So good morning, everyone, and welcome. Welcome in a way to Hikma's first half investor call. As you know, today, we will not be giving a presentation on this call as we posted it on our website at 8:00 A.M. this morning. So here today is myself, Siggi Olafsson, CEO of Hikma Pharmaceuticals, and with me is Khalid Nabilsi, the CFO of Hikma. So we will be answering questions throughout the call. I just need to read the Zoom ethics, how you ask the questions. So if you would like to ask a question, please use the Raise Your Hand option on Zoom, which you will find at the bottom of the screen, showing the participants. And the host will unmute you, and you can ask your question. If you dialed in from a phone, you can press star nine.
So with that, I just want to say we are very pleased with the results. A good start to the year. All three businesses performed above our expectation at the beginning of the year. Many ins and outs, but why don't we start with questions? Happy to take anyone. Who, who wants to be first?
We have a first question from someone on the phone, so I'm just gonna unmute you. Please ask your question.
Perfect. Thank you very much. It's Patrick Wood at Bank of America. I'll keep it just to two so that everyone gets a chance. Maybe the first one, you know, you guys obviously talked a lot about increased complexity in terms of the, the types of areas you wanna compete in, in injectables and generics and whether form factor or, or anything else. I'm just curious how we should think about that from a margin and a mix, outlook for those businesses over time, and how that will change the business going forward in terms of moving to more complex products. And then maybe just quickly on the second one, have you seen... You know, in your discussions with customers, obviously, there's a lot of chat, and we talked about this, I think, last time, about onshoring and things like that.
Have you noticed any discussions with your customers showing a preference for, let's say, in the U.S., domestically produced products? Are you seeing that actually translate into real discussions with your customers at this stage? Thanks.
Thanks for that. So if we start on the complexity, I think overall, I think the natural part of the complexity is that the more complex products you have, the fewer competitors you have in the market, which should, in a way, in the business model, lead to a breadth of gross margin. Also, at the same time, more complex products are more expensive in development. I probably don't need to remind any of you of our development of generic Adderall, where our second phase three study cost approximately $40 million. But also, as we talk about generic Adderall, there's still only one generic on the market, and we estimate to be the second one on the market. So overall, I think over time, this takes time.
The time from when we initiate an R&D on a complex product until approval is, you know, 3+ years as a minimum. So it takes time to impact the overall gross margin with this, but that's the ultimate goal. That's what we are working towards in terms of the viability of our margin. The stability of the margin is to increase the complex products, both on injectables and U.S. generics. In the branded world, we are doing a lot more of in-licensing of innovative product, and we mentioned the Sun Pharma in-licensing of Ilumya earlier this year. So it's all basically focused on our underlying strategy. More complex products gives us more stable gross margin and profitability.
In terms of the feedback from customers on onshoring and the preference for U.S. domestic manufacturer, it probably is not at that level yet, but what we saw through COVID is the importance of having a secured supply. And I have mentioned it to most, if not all of you, that on the injectable side and somewhat more on special products on the generic side, this has led to a less of a price erosion because the cost to our customers not to have the product available versus a few cents on a bottle is very important. And we saw that now in the injectables. We talked about that the pricing environment for the injectables in first half was more stable than we expected. And part of that is because the customers are looking for a secure supply.
As of today, I don't know if you looked it up, but I looked it up this morning. There are 114 injectables that are in shortages in the U.S., so that always leads to this issue. I think, obviously, by us having an injectable manufacturing in Cherry Hill, which is very flexible. And I give you one example: During COVID, we were in constant conversation with the GPOs, with the hospitals, with the hospital pharmacists around the protocols and what drugs they needed. So even before we got the orders from the customers, we knew where we should manufacture next. These protocols have changed since then. What was most being used in March and April is not the same drugs that are being used today to treat COVID patients in the U.S.
But by having a manufacturing plant in Cherry Hill with a good customer service has allowed us the flexibility. So it's not the political aspect on U.S. domestic manufacturing, but it's more around the flexibility and the security of the supply.
... Super. Thank you. And for the record, I love the prerecorded notes at the start. I think I wish more of my companies did that. Thanks, guys.
Thanks.
Our next question is from James Green, Kempen & Co. James, please go ahead and ask your question.
You're on mute, James.
James, yeah.
You, you've unmuted me now, have you?
Yeah, you're good now.
Great. Thanks for taking my questions. I'll just have two as well, please. You mentioned, I think your guidance says 5%-7% price erosion. At least kind of looking at some of the, the analysis of the NADAC database, it looks as if it's probably low single digit to kind of flat. So I'm just curious why you still think that's kind of more mid-single digit analysis. And then secondly, I guess the executive order signed overnight for essential medicines. Just wondering how much of those are produced in the US versus Portugal, and what you produce in MENA to export to the US. Thank you.
Yeah. So around the U.S. generics, you're right. So our experience in the first half, we saw a price erosion, probably between 1%-3% on our U.S. generic business. So low single-digit price erosion. The reason, basically, we maintain our guidance on the overall price erosion is twofold. First of all, the experience from last year. Remember, exactly a year ago, you and I sat face-to-face, you know, in person even, and we had the same. We had a 3% price erosion in first half of 2019. The second half of the year, we saw a much broader price erosion, so we ended the year between 5%-6% price erosion for 2019. There's nothing in the card that couldn't happen now, especially if the COVID goes down, if the—if there will be more regular environment.
So that's the main reason why we think that also if you get more competition on our key products and things like that. So I think it's a reasonable thing based on our experience from 2019, that this is not unreasonable estimation. We hope for better numbers, but this is exactly what we saw pre- in the previous year. Around the executive order that was signed last night in Ohio, I think, you know, outside of the politics, we are extremely well positioned to supply products in the U.S. We have a large manufacturing plant in Cherry Hill for injectables, where we manufactured about two... We can manufacture around 250 million units, and we can manufacture more, but that's what we are manufacturing there on a yearly basis.
Of the products where I've been saying we have been supplying the market, 11 out of the 13 products that were used for patients on ventilators in March and April, all of them were manufactured in Cherry Hill, as an example. So they were not. There's still important products coming in from Portugal. A lot of the lyophilized products come in from Portugal because that is our expertise there. And going forward, we just opened Hikma 4 in Portugal, which is opportunity to expand our oncology portfolio, which would come outside of the U.S. But in terms of the emergency medicine, a lot of them are manufactured in the Cherry Hill. And in terms of the generics, our plant in Columbus manufacture approximately over 90% of all our volume in generics.
So, we are very well set outside of any politics around this. I think Hikma, due to our investment, both in Columbus and Cherry Hill, we are extremely well set around supplying products to the U.S. market from U.S. manufacturing site.
Our next question is from Pete Verdult. Pete, I've just unmuted you, so please go ahead and ask your question.
Yeah. Can you hear me?
Yep.
Yeah.
Great. Great. So hi, I'm Pete here from Citi. Just a few questions, and some you won't be surprised by. Just on Advair, we're now in August. You've been very consistent with your messaging since last year, that you hope for an approval in H2. Just wondering why you haven't been able to refine it a little bit now that we are hopefully close to the end game. So I just wanted you to characterize your discussions and maybe refine when you think we might get a decision on Advair. Secondly, the balance sheet, in terms of... The last few times we've got together, you've talked about the fourth leg, be it biosimilars or specialty, just updated thoughts there on the environment to do something interesting with the balance sheet. And then lastly, just some product-specific questions.
Naloxone spray, Rialtris, you know, when the Insys products that you, that you acquired, when could they start actually hitting the market and making an impact to, to the PNL? Thank you.
So thanks, Pete. So on generic Advair, the first thing to say, which many, many analysts and investors ask is: Is the FDA really reviewing dossiers at the moment? Don't they have bigger fish to fry in terms of vaccines and treatment of COVID? So we have worked very closely with the FDA. There is nothing that indicates that COVID is delaying the review of our dossiers. In terms of where the review stands, there's nothing outstanding on us. We are just waiting for a feedback, further questions from the FDA, if they will come. We feel as comfortable as before in the second half approval of this product. I still think there is a significant need in the market and opportunity for this product. So really, you-...
You know, in your interactions with the FDA, the FDA will never tell you what they are doing. They're doing their review. It's in many different divisions, obviously, because this is a complex generic product. They call for consult from different departments within the FDA, which makes everything a little bit more complex in finalizing the review. But overall, there's no indication there should be a delay in any way or form. But also, I don't have any confirmation from the agency when I should expect the approval. So that's why we are maintaining our view. Nothing has changed our view of second half approval for this product. In terms of the balance sheet, as you rightly said, you know, we have been doing well on the balance sheet.
Clearly, you know, we have the strong cash flow in the first half of $292 million. Our net debt to EBITDA is at 0.8 times at the moment, even after we bought the part of the shares from BI. So I think the balance sheet is in pristine position. I think also at the same time, M&A, I think due to COVID, there was a little bit of a delay in M&A. I want to say we are exploring so many opportunities, but it is... I think people are waiting a little bit, what's happening.
Many of the specialty assets are, I think the because of impact of COVID on specialty assets that needs to be promoted, many of the companies that were considering divesting those, have put those on hold to see when the COVID lifts, if there will be a lift in the revenue. So we see that a little bit in the market. But overall, as I said, we explore. We are not sitting just on thinking about the balance sheet, we are exploring. But also, I remind you, Pete, the issue for us is we are showing organic growth between 2017, 2018, 2018 and 2019, and now 2019 into the new guidance on 2020. So there is no desperation of having to do a transaction, but also, if the right transaction would come, we wouldn't hesitate to move forward.
We have a very great support from our board of directors. We have finished all the integration that needed to be on Roxane. You can see the operating profit on our generic business is maintained to be in the 19s, you know, 19.5% in the first half, which I think is a reflection of the integration that we have done there. But also at the same time, there's a tiny bit of delay due to COVID, but you know, clearly an opportunity, and we are ready to go if we identify the right opportunity. In terms of the different products, I think with naloxone, remember that came from Insys.
That was a submitted dossiers when we bought it, but what we had to do is, we had to take down the Insys manufacturing line in Texas, move it to Columbus, Ohio, rebuild it there, and then manufacture 3 batches to revalidate a new stability. So we have submitted that all to the FDA. So we will obviously get a new action date on that sometime for next year, so we need to see on that. On Rialtris, that review is ongoing. We don't know the exact date. And in terms of maybe the last one is the development of epinephrine nasal spray. We haven't kicked off phase 3. We are currently; we have submitted a consultation document to the FDA around the design of our phase 3 study.
That's where we are on the epinephrine. Epinephrine has some way to go before it would come to the market, but naloxone and Rialtris are basically the product that we are focusing on following up with at the FDA level.
All right, next question is from James Gordon. James, I've just unmuted you, so please go ahead and ask your question.
Hello, hope you hear me. James Gordon from JPMorgan. It was just a question about injectables. So, well, the guidance implies quite a slowdown in the second half. I think injectables growing about 4%, and the growth was pretty healthy in the first half. You've helpfully given us a chart that shows what it looks like quarterly in the first half. But can you talk about what the exit rate, what the exit growth rate was for injectables? And how much has it really slowed towards the end of Q2 that might explain why HG is going to be so much slower than H1? And I know you're doing some contract manufacturing for Gilead. The guidance would seem to imply that that's not really gonna make much of a contribution if I look at the implied slowdown.
So is that gonna be very material? Can you give us any commentary that might help us try to model that opportunity, please?
Yeah. So, James, so if I just take you through the first six months of the year on the injectables, I think that's on the demand. So we had a regular demand in January into middle of February. By the end of February, we felt that the hospital started to build a little bit of an inventory. Then in March, clearly, that was when we had the biggest demands from the hospitals and everybody on the injectable portfolio, especially on the emergency product. That was very much the case into early April. And then from early April, I think many of the hospitals, they started to bleed down the inventory, the extra inventory on injectables. Also, the protocols on treatment changed, you know, when you came to the end of April and early May, of COVID patients.
So the treatment changed at that point in time. We saw May and June, a relatively slow demand, but not at all dead. And we felt at that point in time, and at the end of the first six months, we feel that there are regular inventory levels at our customers, so there's no extra inventory. Anything that was bought extra in March and April have bled out by the end of the first half. So there was a little bit of a movement. The issue is that the elective surgeries went from being regular in January and February to nonexistent in March and April, and they are very slowly coming back. So the elective surgeries in the U.S., we have that in one of our slides.
There's still about just over half of them back on track, and it's different between different states. In our guidance, we estimate really the elective surgeries, which is the key to our base business, will not come back as we saw it in 2019 until just before the end of the year. That's the reason for the softer second half of the year. We don't build any COVID second wave in a way, and we assume that the elective surgeries really don't come back on track.
If you think, obviously, the contract manufacturing for Gilead, I think is a reflection of the trust in our quality, in the investment that we have made in Portugal, and obviously, the due diligence Gilead has done on us to trust us to do this manufacturing. We don't talk about any numbers. Everything is confidential around this. But just to help you put it into perspective, so we delivered 42% operating margin in the first half of the year. We are guiding 38%-40% for the full year, which means the second half of the year is 36%-38%. Very crude mathematics, I know, but, you know, just for the sake of argument. Which means that we are estimating that the second half of the year is at the operating profit we assumed at the beginning of the year.
So basically, we are assuming with the CMO, with a slowdown in elective surgeries, but with the new launches, we have 6 new launches in the injectables, and we are on track to deliver 10-15, as we guided for the year. With those positives, plus the contract manufacturing, we feel that we can deliver, even with the soft elective surgeries, what we started the guidance with, with 36%-38%, delivering a full year operating profit, 38%-40%. So I hope that helps you a little bit to put it into perspective, how we think about it, first half versus second half.
Thank you.
Our next question is from Thibault. Thibault, I've just unmuted you, so please go ahead and ask your question.
Thank you very much. I have a few questions on the generic Vascepa. According to Amarin, the oral hearing is starting on the second of September. So I just wanted to know if you had any comment to make in terms of likelihood for the decision to be reversed in the appeal court? Then, obviously, if the oral hearing is starting in September, there is a possibility to have an outcome for this appeal by the end of the year. So would you be ready to launch at that time if you win the appeal? And then on the results, a few days ago, Amarin made some comments around the fact that they don't believe generic makers have the supply to virtually get into the market.
So if you could comment on your ability to supply from day one when you decide to launch. And then last, lastly, still on Vascepa, Amarin said that it took them a few years to ramp up their operating margin from the kind of low 50s to 80%. So just want to know if you can comment on your expectation in terms of margin ramp for this product. And are you sharing any supplier with Vascepa, with Amarin in terms of the kind of active ingredient for this product? Thank you.
So I think, first of all, I'm a little bit different than the CEO of Amarin, so I don't comment on my expectation on the results of a judge. I think I'm not qualified in any way. I'm not a lawyer in any way. So for me to comment on that, I think would be highly inappropriate, to say the least. We're going to have the oral argument through phones on September second, and we expect that the results could come as early as fourth quarter, maybe more likely in first quarter of next year. Could be, at the latest, in second quarter of next year.
Also, it's interesting that the CEO of Amarin seems to know so much more than I do about the supply of the generics, and he also has a very deep understanding that we were surprised when, the, the outcome of the legal case in Nevada, which he also commented. So, so, I don't have the same understanding as he has. As I've said, I already have a supply ready to go to the market. If I would decide today, I could launch at risk, so we have a supply ready, to launch at risk. We are also building, the inventory to be able to take a fair market share in the market, but I'm not going to share with Amarin what my, my intended market share. That also depends on the other generics, if anyone else, Dr.
Reddy's or anyone will be approved before the decision by the appeals court. So overall, I think on operating margin, what I've said. We expect a little bit lower margin in the beginning. And we have been very open about that, but also we need to keep in mind that there is plenty of API suppliers today. When Amarin was originally developed this product, there was a limited supply, where today there's much more supply of the API than Amarin had in the beginning. So I think that is a very different situation. So but I can't comment on the thoughts that the CEO of Amarin has. It's just over and above my pay grade to do that.
Thank you very much.
Our next question is from Christian. Christian, I've unmuted you. Please go ahead.
Hi, guys. Can you hear me?
Yes.
Yeah.
Yeah. Thank you. Just a couple of follow-ups on generic Advair, if I can. Just to clarify, have you actually got a GDUFA date, a formal date as such? I know you're not sort of necessarily disclosing it, but is that part of the process, or is it just a decision expected as and when the FDA is completing their review? And then in terms of the opportunity, the market opportunity, any common observations you think, you know, Mylan, obviously, with Wockhardt's, you know, ramped up to about a third of the market, but flatlined for some time now at that sort of level. You've got authorized generic about 20%. So there's still a 50% branded market there.
Actually, recently, more recently, you know, volumes of the product overall have actually been going up in the first half of this year. Some of that obviously COVID-related. But just some thoughts there around that opportunity on generic, I think.
So Christian, on the generic Advair. So what the FDA gives us, they give us a range on GDUFA dates for products like this. And as I've said to our investors from the beginning, it's usually between 6-12 months, with the average around 9 months, 9-10 months. So that's exactly why we guided. So the 6 months started about a month ago, you know, so it's those ranges that we are relying on and have communicated. But the FDA gives you a range on dates. In terms of the market itself, so as you rightly pointed out, DSK has approximately 50+ market share in the U.S., and that is due to their contracting with the payers and the PBMs. That is a very expensive exercise.
It's expensive when you have one generic entrant, but it's a lot more expensive when you have the second generic entrant. So, you know, I can't foresee what DSK is going to do when we enter the market, but usually in a situation like this, there are some accounts that the brand company gives up because of the huge expenses to maintain, to keep the payers whole on when the second generic entrant comes to the market. So as I've said to everyone, I haven't been able and will not guide on our estimated market share of this product when we come in, simply because I think the biggest impact will be how much market share DSK wants to maintain. They can maintain it by paying to the PBMs, but how long are they willing to do it?
Because the strategy, I shouldn't be talking about the DSK strategy, but the strategy, which would make sense, is in with the first generic entrant, is to keep market share, also to move patient to a lifted portfolio. Now, that movement has stopped. So what's the benefit of maintaining a big market share? I doubt a little bit, but that will be the biggest impact on us when we enter the market, is how much market share DSK wants to maintain. And then, of course, as I've mentioned previously, I think it then comes down to our device versus the Mylan device, et cetera, et cetera, how we position it on the market.
You know, it's a very fair point, and I wouldn't expect to be much movement in market share, either until year-end, when you renew the contracts with the PBMs or when we come to the market. I think it will be pretty flat just due to the how the PBMs have blocked the generics, because the generics are simply only available to 50% of the patients in the U.S.
Okay, thank you. A quick follow-up, if I may, on Remdesivir. If I read it rightly, is it fair to say that that opportunity is not necessarily in your guidance, your numbers, that that is more sort of a potential upside, depending on how that plays out? And is there a risk, obviously, come back to the executive order, it's, you know, it's being made in Portugal, is there a risk that maybe that doesn't actually happen given that executive order?
No. So, basically, we have built a little bit into our guidance. So, part of it is in our guidance for sure. I think obviously the opportunity will depend on the COVID, how much COVID will be. It will be built on Gilead's sales themselves. So, but I think the executive orders are more around the essential medicines. If there's a shortage on a life-saving medicine, I don't think Portugal matters in that field at all. But overall, we have built some into our guidance, but the opportunity is for Gilead to answer what is the opportunity for the product, because we are simply the contract manufacturer and deliver to Gilead the product to be supplied to the market.
... Okay, great. That, that's helpful. Thanks.
Our next question is from Paul. Please go ahead and ask your question.
Paul, you need to be unmuted. There we are.
There we go. Got it in the end. Just focusing on capital allocation, given your very strong balance sheet position, and especially, the expansion of European injectables into broader markets, I wonder, given your success when you have domestic manufacturing, whether that's gonna influence, the strategy for those, larger European markets? And secondly, on MENA, and again, building on the success of biosimilars, I wonder whether more in licensing of biologics is something that is sort of increasingly being prioritized.
Yeah. So I think in terms of capital allocation, we always—and this really has been the strength of Hikma, and I will hand it over to Khalid a little bit later about this. But we have invested in our manufacturing capacity and capabilities in a way ahead of the curve. I think Hikma Four speaks highly about that. We have lyophilization in that plant, which helps us now to be able to take on a manufacturing like for Gilead on Remdesivir, which is needed to be lyophilized. So we always have maintained that we want to be ahead of the curve. Our guidance, remember, for the full year on CapEx, is $120 million-$140 million.
We are a little bit behind, we just simply due to COVID. It is not that we are trying to save money, it's we are behind because in some countries you simply cannot do constructions or order equipments. So we are still maintaining that guidance because we really, in a way, we really want to spend that money, but we, our estimation now is we probably will be at the low end of that CapEx guidance. But you're right, I think there's one thing is to invest in capacity, the capabilities. We want to do it, obviously, in the U.S., where we have been emphasizing in Cherry Hill and Columbus, but we also see the opportunities in other markets.
And we see that now, even in some MENA markets, where we are seriously considering maybe if we should put a high quality injectable plants to serve, to service the MENA market, which would help us in Portugal, because we are exporting a lot from Portugal to MENA. That would also release some capacity that would allow us to use Portugal more for the European market. So there's a constant opportunity. The good thing about Hikma is we have been ahead of the curve in doing this. Obviously, the increase in demand now showed us that we are well set, but if this continues, we clearly need to build ahead of the curve. In terms of the biosimilar, so first of all, biosimilars in MENA did very well. The injectable business in MENA overall did extremely well.
A growth in the 20s, which, you know, is very good. We had a great performance in Saudi Arabia for injectables. You know, I think in one of the notes I was reading, there was a concern that oil price might impact our sale in Saudi Arabia and Algeria. Really, it is, as I've highlighted to you before, it only has to do with maybe the governmental hospital tenders, if anything, and it's more the size of the tenders, but during pandemic, that hasn't affected us at all. But the biosimilars in MENA have been doing very well. They even have performed because my...
Not a concern, but I looked out if basically the sale would delay due to COVID, because we are talking about Remicade or biosimilar of Remicade, our Remsima, which needs to be delivered in an infusion center or a nursing home or by a doctor, so it's not as easy as Humira. So it could be easily seen during COVID, where elective surgeries are not happening, that people wouldn't get their infusion. But we really saw a steady market share of Remsima during the first half. In terms of further opportunities, so we have six more products with Celltrion, where we have a first right for MENA. In terms of other markets, we have been exploring the U.S. market. A year ago, I was quite negative on biosimilars in the U.S.
I think the experience, what we have seen now, I think the biosimilar of Herceptin, the biosimilars of rituximab that have come out, I think Teva's done a good job, I think Coherus has done a good job. So Amylin is also coming to the market. I feel I'm a little bit more optimistic on the biosimilar market. It's a long-term play. It's our long-term strategy, what to do. You cannot go into every therapeutic area. You need to be focused. You cannot treat this like a generic, so you take everything going off patent in the next five years. You have to think what therapeutic area you want to build up as an expertise.
But I'm much more positive on the opportunity of biosimilars in the U.S. than I've been before, and we have had a really good experience from the MENA markets.
Thank you.
Our next question is from Casey. Casey, I've unmuted you. Please go ahead.
... Thank you. I have three questions, please. The first one, it might be a bit early to talk about 2021, but if you could frame the moving parts for the injectables portfolio in 2021, and if you think you will still be able to grow the business in 2021? The second one, on Zortress and Afinitor, clearly, they're doing really, really well. But how should we think about additional generic competition? Do you expect this to be a 3-5-player market in 2021, or do you think there would be a higher number of players there? The third one, it's interesting you talk about CMO opportunities. Do you see Hikma playing in the CMO space for vaccines as well? Because we have seen a couple of fill and finish contracts being awarded to CMOs.
Have you considered them, and do you have the capacity to undertake such an exercise? Thank you.
So Casey, thanks for that. So, I think if we start to talk about 2021, I was quite proud I could guide you to the second half of 2020, based on all the uncertainty in the market. So, I have so little visibility into 2021. I think what you need to think. Before COVID hit, I think the consensus amongst the people on this call, you were roughly at $980 million. Now, I think that's how you need to think about it, is what's the impact of COVID, how you think about the overall business, but I really cannot help you. I think we still have a pipeline.
We still estimate we will launch 10-15 products, but due to all the moving parts, especially down to COVID, when the elective surgeries will kick in again, which are very important to our business, that is really what's hindering me in giving you... And I wouldn't anyway guide you to 2021 at this call. But think about it, I think start by how would the business look like without COVID, and obviously growing from there with the new launches, et cetera, like we have seen over the last few years, if that helps, a little bit. In terms of Zortress and Afinitor, clearly, these have been a good opportunity. I think in Zortress, they-- we are alone on the market. We have launched three out of the four strengths.
There are two other companies that have filed, but they haven't received approval. We haven't seen anyone else. Obviously, now the patent is gone, so there could be somebody filing a Paragraph III, but at the moment, there's two pending approval on that. And on Afinitor, also there, there have been, we have launched 3 out of the 4 strengths. And there, I think there is more competition, because that's simply a bigger product. So overall, this has been a good launch. I think this also highlights that the FDA continued to approve products during COVID. We launched these two very important product during COVID, and we were able, I think, to do that quite successfully. So at the moment, on Zortress, we are exclusive, but it's not due to any 180 days exclusivity.
It's simply because nobody else has received approval, and we expect, you know, that the two filers that also challenged the patent, they could get approval at any time. So that, that's a little bit our thinking around that. Around CMO. So CMO has always been part of Hikma. We, we try to utilize the extra capacity that we have, to contract manufacture. We are very much sought after as a space because there's so much volume that goes through our plant. We are inspected nearly every year by, by, the most significant regulatory agencies, and we supply a lot of volume to the market. So we are very sought after as a CMO. We don't proceed to be a CMO for vaccine. We simply, are not in that field. We haven't, we haven't, wanted to go into the fill and finish of vaccine.
I think there are other companies that are better suited for that. On the other hand, we have done a fair bit of... As you remember, we have done it also in solid oral. When we did the Roxane acquisition in 2016, we have been a partner of BI over some period of time, and also especially now, we see it on the injectable side, it's a very sought after. But we also want to be careful. We don't want to hurt our own business. So the priority, obviously, is always to our own business, to maintain the supply in the market, to be able to supply to the patients, the drugs that we have developed and are manufacturing.
If we have extra capacity, we are more than happy to utilize that for any contract manufacturing, but it will never be the core of the business, but we are also more than happy to utilize our investment by taking in the ride, which fits our technology capabilities, and capacity.
Thank you, Siggi. If I could squeeze in a follow-up. On Boehringer Ingelheim, you have a supply agreement with them. If you could just briefly tell us if that is linked to BI owning a stake in Hikma, or how should we think about that part of the business? It's not massive, but in case it changes anything. Thank you.
No, it's a relatively small, but it's not linked to BI's shareholding in the company, so it's totally separate. So, but it's getting smaller and smaller, but it's not linked at all to the shareholding of Boehringer.
... Our next question is from Emily Field. Emily, I've just unmuted you. Please go ahead.
Hi. Kind of answered part of what I was gonna ask in the last question, but I was just kind of wondering, in context, in the context of overall injectables manufacturing capacity, how much of the total is sort of allocatable to CMO? And then how much of that is gonna be used for Remdesivir? And if you can give us any indication of how long you expect to be doing this for Gilead? Obviously, there's a lot of flux with potential other monoclonal antibodies coming down the road. And also, I think you made this clear, but it's a global supply agreement, and that you'll be supplying the U.S. and Europe.
Secondly, you know, there was a little bit of a bump in the scripts for dex, dexamethasone upon the publication of that study. Do you see sustained demand for that product for COVID patients in the back half of the year? And is that accreted to injectable margins? Because obviously, there's few competitors in that product. And then the last one is, as with this year, there's gonna be a lot of moving parts into 2021. Similarly, for kind of how you approached guidance for 2020 with Advair, with conditional guidance for Advair, do you expect that you would issue conditional guidance based on Vascepa for next year, like, i.e., with and without?
So Emily, a lot of good questions. So first of all, the allocation to CMO, it's minimum in terms of volume. You know, it's probably less than 5% of our overall volume. You know, it is tiny. For sure, less than 10%. I don't have the exact number, but we have partnership with, you know, 6, 7 companies, and our priority is always our own manufacturing. With regards to the volume and the tenure with Gilead, that is up to them. We are just servicing them, and if there is a sale for them and they need the supply from us, I'm sure they will come to us to supply them.
So we can't guide you on that, and any details around that, obviously, is a confidential information with Gilead. And in terms of the supply, that is the decision. Where the supply goes is the decision of Gilead, but the Portugal plant is approved for U.S., it's approved for Europe and for most European international markets, too. So the flexibility is to take the supply to the location where it's needed, but the decision is fully Gilead, where each vial would go. In terms of dexamethasone, we are one of few companies on the injectable side. We haven't seen a big pickup there, especially there's hardly any pickup in the first six months because the study just came out late June, so there was hardly any pickup there.
I think we have seen a little bit more pickup because we are a much bigger supplier on the tablet side. So on the U.S. generic side, we have more than 50+ markets here in the U.S. market. Nobody knew about this product, but this, I think, speaks highly about the size and the scope of the portfolio we have, that, you know, we are able to... Certainly, there is a clinical study with 600 patients that benefit from this. We have that ready for the market. We also, on the tablet side or on the solid oral side, we didn't see we haven't built any benefit in the first half because this just started and we controlled the ordering. I think we have to see. I think...
Remember hydroxychloroquine, where everybody got a lot excited about 16-patient clinical trial that was published in France. Obviously, behind this, we have 6,000 patients, so there's a lot more thing. But overall, I think we are not expecting any that this will drive our performance upwards. Obviously, we are ready. If that happens, if the patients needs this drug, we will manufacture both injectables and tablets, but our expectation is this will not move the overall guidance number. The moving parts of 2021, I think if we guide for 2021, by the end of February, I think there's more than 50+ likelihood we will have a decision by the judge by then. So I don't like to break out one product from my guidance.
I obviously that, because I don't guide on individual products, so we cross that bridge when we come to it, if a decision by the judge will not be in place before we guide for 2021.
Great. Thanks a lot.
Our next question is from James Vane-Tempest. James, I just unmuted you. Please go ahead.
Hi. Thanks for taking my follow-up questions. Firstly, I was just curious, are you able to give me a sense, how much of the first half injectables growth came from the Civica agreement? Secondly, Siggi, I think you sort of said a full year, within 12 months, there'd probably be a decision on the strategy for US biosimilars, and I guess your language today suggests that perhaps that's a bit more interesting. I'm just curious what kind of scope that could take, because certainly for the next, you know, 3 or 4 years, it's quite competitive in terms of the number of new products kind of coming out. So would this be very much a 5- to 8-year view rather than a near-term view?
And then my final question is just, you know, with an upcoming election, if there are changes in U.S. taxes, I guess, given your structure, are you able to give us a sense what a 1% increase in a U.S. headline corporate tax rate would be to your business? Thank you.
... So, first of all, we don't break out individual customers. We-- so Civica. So, basically, we started supplying Civica a little bit by the end of December. They-- we have since then been supplying them. They have grown. What I mean by that is when we signed the agreement with them, they had 800 hospitals linked to their system. That is now up to 1,100 hospitals. They are still, obviously, learning. We have been very pleased. We have worked very closely with them. But overall, we don't give out the individuals, but as I said before, it's not a big impact on the overall US numbers yet. You know, this will be a growing business.
But also, I want to mention that Civica was, I think, an important step, but also what that led to, or maybe it didn't lead to it, but at the same time, the GPOs stepped up their game. So the GPOs are thinking on the same line as Civica. So we saw that, especially during COVID, that the GPOs want to be much more as a partner. They wanted to take the transaction. You know, there will always be a transactional relationship, but they've been much more as a partner, like Civica has been doing. But also just because I think, I know quite a few of you look at IQVIA data way too often. I just want to say that here.
But part of the reason why Civica data, Civica doesn't report to IQVIA. Also, our direct sale to the hospitals, they're not captured by IQVIA. And so this is why I've been warning that don't rely too heavily on... I think movement between years is reliable, but when you analyze it to death, the volume in every week or every month, it really could lead you to the wrong conclusion. But Civica, I think we are very happy with the partnership, and we think it will grow over time. In terms of our biosimilar thinking, James, you're absolutely right. I wouldn't foresee Hikma being part of the portfolio that would come out before 2023 or so.
I think for the next two years, as we haven't signed with anyone to go into those products, there's already, I think, 11 Avastins biosimilars filed in the U.S. I really don't want to be the 12th one. It simply doesn't make sense for us. So I think it's more medium- and long-term opportunity on the biosimilars. And maybe, Khalid, if you talk a little bit about the taxes and what 1% would impact.
Yeah. Yeah, thank you, Siggi. Now, it's very hard to assess how much impact it would have if taxed by 1%. First of all, we don't give guidance on the profitability by region. And there are many moving parts in terms of products, where it's going to be sourced, whether from Portugal or whether from the U.S. or whether from Jordan. So, as you saw over the past few years, we managed to keep our effective tax rate below 23%. So this is our target if you want to model for next year. Of course, we are targeting to improve on that.
It depends as well on the product mix coming, whether from the U.S. or whether from Europe, but we see that this is going to be maintained on the medium term.
If I can just ask a quick follow-up on that. So is it fair to say that given the mean of business and the base that you have there, it would be sort of a, I guess, a dilutive to the impact? So in other words, you know, for many companies, a 1% increase in the tax rate, you know, might impact earnings more than 1%. So is it fair to say that it would be less than 1%?
I would have to look into this and come back to you on that, but I don't have this analysis at this stage.
Okay. Thank you.
Our next question is from Pete Verdult. Pete, unmute please, go ahead.
Yeah, thanks. Pete Verdult, Citi. Maybe for Khalid or for Siggi. I mean, look, if we do get a vaccine developed next year, and hypothetically, we all went back to, you know, the "old ways," quote, unquote. Just interested in your thoughts as to what Hikma will be doing differently. When you think about, you know, how you were spending money, the expense base pre-COVID. Obviously, we all realize that travel's gone out the spout, entertainment's gone out the spout. But if we get back to normal, you know, what do you think from a business practice perspective, you will change at Hikma versus prior practices? You know, what will come back? What won't, what will change forever?
So, I think, you know, I believe we will have vaccine sometime next year. I don't know when, and also, I think it's importantly how we can get to the people that most need it. I think what has changed in the company... So let's first say what change, what changes we made, during COVID. So first of all, if you look at our expense line, our expense line basically was balanced. So, we spent a lot more on transportation and movement of goods and on employee, costs, because we paid, extra bonuses to our employees to show up, to be in the manufacturing plants during the middle of COVID. But against that, we also saved a lot on sales and marketing and on travel, to name a few.
So I think the balance in our expense line was kept very well. I think in terms of what will change, the most obvious one is around the virtual promotions of medicine. I think that's where we have trained the customers, we have trained the doctors. As I mentioned in the presentation you saw this morning, we have had up to 1,000 doctors attending our conferences through Zoom versus doing them live locally. I think there will still obviously be visits to local doctors, but I think all pharma companies, this is not only Hikma, I think all pharma companies will change how they allocate people on the ground that visit doctors face-to-face versus digital or virtual promotion, versus the conferences and things like that. So I think that will change.
How that will be, we need to look into that, but we are really working, working hard on that now. In terms of the second thing, which is very close to our heart, I think it's been brought up that we have had a little bit higher inventory than many of our peers. You know, the working capital has been high in Hikma because we can afford it. I think that was one of our biggest benefit during COVID. We had plenty of inventory of API. We didn't run out of stock in any of our top 10 products in any of our three businesses. So really, the supply chain was able to operate in the best possible way due to the extra inventory. There is always a balance, you know.
I just can see the evil eye from Khalid when I say these things, because obviously, we want to manage our working capital. It's not like we can have endless inventory on hand, because then you have to write it off due to expiry. But this has given us a flexibility, and I think the thinking around inventory of pharmaceuticals. Instead of thinking about it just in time inventory, you probably think about it just in case inventory. So you think about individual products and how much inventory you have, just in case something will happen in the business. And then the third thing is around how we work. Clearly, most of our office employees have been working from their home. Still today, especially in London and the U.S., people are working from home a lot.
In Jordan, people are back in the office, because, Jordan has opened up a lot more. But I think there will be some functions that will continue to be possible to work from home. But I also feel I'm lacking a little bit, the opportunity of interacting with people in the office. That's why I'm in London today, by the way. I traveled from the U.S. and did the whole thing. I took 14 days quarantine up in Iceland to see my mother-in-law, to be able to-- because Iceland is a safe country, so I could come, to U.K. But I felt it was important. And that's the thing around COVID, is this interaction amongst management team, this brainstorming, that is something that I really want to get back to the business.
I think we are not the only company thinking like that. There are functions that we can easily work from a distance, but there's function also where we benefit in working together as a group.
Thank you. So all CEO, all CEOs now have to go to Iceland and stay with your mother-in-law, is that right?
Yeah, absolutely. It's... The thing is, she would welcome them, but that's the thing. And,
Fair enough. Thank you, Siggi.
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Yeah, we only have two minutes left. Any last question before we close? If not, I just want to say thank you all. We are, of course, available for any talks, calls, whatever. It's been a pleasure, and let us know if you have any follow-up questions. We'd be happy to respond to that. Thanks a lot. Speak soon. Bye-bye.