're ready.
Just one last one before I hand the mic over. Just on those opportunities, I think, can you just talk a bit more about what you did with Akorn? You picked up some, some lines or equipment. I don't know whether you've picked up products, but just, Saïd was talking about it sort of three months ago, about the environment for you, giving you a balance sheet to sort of pick up some interesting opportunities. Just give us a sense. Talk about Akorn and then more broadly, the opportunity to do more there, more activity there. Thanks.
Sure. I'll say a few things, and I think Said might, might have to add things. I, I think from, from our point of view, the opportunity that Akorn has given us is, we have, we've put our hands on, equipment right away. You know, as, as you know, in this industry, if you want to order lines, it takes two years before they're delivered and installed. In this case, we got lines that we really need. As you heard Said many times saying about, our intention to increase the CMO. To increase the CMO means you need more equipment, you need more capacity, you need lines, and that was something that we can, utilize, immediately, and that's exactly what we did.
The lines already had been transferred to our facility, been installed, now they're in the phase of qualification, and I think we already have a, we have a purpose for them. I think from that point of view, I think it really served the purpose. We did also pick up some ANDAs, as you all know, it takes some time for us to transfer into the facility and turn them into additional revenue, that's the intention. That, that's the plan. Said, do you want to add anything?
Yes. Basically, the equipment that we got, a lot of it will, will, be going to Columbus. As I said, the engineering team has already installed them, which is amazing because it just takes up much longer time. They need to be qualified, that shouldn't be very difficult. It will be very helpful. It will add significant CMO business for the Columbus facility, in addition to the 70 ANDAs. Of course, as we have said, it takes time. We've identified the first batch that we are working on to, to move both the injectables and, and the others. It will give us some new technologies that we didn't have, like...
It's, it's all, all the ANDAs that we get, we are probably rising them.
The equipment, there, there is, liquid equipment, there is liquid single-dose, there is, there's a small-volume equipment. It's, it's, it's, it's, it's a, it's a very nice pickup. It's a very nice pickup. Obviously, by them going out to the market, they created shortages that, that, we benefited from, also.
Alistair Campbell from RBC. Jump in. Could we touch on generics Xyrem, obviously, an increase in guidance in generics, and it sounds like some of that's from increased confidence about generics Xyrem sustainability going into H2. Then you've also got a better underlying generics business anyway. I know it's early for 2024 guidance, but what should we be thinking about as we roll forward? Have you got a bigger headwind because Xyrem is doing so well, or actually, is the underlying business strengthening enough that we should be quite comfortable about progression of the 2024 phase?
Yeah, Xydrem has been, we, we, we said from the beginning that Xydrem is included in our, in our, in our guidance for this year, and it's an opportunity, and it's more weighted towards the first half and affects the profitability. The second half royalties to Jazz is going to increase, so the profitability will, will, will go down. We always said that this business is, is a business that will deliver between $100 million-$120 million in, in profitability. We are confident in our ability to maintain this going forward. We could see some opportunities. Now, this year, we have seen some contract wins. We've seen some favorable pricing environment.
All of our base business, some products we've seen competition, some products we've seen that we are able to, to do better than expected. This is why, this is one of the reasons we are, we are upgrading our guidance. Now, we would assume that, we would assume that second half, we'll continue to sell Xydrem, again, I'm just reiterating that it's gonna be at a much lower, I would say, profitability.
Hi, Emily Field from Barclays. Riad, you mentioned, you know, relative to Rocky Mount, that the FDA is not panicking and customers are not panicking. You know, before the tornado, it seemed like there was a little bit of panic, at least in the medical press, about the shortages of platinum chemotherapies. I think that the FDA was allowing for some importation from China. Maybe just kind of, Rocky Mount will do what it's gonna do and come back online when it's online, but maybe just kind of a higher level question on the status of injectable drug, drug shortages overall. I think that over the years, we've talked about that as just being something that hasn't gone away. In, in your mind, is that getting worse? Is it getting better?
Then my second question is just on branded, it sounded like some of the oncology tender wins were realized in the first half and perhaps had been expected in the second half. Just a question on sort of cadence of the branded segment from a top-line basis from first half to second half.
I'll, I'll take the, the first part of the question. In, in terms of shortages, nowadays, I think it's just part of the business. It's just not going away. It's just a matter of how we need to manage them, and I think the government is looking at a lot of different solutions. I don't think they really hit the right, you know, solution yet. I don't think they found it. I think they're trying. I think there was a bill, two or three weeks ago, to, to, to, for, I think to fund $500 million for manufacturers to stock more APIs and more products, for critical products, just to, to alleviate some of those shortages. It is part of the business, and there are reasons for it.
The main reason, especially when it comes to injectables, is that capacity costs money, and you're not going to leave capacity that's idle. If you get a product that goes below a threshold, below your cost, you're just gonna drop it and move on. I think this is the problem. The problem is, with the competition coming in and the pressure on the cost all the time, pressure on the prices all the time, it gets to a point where manufacturers need to choose, and unfortunately, shortages happen. This is one for it, and it's particularly when it comes to cytotoxics and the cancer drugs. It happens to a point where one company has picked up most of that part of products.
You know, that one company got in trouble, and they just got a warning letter just yesterday. Basically, they had an import alert by the FDA. Of course, they could not make any more products. They had to fix their problem, and that created shortages, not only in the US, worldwide. I think Europe is also struggling with this. But this is, this is the problem. The problem is systematically of how this business goes, the reliance on one supplier for, for a critical product like this, I don't think it's something that... I think the government have learned from it. I'm not sure what they will do, but definitely it's a lesson learned. We, in our plant in Germany, which is dedicated for these products, we can't make enough.
We'll try to increase, but as you also know, you know, it is a very difficult, this is a very slow business, rigid business, a regulated business. You can't just decide to pick up and make products. It takes time for you to get the raw materials. It takes time for you to increase. As much as we are making, we are benefiting from that, but still, there are shortages in the market, unfortunately.
There will continue to be. For, for the, the branded, as we said, the first half, they, I mean, in spite of very, very strong headwinds and major currency devaluations in Egypt, and then Melih will give more detailed numbers. Sudan, obviously, a big, big mess in Sudan. We were able to have an extremely good first half, as, as you saw from the results. A lot of that attributed to delivery of oncology tenders, but also markets like Algeria, Egypt, are doing extremely good. Not Egypt, I mean, actually, Egypt in unit is doing astronomically well, but in dollars, it's not. Algeria and Saudi Arabia are doing very, very well. What we, what we're saying, we're reiterating guidance for the full year, which means that we expect the second half to see more headwind.
The actual currency, and we said we're not gonna talk about the actual.
In a way, just adding to what Saïd just mentioned, if you look into the branded business, delivered a growth of 11% in the first half, 41% in profitability. Across all of our markets, we had significantly good growth, across all of our markets, including, including Egypt and local currency. The way to look into this, that you have some pull forward of some of the tenders. Let's assume $50 million, take it from the second half to the first half. If you look into the profitability of these, it will be almost evenly distributed. It's nothing I would say, that would continue out affecting the second half. Second, we maintained our guidance despite significant reduction in sales coming from Egypt, probably impact of $50 million, and Sudan, another $50 million.
Total $100 million, and we are able to maintain our guidance for the branded business. There will be some as well, investments in the second half in R&D. There will be some investments in sales and marketing. Maybe if you look into H1, H2, what the implied guidance for H2, you would see like a drop in margin, but, you know, it's, it's shifting some of the sales, investing more in R&D, investing more in sales and marketing. All of our markets are doing very well. At the same time, the launch of the products, the focus on chronic diseases, but it's the growth in chronic diseases is delivering good results.
Can I Sorry, Edward Thomasson from Liberum. Can I just have a follow-up on what's going on in Egypt? If you look through the statements, you, you obviously record some bad debts in Sudan. That's understandable, the conflicts. You're yet to actually account for any in Egypt, and there's also been an increase in net trade receivables. Are you having any problem extracting cash from customers? Are they paying on time? Have you noticed that in Egypt, that's?
If you look historically, if you look at... In Egypt, it's not the issue of collecting on receivables. The issue more is finding dollars to pay for your raw materials. This is the issue. It's not our dues to our third party rather than collection. Collection is perfect in Egypt, even better than any other market. It's the availability of dollars. Now, we managed to find ways to working with third party to get, like, banks from outside Egypt to get us dollars. We are paying our dues, and things are getting into better in terms of paying to our suppliers. It was an issue at the beginning of the year, and now it has been resolved.
We continue to supply, and at the same time, we are increasing our export from Egypt to get foreign currency use to pay for our, our raw material. In MENA, in general, we, we don't have any issue with receivables in terms of bad debt. Maybe GBP 1 million, GBP 2 million discrepancies in tenders, but all in all, we never had a major issues. But the issue is the, the length of the payment term. This is where we have in tenders. We have to invest more in working capital. Some governments, they pay after 2 years, 3 years. We take this in our calculation, even in when we submit for a tender, that it's gonna be paid in, let's say, 2-3 years. I would say we have no, no issues related to, I would say, receivables.
Some of it is very minor, I would say, bits and pieces here and there.
Just two other questions, just more strategic. Firstly, are you still enthused by the opportunity for biosimilars in the U.S.? There's clearly a lot of competition, that's, that's accelerating. How would you look to grow this going forward and potentially adding capacity, manufacturing capacity yourself? Is that still on the table? Secondly, just is there any update on the launch of sterile compounding, and how's that going?
3, 3 pieces. 1 related to the biosimilars, and then 1 related to the compounding, and 1 related to the capacity. Is that, is that what it is?
Yeah. Biosimilars, where you still infuse the sterile comp- compounding, and just generally, yeah, how you look to expand the capacity for going forward.
Well, for the biosimilars, you know, it's, it's, We were just discussing it actually the other day, how the polarity between companies, you know, some companies are putting everything into the biosimilars, and other companies are just exiting the biosimilars. It really depending on some of the people that had entered early on, some people that had entered in the midway. I think from our point of view, we really haven't changed. We, we have good partners. I don't think we wanna do it on our own. I don't think we wanna go into the development of biosimilars, but also, we don't wanna lose the opportunity to be part of the biosimilars. We are in, in, investing and partnering with partners. We have 2 today.
We are understanding more about, you know, this year would be very interesting to see what's gonna happen to Humira and how the biosimilars is going to come out when you have 7, 8, you know, competitors in the market, although it's a, it's a huge product, but still. There's a lot of learning that is happening, a lot of explanation that's happening, why people are exiting and why people are doubling on it. I think so far, our strategy is the same. We want to partner with good partners, and we want to, you know, benefit from our distribution strength, and sometimes from our manufacturing. We could be manufacturing the finished dosage in our facilities. At the same time, you know, we will be also, you know, looking to expand what we have today.
We have two products, we would like to see if we can expand, you know, few more. We're looking, and we're looking for partners to do so. In terms of the compounding, I just need to remind you that the compounding is a greenfield project. It is not something that we had bought. Greenfield means that you have to build the facility, you have to make sure that all it's equipped with the right equipment. Until today, I think next month, we start installing the water system, so we're still in the process of furnishing this, this facility and with the right equipment. The most and out of hand, type of out of control, biggest, is getting the regulatory part. Took us a long time to get the FDA to come and.
They did with us and came out very, very well, which is great considering what's happening on the market today. You know, the last victim is now CAPS. CAPS is struggling with their compounding. I think they temporarily closed their facility in Pennsylvania. You know what happened with Nephron. All indications shows that we are on the right track. We want to build this, this is a very interesting business, very complimentary to what we, what we have. It is different. It is something that we have to grow. It is something that we have to get clients to. Although we service all the hospitals, you have to remember that the hospitals in the US had been burnt several times with compounding. You know, I mean, the last one is Nephron, not too long ago.
They're very hesitant in, in, in going, just because you're Hikma and you have a good reputation in getting finished goods, they're just gonna change the compounding, strategy and suppliers to you. It takes a while to get them to come in. They want to come in. Most of them, they want to come in and see, especially the IDNs, they want to come and inspect you themselves, even if you have an FDA inspection and pharmacy inspection and all that. It does take time to grow the clientele. It does take time to grow the system, and the confidence is still the same. We think that this business is a good business, very complimentary. We know it very well. We know how to do it very well. We just need to also get the confidence of the customers there.
I think the interest is not any less than it used to be.
Yeah. The compounding will do very well. We're very, very comfortable with that. you know, it's just a question of time. Unfortunately, two of the big states, California and which New York, New York, still have not been, and they are the biggest. To be successful, you need to have all the states giving you. We're comfortable with that. Biosimilars, it's, it, you know, as Riad said, it's really the market is split, but it's consolidating. Many are getting out selling, and others are buying. We've actually been following very, very closely. We've been working with partners like McKinsey and others to, you know, gather as much intel about the compa- because about that. Because there will be opportunities, there will be companies up for sale, there will be portfolio for sale. There might be opportunities in the future.
I said, we're really monitoring very, very closely, trying to gather as much information, seeing what's going to happen and so on. In the mean, obviously, we're doing very, very well with the biosimilars. As you said before, the, the, the nice thing about what we've done is we haven't really sort of taken market share from the originator. We've expanded the market by doing better promotion, expanding promotion, and having much bigger access. Patients have a lot more access now to biosimilars, and they're being used much more actively. It's doing very, very well, very, very profitably, and we have a great partner there.
Thank you.
Peter from Citi. Forgive the question, but it's not often we have you here all around together. I mean, there's a clear strategy for on a group and divisional level, and you're executing on it. At the same time, Riad, you're taking the helm in a matter of a month, and, you know, every CEO wants to put his or her mark on the next chapter. Just any early thoughts as to, you know, how you're thinking, where your, where your focus is gonna be, what you might do? I'm not saying anything needs to be done differently, but you want... How are you gonna make your mark, and where do you think your areas of focus will be? Thank you.
Well, I mean, the good thing about it is I'm, I've been in the company for quite some time, and the strategy of the company, I was part of the strategy of the company for all this time.
Ask him this, and I'm not around. Embarrassing the guy.
No, seriously, I do think that we have a great strategy. I think we can do better, maybe on execution. I think there's always room to, to improve. There's always room to get to the nitty-gritty things, and, and I think that's what we want to concentrate on, maybe more tactically, how we can improve to implement the strategy faster. As far as the direction and what the strategy is, I'm, I'm not sure there's a big difference there.
Sorry, it's Victoria Lambert again from Berenberg. On a similar note, last year, last year, you guys were talking about maybe selling off the generics part of the business. Now, you know, things are improving there, so what is your, like, feeling or view on what you're gonna do with the generics business? Is it, yeah.
As you know, as we explained many times before, we feel that we have some really strong advantages over other manufacturers. For instance, we feel the CMO is going to be a big part of the business. We're already over 100 or something.
15, 15%, yeah, almost.
Yeah, we're already, I mean, it's already a big part, part of the business. We are securing new contracts. We are being visited by a lot of potential clients. It's, you know, when you want to move a product from one company to the other, as you know, it takes a year and a half to do that. There are contracts in place, and we are trying to implement them, getting them done. It is a business that will grow, and it will create less cyclicality. It will help balance. The other thing we've said that we're working very hard to grow the specialty business, which will also will create less cyclicality. The generics themselves, you know, we always have to remind ourselves that 80% or more of what's prescribed and used in the U.S. is generic.
They are not gonna go away. They're not gonna disappear. It's who's going to be left standing and who's not? We've seen a lot of the American competition exit the market. They've taken decisions to exit the generic market. A lot of the India competition decided to concentrate on India. They, they're finding that India is more profitable for them. I, I think that we have done a great job of, of navigating even in the most difficult year, which was last year, we still ended up doing, you know, mid-teen EBIT. Good, I think among the best margins in the industry, and we've shown that this year we're able to come back. It, it is so far, it is a business that will stay strategically part of, of the group.
I think to add to that, this is a business that service the U.S., and it is made in the U.S. It has an incredible quality record all these years. It makes critical products. As you all read the news, and I think, the local manufacturing in the U.S. is something that the U.S. wants to grow and wants to focus on and wants to help.
I think we are sitting in a very good spot to take a, take also advantage of that.
Thank you very much. Thibault Boutherin Morgan Stanley. Just in related to what you just said on the U.S. generics, just trying to understand, you know, your thinking about how pricing is going to evolve in the midterm, because so far we've seen these, these cycles of, you know, pricing, some pricing pressure and then, you know, improvements. Just wondering if there's something structural this time as we see companies go bankrupt, and you just mentioned some changes in the industry, or if you think ultimately, still we are still in a good phase of the price cycle today, and ultimately down the road, maybe two, three years, you, you think this, this, big pricing pressure could come back? My second question is on the U.S. injectables business.
Something, you know, we've been talking about for some time, do you think we are getting to a phase where we are going to see less losses of exclusivities from injectable products, and so maybe a bit less opportunities for you, or this is something you're not seeing on the midterm?
Go quickly on the generic, and Riad can pick up the injectable. As Riad said, it's funny, the government, Congress, the government are trying to address these... The FDA, everybody's trying to address these shortages and trying to understand why. Again, as Riad said, they're taking decision. Unfortunately, they still haven't, a lot of these are due to, you know, pricing pressures. The FDA, when, you know, when we did the DUFR, instead of approving new products, they approved more and more of the same products. Then suddenly you had 10 competitors, and the price just get... What happened is, at many attendees, they said, "You know, this is weird.
We were gonna do that." I think that the buyers themselves have also realized that by squeezing and creating, being a big part of the creation of the shortages, the buyers themselves, they know that they're losing out also. We see more tendency to work more long term, to try to make, you know, longer term contracts and so on. I think we will continue to see some prices go down, some prices go up, but overall, the really cuts that we saw last year, I think, I don't think we'll see again. Prices will stabilize, and we just have to realize, if I can do this at this price comfortably and successfully, we can go on.
I think as we increase our outputs, as we do more manufacturing, whether, you know, contract manufacturing or for our own, as we increase our portfolio and so on, we will bring our prices down and become more competitive. We've really learned how to thrive in, in a really cutthroat market, but we learn to, to thrive in it, and I think we, we do it very, very well. In addition, I think there will be benefits to it being made in America. We're probably one of the very, very few that are still doing it in America, doing it profitably because the others went bankrupt. We're still doing it profitably. We're still doing it well. We've talked a lot about our track record when it comes to the FDA.
The FDA uses our facilities as training grounds, for their, their own inspectors. With, you know, high quality, excellent track record, still doing it very profitably, I think we, we will be one of, you know, the companies that will continue to be, as you say, last man standing or last company standing, we will be there.
In terms of the injectables, you know, this is not recent. Exclusivity has been definitely reduced to, to very minimal now. It's, it's not a big benefit anymore as it used to be. you know, I remember at the time when, 20 years ago, when, you know, the Ben Venue and the likes, they would have 10, 15 products on exclusivity basis, and they make a lot of money off that. This time has, has gone for many reasons. The biggest reason is the branded company are defending those very, very well. They, you know, by the time you get the exclusivity, it's, it's pretty much the channels are all filled. There's sometimes also there's a generic also on the market.
I think we never depended on this route, although we have few. This year we have one. It's not a really a big, big boost for us. I think what we depend on is the number of launches that we have and the quality of the products that we are developing. This year, we already have 11, 12 approvals so far.
... and they are quality products, although they always start slow, as Tarek is mentioning, those are a little bit different than the conventional me-too type of product. They're piece of syringes, a lot of them are bags, a lot of them are 505(b)(2) , so it takes some time for that to pick up. This is what we're focusing on. We're focusing on quality development, something that we call NTEs, and it's a bit more, new to the market. I think this is what we feel that our growth is going to be, developing those, specialty products, rather than just waiting for an exclusivity that we can get for 6 months, and the product goes away.
Hi, Christian Glennie with Stifel. Following up on generic Xyrem, can you give us a bit more insight or flavor in terms of market shares that you had in the first half and how you see that evolving in the second half? You seem to be saying that you've seen one entrant, not other generic entrants so far, but I think you previously mentioned about four were lined up. Any particular reasons why, you know, there's some technical reasons why those other entrants might not come in in the second half?
In terms of Xyrem, I think the consensus had like $100 million in sales for Xyrem for the full year, probably $70 million coming in the first half. I would say probably we are guiding towards higher than this. We are not giving any specific, usually, specific related guidance on certain products. But all what I can say that it's the first six months were in line with what we had guided or the consensus has with a high margin. The second half is going to be probably in terms of sales similar to or higher than what we've what the market or consensus has, with a royalty, I would say. Anything else in terms-
Yeah, I mean.
In terms of the other potential launches, the competition.
Yeah. We were the only AG that didn't have any market share constraints. The other potential AGs to come in had some market share constraints. Only one of them so far has launched. We, with, you know, they have the opportunity to only to take limited volumes. We've been very happy with the market share that we've taken. It took us a couple of months to ramp that up, now we're very happy with, you know, with how the sales are going.
We haven't disclosed a lot in terms of, you know, what our market share is, or, you know, we're not gonna disclose the revenue by product, but we are comfortable that we can continue to sell and, you know, at around the same levels that we are at the moment. We feel that we should have a good contribution from this product in the second half, albeit at a lower lower margin due to the higher royalties.
Okay, thank you. In terms of the talk about exclusivity periods, on the generic side, is there anything in the pipeline that could be a significant product in the, say, next 2 years with an exclusivity period?
Say that our, our team has been actively looking into how to bring specialty or complex products in the market. There are certain plans, but nothing I, I would say we can now explicitly talk about. Yes, there are some that we are working on, and we know that it's, there are a few products that will come in the future.
We also took the opportunity this year, having such a good year, such a great opportunity with Xyrem, we wanted to take the opportunity to leverage some of the benefit of that to invest back into the pipeline. That's why the margins in the second half of the year will be lower, because we're gonna meaningfully increase our investment in R&D in the second half of the year. That's, you know, it's a great opportunity having the results that we are achieving this year to be able to enhance the pipeline.
Ladies and gentlemen, if you join us by the phone lines and would like to ask a question, please press star one on your telephone keypad. That's star one on your telephone keypad. Our first question comes from James Vane-Tempest from Jefferies. James, please go ahead.
Hi, good morning. Thanks for taking my questions. Just a couple on the branded, please. Sudan, you've taken an impact to this business. Despite its small scale, it seems to have an impact every period. Given you've written this down, can we assume that it's gonna be interim impact? Second question is just on the gross profit in branded. I mean, margin of more than 53% last time, this level was 2009 or so. I know you mentioned some high margin payments, is this kind of really one-off, or should we think about a potentially new era of profitability in this business? Related to that obviously, you've done very well in profit in that business. What would it be you would see approaching your guidance and constant towards brand across? Thank you.
What's the first question? I did not-
Sudan, should we expect no future impact on Sudan?
Yeah. S- Sudan, Sudan, I would say, uh, thank you, James. Sudan, uh, uh, it has more sales, especially in the second half of last year, and now we don't expect to have sales in, in, in, in this year. We assume no sales for Sudan.... Now, is it a market that we are not going to continue to sell? We don't know at the moment. Usually, in certain situations in the past, you would continue to sell medicine, but maybe the business model would shift more towards selling either directly to government or sell directly to certain distributors. I don't think that will be operational, even if the, the war stops today, it's going to take one or two years to come back, uh, to operation.
This is why we are saying we are halting our decision to operate till we have a better view on what will be next. Could be a need for our medicine, of course, but it's not assumed in our guidance. In terms of the gross margin, as I mentioned earlier, we had- you have to assume that you take out approximately $50 million from the first half, put them in the second half, margin will be almost similar, gross margin. There's a, I would say, benefit as a result of the scale or that, that we have seen in the first half.
We've guided to say that our sales and profitability in line with last year and on a reported basis, because of the impact of Sudan, Egypt. We've done and we are doing very well in constant currency. I would just want to highlight and repeat, it's the impact of Egypt alone is around $50 million in sales, and the impact of Sudan is over $50 million. Total, we are able to compensate over $100 million, and we are maintaining our guidance. Is there anything about that?
I didn't understand.
Anything else, James?
I didn't quite catch the answer on profitability.
Can, can, can you repeat that question on profitability?
Yeah, sure. The gross margins were north of 53%, I think. Just to help us kind of understand the push and take factors there, is this a newer profitability for that segment? Sorry, if you answered it, and I missed it.
I would say there's no change to the historical profitability levels that we've seen. It's just phasing out some of the sales from one half to the other half.
Okay, thank you.
Our next question comes from Harry Sherebrandon from Credit Suisse. Harry, your line is now open. Please proceed.
Brilliant. Thank you very much for taking my question. My first one's on the U.S. injectables first half performance. You talked about increasing competition, but if you look at the organic growth within the first half, and you take out the Custopharm annualized benefit, it looks like you had an organic decline there. Can you maybe just touch on where you're seeing the competition coming from? I think we're anticipating there'll probably be a few tailwinds from some of the import bans we had from Indian generic suppliers last year. My second question is on the strong MENA injectables performance. Last year, we saw there was a very strong weighting to the second half of the year.
With the performance being so strong in the first half of this year, is there a similar dynamic to what we've seen in branded, where there's a timing of tender contribution? Actually, this year, you might expect a more even weighting from what the first half to the second half for 2023. Just my third question is an update on the contribution from your specialty portfolio, so Kloxxado and Ryaltris. I haven't seen any further detail provided in the results, so it'd be interesting to get an update on the performance of those products. Thank you.
If I start with the injectables, I think, yes, in the US sales, yes, injectables, you can see that year on year, maybe it's a little bit softer, although there is a growth of about 5%. We've had... Yes, we have some competition. Pfizer was one of them that was competing with us on the controlled substances. You know, our price difference is, is, is dramatic there. You know, the, the competition is, is hard to manage in a, in a way. You know, the other products also, the product mix is very important here, and, and we've seen it. Also, I think, from the volume point of view, which is, also important, we haven't seen that. We've seen a pickup in demand.
We actually are trying to build capacity as much as possible to respond to that demand. There's also demand in contract manufacturing, which we can do more of because of capacity, we're not being able to. Now that we have increased the capacity significantly in the liquid, we hope that we can pick up some of that one. You know, the, the, I, I don't think it's dramatic. I think it's just depending on the period, it's depending on the product mix. I think the profitability in a way, considering that the injectable is financing the compounding business without getting any benefit from it yet, considering there's some disbenefit, Sudan is one, disbenefit of the euro, which was also significantly there.
We had a lot of also headwinds that we had to manage, and coming up with a mid-thirties results and a growth of 5%, I think it's.
Are you seeing competition from India? I think one of the worst parts of it. Is it more five? It's hard to say. When you say from India, is the product made in India or does it come Indian companies? It's very mixed now. They come from all over. I think in India, you can see some competition, and you can also see some opportunities. You know, Sun has given us some opportunity because of the problems that they are in. On the other hand, also, we have Chinese now that they have finished goods that are coming in. Companies like Shiro, for example, have been coming into the U.S. now, and some of them, they've taken over some of the products that we had. Competition comes and goes.
I think our size is big, our portfolio is growing. We are at 150 now and more. We introduced already 9 this year, and we're planning to introduce more. I don't think it's any specific where it's coming from. It's coming from all angles, and we just have to be ready to. I just want to reiterate what Riad just mentioned, that our guidance assumes that there will be some softening in the first half for some of the US business. We knew, and this is why we've guided towards 36%-37% in margin. We knew that there are certain end factors that would impact the margin.
As Riad mentioned, as we are paying for investing in Dayton, which is costing some money, which affects the margin by almost 1% point. At the same time, Sudan has its sales close to $20 million, which is no longer there, so it has some profitability for the injectable business. Euro. Euro, and, and for the full year, will have an impact on currency. It's, but it's never mentioned when we have gains. Last year, we had gains. This year, we are having a, a impact on margin, but it's, it affects as well 1% point. The fundamentals for this business still intact, one of the highest margin in the industry compared to our peers.
We always said that in the mid-30s, and if we have some, some opportunities, some capitalizing on certain shortages, it will go up to the higher than the 35%. Nothing has changed our expectation. It's. Everything is delivering in line with our expectations so far for the injectable business. At the same time, the more growth we have in Europe and in MENA, which has a lower margin than the US, it affects the margin in total for the injectable business. It dilutes a little bit the margin. Question. What's the other question? Sorry, is there any?
Sorry, yeah. The, the second question was on the, the MENA injectable performance. Last year, you saw it very much weighted to the second half of this year, sorry, the second half of last year. This year, are you expecting more even performance given the strong performance in the first half?
Yeah, I, I, I think we will see some, some phasing as well, similar to the branded business. We had a very solid growth in the first half, but MENA continues to grow, and it's in line with the guidance that we give, overall for the injectable business.
Sounds great. Then, sorry, the third question was on the, the specialty portfolio and whether you have an update on the rollout of Kloxxado and the launch of Ryaltris, and what that contributed to the performance in the generics business in the first half. Thanks.
Yeah. Both, both products are delivering in line. They are growing nicely. I would say Ryaltris, we are growing. We are seeing a growth in prescription, in, in... We have like, to convert this into dispensing is, is something that we are working on. There's an increased insurance coverage on, on, on it, so it's performing, I would say, in line with our expectation. We are seeing some good growth. It's, it takes, it's both. They are, I would say, now marketed as a brand product, so it takes a gradual increase in, in, in sales. Kloxxado is delivering, and we are seeing nicely, and we are seeing a month-on-month, a growth. It's, it's, it's delivering according to, to our expectation.
Brilliant. Thank you.
We currently have no further questions. I would like to hand over back to the room.
Okay, maybe kind of just following up on some of the comments, Susan, that you made on Xyrem. You talked about kind of taking a couple of months to scale up volume, and at the Q1 trading update, the commentary was that everything with Xyrem was going according to expectations. Obviously, you know, quarter way ahead of the guide, guidance raised for generics. What's the bigger driver, the continued revenue expectations for Xyrem or more of the base business performing better? Both?
Yeah. I think, I think, definitely the better than expected.
You want to talk to him.
The better than, the better than expected growth that we saw in the first half, we would attribute to the base business and not, and not to Xyrem. Xyrem came in pretty much bang in line with what we expected. We were cautious as to the outlook for Xyrem for the second half of the year because of the potential for other AGs to come into the market. We now feel a bit more comfortable with the potential to continue to deliver some good- to achieve some good revenues from that product in the second half. I would say primarily the upgrade at this stage is because we expect to have a better contribution from Xyrem in the second half of the year. There's a little bit from the continued benefit from, from the base business.
We're going to see you again Friday now or no? You're going to keep coming. Of course, you're gonna see me. I'm not gonna disappear. He needs me. Thank you, everybody. Thank you. Thank you. Thank you. Thank you.
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.