Hello, everyone. I'm Siggi Olafsson, CEO of Hikma Pharmaceuticals, and I'm here with Khalid Nabilsi, our CFO. Thank you for joining our 2020 full year results presentation. I will be providing an update to our strategic progress, and then I'll hand over to Khalid to run through the financials. It's been three years since I joined Hikma, and over this time, we have focused on strengthening our three businesses. This strategy has paid off, and is reflected in the very strong set of results we are presenting today. There's no question that 2020 was a challenging year, with a great deal of uncertainty and disruption caused by the COVID-19 pandemic.
I'm very pleased to be able to say that our business demonstrated its resilience in the face of these challenges, thanks to the strength of our foundation and the hard work of our employees, which together ensured that we were able to maintain a good supply of our medicines to customers and patients across our markets. For the year, group core revenue was $2.3 billion, up 6% from last year, reflecting good organic growth across our three businesses. Our group core operating profit was up 11% compared to last year, driven by strong growth in generics and injectables. While responding to COVID-19, we also continued to make a good strategic progress across the group. We stayed focused on building our pipeline of differentiated products and expanded our portfolio with successful new launches.
We launched a total of 154 products across our markets in 2020, including the earlier than expected launch of icosapent ethyl capsules in the US. We are nearly there with the launch of our generic Advair Diskus. I'll cover this in more details later in the presentation. While expanding our portfolio and investing in our pipeline, we continue to drive process improvement and operating efficiency across our business. These efforts have put us in a strong position for 2021, and I'm happy with how the business is performing so far this year. Now, let's look at each of the businesses in a bit more detail. Starting with injectables, our global injectables business performed very well, with revenue up 9% and core operating profit up 12%.
We highlighted throughout 2020, the considerable volatility we saw in the injectables market as a result of the pandemic. Our established position as one of the leading suppliers in the U.S., our extensive reach in MENA, and strong foothold in Europe, helped us to meet the challenges this volatility created. Key to this was our broad portfolio, a good number of new launches, and our flexible manufacturing capabilities, which helps us to meet the changing needs of our customers and patients. Let's take a closer look at our three regions, starting with the U.S. In the U.S., the pandemic caused fluctuation in demand for our products. In the first half of the year, particularly in March and April, we saw a surge in demand for products used in the treatment of COVID-19 patients, especially those on ventilators. These included anesthetic, pain medicines, neuromuscular blocking agents, and other support medications.
The chart on the right shows the variation in demand that we saw for these products during 2020, and it highlights the big spike in volumes in first half. We were able to take a quick action and respond to these changes in demand. Since then, as treatment protocols for COVID-19 shifted, demand for these products has stabilized. Today, fewer patients are being put on ventilators, as the proportion of ICU patients on ventilators was down 20% in January 2021 versus April 2020, and we are starting to see a downward trend in hospitalization levels and ICU patients. Another key indicator of demand has been the number of elective surgeries being performed. These dropped off significantly as hospitals focused on COVID-19 patients at the beginning of the pandemic.
You can see it in the top left graph that these surgeries have started to come back from a very low levels in March and April, and we expect to see this trend continue to normalize over the course of 2021. Of course, the continued growth of our business also depends on successful pipeline execution and new product development. Despite the disruptions caused by the pandemic, we were able to launch 10 new products in 2020, most notably Propofol, Nicardipine ready-to-use bags, and Daptomycin, all products that we expect to see growing contribution from in 2021. If we go back a bit further, we have launched 20 products over the last 18 months. While the market opportunity for some of these products is bigger than others, together, they make a nice contribution and support the continued growth of the business.
This is even more pronounced if we look at the launches over the past four years, which contributed 27% of U.S. injectables revenues in 2020. Over the last 10 years, we have invested significantly in our injectables manufacturing capabilities, and we operate state-of-the-art manufacturing sites in the U.S. and Europe. We have extensive capabilities, including the ability to manufacture prefilled syringes, sterile emulsions, and lyophilized products. This, coupled with the flexibility of our operations, enables us to respond to our customers' needs. This flexibility was essential in 2020. We shifted manufacturing schedules, ramped up production, and increased productivity to meet higher demand. We reduced fill to release time cycles and increased batch sizes on several COVID-19 products to make sure we could get the right products to market as quickly as possible.
The way that we responded to these rapid changes in demand reinforced our excellent quality track record and strengthened our position as a partner of choice in the U.S. This was clearly demonstrated when Gilead chose Hikma as a manufacturing partner for the supply of remdesivir, their important treatment for COVID-19. Our expanding partnership with Civica is another great example of this. Civica relies on our quality manufacturing and robust supply chain to help them minimize drug shortages, something that became even more important this year. Shifting to our other injectable markets, our injectables business in Europe delivered an outstanding performance in 2020. As in the U.S., we saw an increase in demand for our products due to COVID-19, and we were able to leverage our broad portfolio and flexible manufacturing in Portugal, Italy, and Germany to meet patients' changing needs.
This drove a strong growth in sales in these markets. We also saw a good demand for contract manufacturing, including our agreement with Gilead for remdesivir. With the investments in capacity we have made, including our new high containment facility in Portugal, we now have more scope to manufacture products for this region and have continued to register products across Europe, including UK, France, and Spain. In total, we submitted 160 product applications in 2020 across our European markets. Moving to MENA Injectables, I think this slide tells a great story about our business and value we bring to patients in the region. Our biosimilar products continue to perform well. We are increasing our market share, and we continue to launch into new markets.
One of the exciting things about these products is that we have found that we are bringing these important medications to patients that couldn't previously afford them, thereby growing the overall market. Let's look a bit more closely at the Remsima, our infliximab biosimilar, which we have now launched in eight markets. Remsima needs to be administered in infusion clinics. Due to the pandemic, with lockdowns and distancing restrictions put in place, we were concerned that patients would not be able to access the treatments they needed, so we acted as facilitators, connecting patients who needed the treatment with doctors and hospitals that could administer it. Today, more patients can access the treatment, and we have been able to grow the market. Iraq and Saudi Arabia are great examples of this.
In Iraq, where our market share is around 70%, the market itself has grown more than 80% since we launched. Similarly, in Saudi Arabia, the market size has more than doubled since we launched. In the coming years, we will be adding more biosimilars, like Truxima and Herzuma, and other more complex injectables to our portfolio, and are confident that this will continue to increase access to these important treatment for patients across the MENA region. Now, let's turn to our generics business. Before we dive into our performance, let's take a look at the impact of COVID-19 had on the U.S. generics market. You can see from the chart on the left that there have been fluctuation in demand for prescription medicines on weekly basis due to the pandemic, with total levels of prescriptions down 3% compared to the previous year.
This is primarily because of lower healthcare utilization overall. With doctor visits low, we saw a reduction in the diagnosis of new conditions. In this disrupted market, our business proved to be very resilient. Throughout the pandemic, we were able to continue to supply medicines most needed by our customers and patients, thanks to our differentiated portfolio and the strength of our commercial and distribution teams... We work closely with our customers to understand their needs and focused on maintaining continuity of supply by managing production and allocation of finished goods. We benefited from having a local manufacturing in the U.S., and we're able to prioritize products that were in high demand as a result of the pandemic. For example, we shifted manufacturing schedules and ramped up production of dexamethasone when demand for that product increased.
At the same time, we maintained supply on our broader portfolio to ensure patients continued to get the essential medicines they need. We acted quickly at the beginning of the pandemic to secure sufficient API supply and increased our safety stock. Throughout the year, we continued to launch products and look for ways to optimize our portfolio. Moving to slide 12, I'll expand a bit on our new launches. In 2018, when I first joined Hikma, I set a target for the group to achieve around 10% revenue contribution from new launches by 2023, to ensure that we continue to grow our portfolio and by getting the most out of our investment in research and development. The generics team hit the target this year, ahead of schedule, thanks to a strong performance of the 2020 launches.
In total, the team launched six products, including rufinamide, generic Afinitor, and generic Zortress, for which we remain a sole generic on the market. These launches performed better than we expected and helped us to offset some competition on our base business and related price erosion. They also demonstrated our ability to deliver on our pipeline with profitable launches. During the year, we also demonstrated our ability to challenge patents and launch complex products. We received U.S. FDA approval for icosapent ethyl capsule, following a successful court ruling, and launched the product in November. We are slowly ramping up supply and expect to improve quantities over the course of 2021. I would like to shift now to talk about the quality of our operations. We have really strengthened the generic business over the last three years through a focus on building our commercial capabilities, process improvements, and cost savings.
This is reflected in our financial performance, with generics profit growth well ahead of our expectation and core operating margin at a very impressive 21.6%. By working closely with our customers and enhancing our internal processes, we have been able to significantly improve our customer service levels. We also decreased the number of products we have on backorders by around 70% through better management of production and by placing products on allocation. Productivity at our Columbus facility has improved, with units produced per employee growing at a CAGR of 10% between 2016 and 2020. In addition, we reduced our inventory reserves in 2020. Again, this is a demonstration of improved processes as our teams focus on efficient inventory management.
Of course, keep in mind that a lot of this progress was made while also managing the business through the pandemic. Overall, I feel very confident that the generics commercial and operational foundation is now quite strong and will support the business as it focuses on new growth opportunities. Now that we have strengthened our foundation of the business, we need to ensure we are investing in the right opportunities to deliver long-term, sustainable growth. We have some nice nasal opportunities in our pipeline. In 2019, we acquired two nasal spray pipeline products, naloxone and epinephrine, from Insys, along with unit dose nasal spray manufacturing capabilities that have already been installed in our Columbus facility. We also announced last year the licensing of Ryaltris from Glenmark, a novel nasal spray for the treatment of seasonal allergic rhinitis.
We are a leading supplier of nasal sprays in the U.S. with dedicated manufacturing capabilities at our Columbus facilities. We are going to leverage our expertise and the commercial infrastructure we have built for our branded colchicine capsule, Mitigare, to bring these products to market. This will require further investment in sales and marketing as we build out this specialty portfolio. More recently, we signed a promotion agreement with Eyevance for two of the branded eye care products, which will be promoted by our specialty sales team. This deal recognizes the strength of our commercial capabilities, and is another example of how we are developing our specialty portfolio. At the end of the year, we received a U.S. FDA approval for our generic version of Advair Diskus and initiated launch.
In January, we had to temporarily pause the launch to work through an amendment to reflect enhanced packaging controls to our application, which we filed as a prior approval supplement. I'm pleased to announce that the FDA has granted us priority review status for the PAS, as we are looking forward to finally being able to bring this product to market as soon as possible. The technical know-how and regulatory insight that we have gained from our work on generic Advair gives us the ability and confidence to develop a pipeline of complex respiratory products as we look to expand our dry powder inhaler portfolio over time. This includes our agreement with Vectura for the global development and commercialization of generic version of GSK's Ellipta portfolio. Finally, let's take a look at our branded business. Our branded business continued to grow steadily, with revenue at 5%.
In the first half, we saw some disruption in the business as a result of COVID-19. This included shipping delays, limited marketing activities, and interruptions to manufacturing due to curfews and other restrictions. We also saw a reduction in demand for certain products, like anti-infectives, as everyone stayed home and doctor clinics were closed. Despite these challenges, we were able to drive growth, thanks to our strong sales and marketing team and the large product portfolio, which has more than 250 products across different therapeutic areas. Our Tier one markets continued to perform well. In Egypt and Saudi Arabia, we saw a good demand across our in-market portfolio, and we continued to launch new products. Algeria has recovered strongly, following a more challenging year in 2019.
Since then, the team has done an excellent job at turning that business around, and it is on a much stronger footing today. We have improved the management of our commercial strategy, and stock levels at wholesalers. We launched a number of new products in Algeria during the year, including Skilara, the first locally manufactured oral therapy for multiple sclerosis in Algeria. We also finalized construction of our oral oncology plant, the first in the region, and submitted 10 products for registration, of which two are already approved. Of course, we are continuing to introduce new products across all of our MENA markets. In 2020, our launches included Bufomix Easyhaler and Tetanus, a new class of oral treatment for type 2 diabetes. Another interesting launch is Reagila or cariprazine, which is a novel antipsychotic product.
In 2019, we signed an exclusive licensing agreement with Gedeon Richter to commercialize this product in certain MENA markets. Reagila is the first product to be able to address the negative symptoms of schizophrenia and other mental illnesses. We were able to get approval for it in record time in Jordan and launched in 2020, just six months after signing. We have also received approvals in Saudi Arabia, Egypt, and United Arab Emirates, and are planning to launch in those markets in first quarter 2021. Hopefully, this gives you a good flavor of our strong strategic progress in 2020. I'll now hand it over to Khalid to take you through the financials.
Thank you, Siggi. Good morning, everyone. I'm pleased to report that the group has delivered good growth across our three segments, despite challenging market conditions that have arisen as a result of COVID-19. As Siggi highlighted, the strength of our base business in each segment, our broad product portfolio, high quality and flexible manufacturing facilities, and our dedication to ensure continuity of supply, enabled us to achieve this strong performance, with core revenue up 6% to $2.3 billion, and core operating profit up 11%. Given the strong performance with core EPS up 15%, the board is recommending a full year of dividend of $0.50 per share, up from $0.44. Now, let's have a deeper look at the financial performance of each business.
Starting with the injectables, the injectable business delivered double-digit core revenue and core operating profit growth in 2020, in a relatively volatile demand environment as a result of the pandemic. The U.S. business, which makes up around 70% of the total, grew 4%. The strength of our growth portfolio and the flexibility of our manufacturing facilities enabled us to meet changing customer and patient needs throughout the year. We saw an increase in demand for COVID-19 related products, primarily in the first half of the year. We also had a good contribution from recently launched products. The increase in sale and the strength of our broader portfolio more than offset reduced demand as a result of a slowdown in elective surgeries. MENA sales were up 10% on both a reported and constant currency basis...
This was driven by an increase in demand for COVID-19 related products and continued growth of our biosimilar products. As Siggi highlighted in the beginning, the team has done an amazing job in facilitating access to biologics in the region, especially during the pandemic. Our European sales were also very positive, up 44%, reflecting a strong performance from our broad portfolio and new launches, especially in Italy and Germany, as well as good demand for contract manufacturing, including our supply agreement with Gilead to manufacture remdesivir for injection. We expect to see some additional benefit from remdesivir in the first half of 2021. Injectables' core operating margin was 38.6%, up from 38% in 2019. This reflects the improvement in the product mix in Europe and MENA, slightly offset by higher R&D costs and the negative impact of foreign exchange movements, primarily in Sudan.
Our generic business grew revenue and delivered significant improvement in core operating margin, benefiting from a strong foundation, which is enabling us to deliver better than expected results. The continued strong performance of our generic business is due to a better than expected contribution from new launches, as well as the strength of our differentiated portfolio. We also saw a slight increase in demand for certain COVID-19 related products in the first half, and then again, towards the end of the year. All of this more than offset an acceleration of price erosion in the second half. Generics' core operating profit increased by 30% to $161 million, and core operating margin increased to 21.6%, well ahead of our expectations. This increase in profitability reflects the improvement in product mix, combined with process efficiencies.
We expect to continue to grow the generic business in 2021, benefiting from our broad and differentiated portfolio and the execution of our pipeline, which should offset an expected increase in price erosion in the market. Our branded business achieved good growth in revenue, up 5% on both reported and constant currency basis. This was driven by good performance across our tier one markets, Saudi Arabia, Egypt, and Algeria, with Algeria recovering strongly following a more challenging 2019 due to political and economic disruptions. We did see disruptions across our MENA markets related to COVID-19, including a reduction in the demand for pharmacy products such as anti-infectives. This was offset by an overall resilient performance from the broader portfolio. Branded core operating margin was 20.6%, down from 22.1% in 2019.
In 2020, we had a significant impact from foreign exchange movement, primarily in Sudan. At the same time, Lebanon and Sudan were considered hyperinflationary economies, which had a further negative impact on our profits. Excluding the adverse movements of currencies, core operating margin grew by 1.2 percentage points to 23.3%. This primarily reflects an improvement in product mix and good control, of course. We continue to focus on growing our pipeline. We invested $137 million in core R&D, up 9%, due to higher investment in our injectables R&D program as we build our pipeline of differentiated products. As a percentage of core revenue, core R&D was 6%. Our CapEx spend was $172 million, ahead of expectations.
As the market outlook improved through the second half of the year, we proceeded with several projects to expand and enhance our capabilities. More than half was invested in the U.S. on upgrading equipment and adding new technologies. We also spent in MENA and Europe, strengthening and expanding our manufacturing capabilities. The group continues to generate strong cash flow, with operating cash flow of $464 million. This good performance came while maintaining higher inventory levels to ensure continuity of supply during the COVID-19 pandemic. Looking at some of our key financial highlights in 2020. In July, we announced the successful placement of a $500 million euro bond, with an annual coupon of 3.25%. We're especially pleased that we were able to raise this bond during the uncertainty in financial markets caused by the pandemic.
The bond was 3x oversubscribed, with interest from investors globally, a clear indication of confidence in our financial prospects. We achieved investment grade status from Standard & Poor's and Fitch, again, an accomplishment which demonstrates the quality of our business. We had the opportunity to utilize our balance sheet strength and repurchase a portion of BI's holding when they sold their stake in June. We bought back 12.8 million ordinary shares, which are being held in treasury. Our strong balance sheet enabled us to comfortably undertake this transaction while maintaining continued financial flexibility. We also signed a new $200 million loan facility with the International Finance Corporation during the year. And finally, we secured long-term facilities on a subsidiary level to ensure we maintain liquidity in local countries.
While the group's total debt level increased to $932 million, we are still maintaining a low leverage ratio, with net debt to core EBITDA ratio below 1x. Finally, the outlook for 2021. First, for injectables, we are expecting to see continued demand for COVID-19 related products, predominantly in the first half, and a gradual return of elective surgeries. We expect injectables revenue to grow in the mid-single digits and core operating margin to be in the range of 37%-38% for 2021. For generics, in 2021, we expect generic revenue to be in the range of $770 million to $810 million. We expect core operating margin to be around 20%, reflecting increased sales on marketing as we build our branded portfolio and higher R&D costs.
Finally, for branded, we expect branded revenue to grow in the mid-single digits in constant currency in 2021. We expect group core net finance expense to be around $50 million and the core effective tax rate to be around 22%-23%. We expect group capital expenditure to be in the range of $140 million-$160 million. That wraps up the financials. I will now pass back to Siggi for some closing remarks.
Thank you, Khalid. I would like to close by saying I am proud of what our teams have achieved across the group. Our strong foundation, flexible and high-quality manufacturing capabilities, robust supply chain, and dedication of our people to our purpose enabled us to continue to deliver the essential medicines that patients need across our markets. We continue to make good progress against our strategic priorities. The achievements we set out in this presentation position us well for sustainable future growth, and I look forward to continue on this path in 2021. Before I finish, I would like to announce that we will be hosting a series of virtual Meet the Management Zoom calls this year. Each of these will feature a different member of our leadership team. We'll kick off with the leaders from the injectables business on the twenty-fourth of March.
We will be announcing details soon and hope you'll be able to join us.
Okay. Hi, everyone. It looks like we have everyone in the room. Welcome, and thank you for joining us. Just before we start, I just want to remind everyone how this session is going to work. So if you have any questions, please use the Raise Your Hand function, which you will find if you click on the participants, and it will pop up on the right bottom of your screen. And if you dialed in using a phone, just press star nine, and then we'll go ahead and answer your questions. And with that, I will hand it over to Siggi.
Thanks, Layan. Good morning, everyone. Welcome to this virtual call. This has started to be normal, which wasn't normal a year ago. So I'm not going to have a long introduction. I just want to refer you to... That you have hopefully listened to the pre-recorded presentation, so we are not going to repeat that here in the beginning of the meeting. I'm sure there's a lot of questions. I think overall, we are very, very pleased with the result of 2020. Our core revenue up 6% to $2.3 billion, and our core operating profit up 11% to $566 million. All three businesses are growing organically. Injectable business growing 10% on top line, 12% on the bottom line.
Clearly, a lot of volatility around the demand in the injectable business, but we have served the market well. Our US generic business grew 3% on the top line, but really had amazing bottom line above my expectation, growing 30% on the net on the operating profit. And the brand business grew mid-single digit, 5%. The operating profit went down a little bit in reported currency, but grew 11% in constant currency. So I'm sure there will be some questions about that in the meeting. So overall, a really, really good year, challenging year, a year I probably will never forget, but also at the same time, I think it showed the strength of the overall business, how well we executed in the year.
With that, I just wanted to open it up to questions straight away.
Thank you, Siggi. So our first question is from James Gordon. James, please go ahead and ask your question.
Hi, everybody. James from JP Morgan. Thanks a lot for taking the questions. One of the questions was... Which maybe just, just to start on, on branded, actually. So, so 220 basis points of margin contraction was implied from FX. So FX didn't have any impact on revenues, but 13% impact on profitability. So, so why was there such a big hit on, on, on margins for the branded division from FX? Because presumably, the API is, is mainly sourced in dollars anyway. And, and if we look into 2021, do you. Do margins stay down here, or could we see some, some margin recovery, for, for branded? So that was one question, please. Maybe I'll do the second one afterwards.
Yeah. So maybe Khalid can address this question.
Yes. Yeah. Thank you. Thank you, James. You know, the currency has been volatile during 2020, and especially for Sudan and Lebanon, and they were considered both as hyperinflation- economies. Now, part of the currency that affects the PNL or the operating profit is the revaluation of net assets. So if you value your net assets, and this is why we had a major impact or $22 million on the branded business as a, especially from Sudan, and then the hyperinflationary impact as well. So on top of that, you have the transactional as well during the year, where you have to buy currency at a higher rate to settle your API or your sales. So this is why we had a significant impact in 2022. In 2020, sorry, $22 million in 2020.
But in terms of looking forward to 2021, is this now the new normal for profitability? Or are there some one-off factors that depressed the profitability in 2020, which they wouldn't recur in 2021, so the margin goes back again?
It's very hard to tell today where we stand. We had similar situation in the past with Egypt. It affected our PNL for a year. The year after was minimal impact. So usually it depends on the volatility of the currency. Still this volatility took place, and the weakening took place towards the end of December or the last quarter. So till we see the currency improve, it's very hard to comment at what would be the impact on 2021.
Sure. Just final thing I'll just ask on this then. If some of it's impairments, would it be logical you've effectively mark-to-market on what effect is already done, so you wouldn't then have to make another impairment if FX just stays where it is?
Of course, of course. If it stays where it is today, it's not going to have an impact on 2021.
Which, which would mean higher profitability again?
It's the profitability will go back to the normal. So the currency. It depends as well on price increases on the drugs that we have, which we eliminate on constant currency basis. So but if currency stays where it is as of the end of December, there will be no revaluation, there will be no impact on the currency or hyperinflationary accounting that affects significantly the results of 2021.
Thank you. Maybe just a final thing. So if you don't have any more impairments, how much of the depressed profitability is the one-off versus the ongoing? So if FX just stays where it is, how much would . Yeah, how much of the previous problem was to do with FX?
If it stays where it is, then there will be minimal impact, because you already, as you said, mark-to-market all your assets, all your inventory, all your accounts payable, all your accounts, your net assets is already mark-to-market. Unless there's no further depreciation on currency, then there will be no impact on the result. But it's, as I said, the currency is very volatile. It's very hard to tell at this stage where the currency is going to land.
Thank you. I'll be quick with my other question, which was, one being Xyrem. I know that, there was an acceleration clause when you did the settlement, so you were gonna launch in 2023, but it sounded like from the settlement with, with Jazz, you could launch earlier if, if a big chunk of the product got converted to the new one. It looks like a big chunk is being converted to the new one. So any prospect of launching that any earlier?
Yeah, so Xyrem settlement, we did, we highlighted that there is an acceleration clause which has two things. First of all, if some other generic company launches at risk, and the second thing is the market share on Xyrem in the market. It's confidential how the calculation is. We are obviously preparing if that threshold would be passed. My expectation is that wouldn't be happening in 2021. Could it happen in 2022? It depends on the success of the Xywav launch in the market. But we, we are obviously preparing if, if that case would happen. But as it is now, the settlement is for January 2023, with a possible acceleration, and we as a company are ready to jump if, if that is crossed at any point in time.
Thank you. Just a final clarification, and then I'll get to the back of the queue, which was just unallocated corporate expense. So it went up quite a bit in the second half, and what should we assume for that for 2021? Should we annualize the second half number? Should we take? Should we have it keep on growing as it has been growing? Or is this a little bit exceptional in the second half, and that could come back a bit?
In the unallocated expenses, there's $10 million impairment charge for the IT, impairment of software. So we have a new CIO who came and did the review for all the projects that we had. So we took an impairment charge, exceptional, I would say, charge of ten million. So if you exclude that, then our corporate expenses would be, or unallocated expenses, would be around $88 million. So you'd have to assume, as every year, there will be some slight increase in costs as a to strengthen certain functions, but this is the main reason why it went up in 2020.
Thank you.
Thank you, James. Our next question is from Peter Verdult. Peter, go ahead.
Yeah, thank you. Peter Verdult, Citi. Can we just move quickly to probably the more, more important issue at Hikma, which is the dynamics at US Generics. I mean, you exited the year with a margin that is 24%. You know, there's a whole lot of variables to consider, Advair, Vascepa, the investments you want to make, what's happening to some of the on product mix, pricing environment. And you, ever since you turned up at Hikma, have always said you want to be planning for the worst and hoping the best, and you've got a track record of putting upgrades through. So just help us understand the level of conservatism that you've applied. And I will push you.
I mean, it seems from what you're saying on Advair, that there's probably gonna be, you know, less than four months contribution baked in initially for the year. So could you spend some time helping us understand? Just the, you know, what's gone into your thinking about the guidance you've provided for US Generics, and whether we should interpret this as a very, you know, conservative initial gambit, with risks to the upside, depending on how things play out? Thank you.
Yeah, so thanks, Pete. So first of all, the US Generics delivered amazing 2020. You know, I have to say, growth on top line, 3%, but growth on the bottom line, 30%. Really, for the first time, we managed in a way successful launches of new products. So remember in 2018, in our investor day, my goal was to achieve 10% revenue from new launches in 2023, and the generic business did that last year. And remember, they did that without any generic Advair. So that really based on only six products that we launched in the year. So I felt the execution was good. You saw in the pre-recorded presentation how we are running on our service level. We are reducing our penalties to customers.
We are improving the gross margin. The gross margin now is in around 45%, which was where my goal was when I joined the company three years ago. So really, it's been a turnaround situation. So let's talk a little bit about the guidance for 2021. First of all, it is—it's a strong business. It's running very well, and there's no big thing. Our assumption on price erosion going into the year is mid- to high-single-digit, and you challenged me that I'm too conservative on that. But to be frank, over the last three years, I've been right two out of the three years. So obviously, we had a lower price erosion last year than we did.
But really, I think, you know, mid- to high-single-digit price erosion is what we need to think about in the beginning of the year. We will manage, and hopefully, we have a lower price erosion than that, but I think it's reasonable start of the year to think about that is what to expect. In terms of generic Advair, first of all, to get the approval in December was a great achievement. Remember, this, this only took just less than five years to get the approval for this product, so it took a long time. We needed to do a amendment to the analytical method to test the packaging material. This is not, this is very common, especially when the FDA has been reviewing the application for more than four years.
The science has moved on, so we needed to file a amendment to that testing. In our conversation with the FDA, they asked us to file it as a prior approval supplement. Disappointing for sure, but we filed it as a prior approval supplement. We heard back from the FDA, so they have granted us a priority review of the prior approval supplement. What that means, you can find that online, is that the FDA talks about that they would like to review approximately 90% of priority review prior approval supplements within four months. So I can't tell you exactly when we will hear back from the FDA, but, you know, that's the guidance that you read from the FDA. 90% are reviewed within four months.
Just to make it absolutely clear, it doesn't affect the approvability of the product, and we are very confident on the approval of that product. It's disappointing it had to be a Prior Approval Supplement, but we deal with that. So there is some months delay in launching that product, but we are as confident around this product as ever before. In terms of the icosapent, we, what we have said is we, we launched in November. We are, we, we have a relatively. We are struggling with the supply, and it has to do with the availability of API. We are working hard to increase the supply through the year. I can't tell you exactly when that will be.
That depends a little bit on the FDA also, but also our, our suppliers, how quickly they can ramp up production to deal with it. At the moment, I never guide on the market share, but you can see it from IQVIA. We are in the 10%-12% market share at the moment. And you heard that, you know, Dr. Reddy's has already announced to the street they will have limited supply when they come to the market with this product, whenever that will be. So this isn't just a Hikma problem that we are facing here. There is a limited supply of the API in the market, which is causing this slow ramp-up in the market share. So overall, I feel that, you know, in terms of the opportunity, 2021 will be a good year.
I think the challenges is the timing of the generic Advair to come to the market and when we can ramp up the supply of icosapent. We are assuming mid- to high-single-digit price erosion in our forecast. There's no big products going off. But if you think about it, with 5%-7% price erosion on the revenue that we are delivering now in generics, this is not a bad growth on the top line. You know, that, that's really what we are saying here. It is a strong performance of the division, and when you have the underlying growth on the bottom line, you saw this year, you're already in the 20s. The last point I wanted to make around the profitability.
So as we highlighted in the press release, is that we are going to invest more in R&D and in sales and marketing. In R&D, we are investing more, partly because we have started to spend more investment on the Ellipta portfolio. Now that starts, and I think that is clearly a costly development, but we have started to invest in that part now. And secondly, on the sales and marketing, this possibility of launching a new branded products to the market, which would be the Ryaltris and the naloxone, it's not given—we are not guiding if we get the approval this year, because that depends on the FDA. But we have to start to ramp up our sales effort in going into the allergy section and things like that.
So we are putting more sales and marketing into the forecast, and we are putting more R&D dollars towards the generics, which leads to the guidance that we just issued. So overall, I'm optimistic about the business. There's no big breakdown happening, amazing 2020 that we delivered, but the uncertainty is around the timing of DXA and the ramp up of icosapent.
Got it, and just maybe, Siggi, one follow-up and, and a quicker one. Just, I realize you can't say much, but, the GSK Egypt deal seems interesting. Just provide an update where you are on... Not just broadening the revenue base, or is there a big opportunity to, you know, improve the, the overall branded margin if you are successful with your pursuit of these assets? I realize you can't say much, but anything you can say would be appreciated.
Yeah, so the challenge is basically we are just starting due diligence now. So we are just undertaking the due diligence for any potential transaction. We haven't even made an offer for the transaction. The reason it is in the public domain is that GSK had to announce to the Egyptian Stock Exchange that a due diligence is happening. It really doesn't mean that transaction will happen in any way or form. I think the reason why we would be interested in this is, as I've highlighted to all of you, this is an opportunity of getting a branded asset into our sales force. As you saw in the results, Egypt was one of our best markets in 2020, really had a solid performance in that year.
So it fits right into the strategy I've been talking about over the last three years, is giving more to my sales force, giving more to the infrastructure we already have in the tier one countries, so it fits exactly with the strategy. But simply, we haven't done the due diligence, so it's premature to talk about any transaction happening.
Thank you.
Thank you, Pete. Our next question is from Paul Cuddon. Paul, please go ahead and ask your question.
Hello, Siggi. Thank you very much for taking my question. I only have one. Just from a return on capital employed within the injectables business basis, I notice your volumes manufactured have only gone up slightly, and yet your revenues have improved. So in light of the Civica and GPO deals and sort of broader mix, can you sort of help me reconcile the manufacturing, the small increase with the revenue increase and exactly what you've done there? Thank you.
Yeah, Paul, it has a lot to do with the COVID demand, and I can explain that in a little bit more detail. So, I've said it in the mid-year results: we sell a lot of 2 milliliters fentanyl as an example, in an ordinary year. There are millions and millions of vials of fentanyl, 2 milliliters, that are sold in an ordinary year, which is used for the elective surgeries, for the emergency rooms, and things like that. So our main selling items on fentanyl is 2 milliliters and 5 milliliters. During COVID, we were mainly selling 50 milliliters, and we sold a lot less volume of the 50 milliliters, of course, but that was used in the ICU for the treatment of COVID patients.
So the increase in revenue wasn't reflected in the volume for the simple reason is there was the product mix and the size mix, which was very different than in an ordinary year. So, really a good spotting in this thing, but it has to do with the product mix and the size mix due to the pandemic.
Okay. Thank you. And just building on that, though, has your ability to supply consistently through the pandemic, do you think that would lead to a material sort of step up in your kind of customer, kind of ordering patterns long into the future now?
Yeah, so I obviously believe that. Overall, during the pandemic, our relationship with the hospitals and with really with our customers got a lot stronger. I've highlighted previously to you that, you know, not to have stockout on products, we sometimes had to put products on allocation. What it meant that we made sure that a hospital in Texas wouldn't have an extra inventory when a hospital in New York needed the product. So we worked with all the hospitals, and in reality, our stockout situation was less of an issue this year than ever before, due to this accurately working with the customers.
It's also true for the whole of the industry, because if you look at the stock now, if you look at the website, at the FDA and other websites that report it, it is a little bit better than even before the pandemic, a year ago. So I feel that most companies are stepping up, but we feel that overall the situation has improved. Maybe one more thing on this, Paul, was we hear a lot more from our customers now that they want us to keep a higher inventory, which obviously is costing working capital. You saw our inventory went up significantly in 2020 due to the pandemic.
We think that will go down, but maybe not to the same level as before, because we are hearing from many of our customers, the reason they have a trust in the company and, and our supply chain is because of the extra inventory we sit with. So, so I feel that might be one of the changes you will see the pandemic leading to, but we might have to sit with a, a little bit more inventory than we were used to. Maybe not all finished goods, but some of the APIs that we can convert quickly for the security of the market. But that, that's really where our conversation with customers are now. They're really pleased with the performance in 2020, but they're asking us and pushing us to continue with the extra inventory we are sitting on at the moment.
Thank you. That's all from me.
Thank you, Paul. Our next question is from James Vane-Tempest from Jefferies. James, please go ahead.
Hi, thanks for taking my questions. Just got someone out there, if I can, please. So the, the $12 million inventory, I'm just curious what proportion of the inventory, that is, and if there are kind of any further delays, you know, is there any more that might have to be written off? Second question is just on the, the timing. Page 32, talks about the goodwill assessment, and you assume a three month delay in your CGU. So I'm just curious if that's a fair base case for your guidance. And then the third question is just looking at, FDA guidance for, or guidelines for CBE-30s and PASs. It seems that for the FDA to require a PAS instead of a CBE-30, there may have to be ...
Well, there may have been some kind of impurity, potentially, and so is it above kind of permissible guidelines? So I'm still not clear from your statements why the FDA required a PAS, and not a CBE-30, for example. So any color around that would be appreciated. Thank you.
So let me start in reverse order because I've already forgotten the first question, but let me start with the end question. So the CBE-30, CBE-0 on PAS, obviously, it's a little bit to the discretion of the FDA. But when you test—So there was no change in packaging material. It simply was an update in the method. But what has happened over the five-year period since we filed the submission is that the FDA is analyzing a lot more of the extractable and the leachable in packaging material. We obviously have all that data that was submitted with it, but they take time to review that.
Without guessing into the FDA's mind, why they wanted it to have it as a pre-approval supplement, you know, the politics around the leachable and extractable has changed over the time. You know, they have never said that's the reason why they wanted to do it. But you know, if I was a guessing man, that wouldn't be a bad guess at this point in time. But we feel fully comfortable as we tested for this, of course, in all the packaging material at the time of submission. In terms of the write-off, if I remember correctly, the $12 million write-off, we are fully comfortable with that. We don't expect more this year, except in an extraordinary situation.
But overall, I think it's the right thing to do, and will cover us well. We are building new inventory as we speak because we are comfortable in launching this product, so we will have fresh inventory, of this product going, to the market. And the third thing you had was, if you remind me?
I'll take the... The, the third one is on the sensitivity around, genetic-
Yeah.
Notes on the goodwill impairment. So this is a requirement by the a disclosure requirement. It's no indication. It's just sensitivity. As Siggi mentioned, we got priority approval and the PAS, so it's we don't know when exactly we are going to launch, but this is just a sensitivity required by the standards. That's all.
Okay. Thank you.
Our next question is from Christian Glennie. Christian, please go ahead.
Hi, Siggi and Khalid. Thanks for taking the question. A couple, please. Just follow up and clarification on the Vascepa. I think you said in your comments, something might depend. In terms of this potential step up in supply this year, A, is that... I know you're not committing to timing, but is that still an expectation it steps up at some point this year? And B, you seem to mention it might depend on the FDA. I wasn't clear on what the FDA's role or relevance might be on the supply.
Yeah, so, you're right. We expect to step up supply this year. We don't know the timing of that. The reason I mentioned the FDA is simply that when an API supplier is increasing their output, they sometimes have to get a pre-approval supplement approved in the change in method or things like that. So I'm just saying there might be a change that needs to be approved, et cetera, et cetera, but it is, it has to be with that, with the increased output from the API. We are fully comfortable that there will be a step-up. I simply don't know when that would be during the year.
Okay, thank you. And then following up on the sort of prospect M&A side of things. Any particular updates there? You know, the obvious things that are often asked around biosimilars, I think your language at the sort of Q3 update was that you're much more optimistic about that as a, as a, as an opportunity. Any particular updates there? Any, characterize any discussions that may be ongoing on the M&A side?
No. So the only thing ongoing is in the public domain, of course, is that we are in a due diligence of the GSK asset in Egypt and Tunisia. And that wouldn't be in a public domain except for the rules of the Egyptian Stock Exchange, of course. But overall, I think for the business, not much has changed where our focus is. In terms of the biosimilars, I still think the market is okay. I'm still of the opinion that I have emphasized since the third quarter update, is that I don't see us maybe being in commercializing anything before 2023 or soon thereafter 2023. I think most of the products up until that point are very crowded.
You know, there are six, seven, eight companies on each of the big molecules that will come off patent, prior to and including Humira coming to the market. So that's why the 2023 is a little bit like a milestone. I think there is a settlement with around eight or nine companies on Humira, so I'm not sure if that's a fun party to be joining as a first entrance to the market. So we are looking a little bit more long-term in the opportunity where we can add value. We have learned a lot from our MENA launch. You saw it in the pre-recorded presentation, that really the infliximab, Remsima launch in MENA has been very, very good. We are very pleased.
We have approval in eight markets, and I mentioned the growth we see in the market, both in Iraq and Saudi Arabia, after we came to the market, so we are bringing that. Those learnings are. We are trying to see how that affects our U.S. positioning. Obviously, U.S. is a very different market, much more crowded with biosimilars. But the same principles that we are saying, that the partner we would select needs to have a strong scientific base. What I mean by that is promotion is very much built on safety data. Usually, the doctors believe the efficacy data based on the approval, phase three study, but you constantly need to update on the safety data. And we feel by finding the right partners, this might be an opportunity. But overall, I think it's the same on the generic side.
It's the new dosage form, new technology that we would love to include if there's an opportunity. Same in a way for injectables. We don't have the capabilities to do all the slow release injectables that I would like us to have, so that would be a technology that would be interesting to us. And then in the MENA region, it's a little bit looking for portfolios to give to our sales force to execute on. So we are as focused as before. You saw the balance sheet this morning. We are still under 1x net debt to EBITDA, even if we bought 12 million shares last year when Boehringer sold their share. So we feel very good about the opportunity.
But also, you see there is not many companies, and I can't say none of our peers, but very few of our peers that are growing 6% on top line and double digit on bottom line, only organic, in a year like 2020. So we are a little bit in a special situation, where obviously we want to use our balance sheet. We are ready to use it, but the desperation isn't there to do just a transaction, to do any transaction. We want to do the right thing when we do it.
Okay, thanks. That's very helpful. Thank you.
Our next question is from Thibault. Thibault, please go ahead and ask your question.
Hello, thank you very much. My first question is on the generic margins. I mean, you know, as it was said before, your guidance on top line is, I think, very conservative. And if generic Advair launch are relatively early and Vascepa is fine and your base business is actually growing a little bit, you could do better. But what does it mean for the margins? If you do better than your top line guidance, could we see an uplift in margin, or do you intend to reinvest any potential, you know, additional top line into R&D and SG&A? And just to follow up on that, what does it mean for longer term margin generics?
Because I think some investors are expecting a kind of operating leverage story based on Advair and Vascepa launch. So, you know, is it still something that could happen, or are you committed to reinvest in R&D and SG&A and operate the transition to a more specialty care portfolio? That's my first question.
Yes, so, so great question. So, so overall, there is a little bit of a step up in R&D investment now when we are kicking off the Ellipta development. So, so we, we would like to invest more in that in this year. There is an opportunity to be one of the first to the market. There is a benefit in that, and some of the work we are doing now will benefit us long term. So, so I, I think if, if significantly earlier that the generic Advair would be approved very early based on that the FDA gets comfortable quickly on that product, my intention would be to invest quite a lot of that extra bottom line this year to accelerate the development of the Ellipta, if I can.
Because I think the return on that investment would be very good because it would put me in the front of the line on this very important product. What that means long term, it doesn't mean that I'm diluting it forever and ever, the generic margin, because I feel that what you saw in 2020 is way ahead of schedules. We are in the 20s in the net operating profit, which is really one of the best among peers. How we do that is basically in 2022, 2023, it depends a little bit on the opportunities we have on the commercial side. We have already spoken about it here in this meeting. Will Xyrem be accelerated to 2022, or will it stay in 2023?
Those kind of things can lead us a little bit is, how much we want to invest in the R&D and see the return on investment. I'm excited about the margin itself. I feel, you know, we have a—we are guiding around 20%, you know, for this year, going in, with a step up in R&D, with a step up in sales and marketing. It doesn't mean that I'm guiding 20% in the, in the, in the, even in the short to the medium terms. I'm guiding for that for 2021. But then the commercial opportunities will really lead us to how much should we invest, as long as the return on investment makes sense.
But for this year, I just want to highlight if we have an inflow of profitability early, which we are not guiding to, I might want to invest some of that into the R&D to give me this pole position on the Ellipta development, which the early investment will pay off in the long run for the whole portfolio.
That's very clear. Thank you. And the second question is on the European injectables. You had a very strong performance this year. I think some was driven by the contract manufacturing on remdesivir. So you will probably have a, you know, a bit more of this tailwind in the first half, but how should we think in this year and in the following year of the balance between remdesivir and your kind of capacity expansion and launch of new products in Europe? So are 2020 and 2021 exceptional because of remdesivir, or do you think you can, you know, kind of manage the transition of the portfolio between the portfolio and the contract manufacturing?
No, so I'm really excited about the growth in Europe. The European growth was majority due to the growth in our own market. But then we had the CMO growth, not only on remdesivir, but we also do quite a lot of other CMOs to utilize the capacity in our plants. And all of that increased in the year. But in one of the slides, in the prerecorded presentation, showed how each of the markets grew through the year. So just in the markets themselves, there was over 20+ growth in that market. What we also highlighted is, we filed 160 applications in Europe, and we have been focusing on Germany, on Italy, mainly a little bit in Portugal so far.
But now we have started to file application in France, in Spain, in the U.K., mainly in these three markets, on top of the three markets we were in before. What that means is, if there is extra capacity, you know, because I've been very clear that, like the CMO arrangement with Gilead, if there's no need for that volume anymore from Gilead, that would open up capacity for us. But now, with all these filings in Europe, we can utilize that for our own benefit. So we are excited about the opportunity.
We have used this year now, when we are, when we are utilizing the capacity extremely well, both for our own business but also for CMO, is to file more applications, so we don't have this dip you're referring to in the capacity if, if the CMO volume goes down and we don't have the COVID volume. So I'm excited about Europe. Over 20+ growth in the markets themselves, which we saw in 2020. So you can see based on the math, that really Gilead wasn't a big game changer for the injectables. It was important, I think, for two things. It was important for recognizing that we took in Gilead, we started to manufacture remdesivir.
Within six weeks that we reached agreement with Gilead, we had the product on the market, which is amazing, by the way. And the second thing is, it shows the flexibility and the capabilities of what we are doing, and the recognition that Gilead chose us, and we have been an integral part of that. But if that volume goes away, we are ready now with all the new applications to step in with our own products.
Thank you very much.
Our next question is from Casey. Casey, please go ahead and ask your question.
Hi, Dave. Thank you for taking my questions. I have three, please. One on Advair. Have you had discussions with the FDA on if you require inspection or not? And if this is something that you'll know during the four months review period, or do we need to wait for the entire four months, and at the end of it, we'll know if you need an inspection or not? That's one. On the second one, Vascepa. In your guidance, how many generic players do you assume will be operating in the Vascepa market, please? And the third one, what are you assuming for new launches for Generics division? Thank you.
So if I start with Advair, to be clear, this is an analytical method, so there's no inspection required. So it's not an inspection. Remember, we got the full approval in December without an extra inspection there, so this is just an analytical method, pre-approval supplement. So there's no expectation or even... I don't think it's theoretical that an inspection would be required for that kind of pre-approval supplement. On Vascepa, it's difficult to say, but how I think is, I think Dr. Reddy's has been pretty vocal that they are coming to the market. I think the expectation was before the end of March, they would come to the market.
I don't know their timing, but they talked about that they would bring this product to the market before the end of their financial year, which I think is end of March. I think Teva has the approval in hand. I don't know what their situation. And then Apotex is the fourth filer. They don't have approval in hand. So it's difficult to say exactly how many players, but you know what? I wouldn't be surprised if there would be, maybe by the end of the year, three players. There is a possibility of the fourth, but I think the fourth player is highly unlikely. The third one, if you repeat that again? Sorry, Casey.
No worries. It's the pipeline assumption that you have for generics in terms of launches.
Yeah. So the launches are a little bit difficult. We are still in the mid- to high-single-digit launches that we have in the year. Obviously, with 6 launches last year, we did more than approximately 10% of the revenue, which was amazing. So I don't give the exact revenue I expect from this, but we are still in this mid- to high-single-digit launches that we have for the year, in the generic business.
Thank you.
Our next question is from Patrick Wood. Patrick, please go ahead and ask your question.
Perfect. Thank you very much. Just two for me, very quickly. The first would be surrounding slightly weird release from Civica in terms of putting down some capacity, small, but, you know, $200 million-$250 million on generic injectables. Why do you think they're doing that? It seems an odd thing to do. Is that a function of the shortages? I mean, I'm just curious how you feel about that. And then the other one is one of your peers obviously has a 483 letter on their biggest production plant in the U.S. You know, we, we've been here before. We remember Grand Island back in the day and obviously McPherson and then, you know, Rocky Mount for Pfizer.
I'm just kinda curious how you feel and you're thinking about potential escalation there and whether that would impact the volumes for you guys positively or no real impact. Thanks.
Yeah. So, you know, first of all, Civica has been a great partner this year. They have been, I think, learning the business, so it has been a gradual increase in their business throughout 2020. We are very pleased with the working relationship. This is a take or pay relationship, where we obviously commit to a strong service level, but they commit to a minimum volume. So, Civica really was one of the customers that came out and really delivered on what they said in 2020. In terms of their strategy with Phlow Pharmaceuticals of building a plant, that really doesn't impact us in a way. It's a relatively small plant.
I think they're saying this will be for critical product that needs to be manufactured in the U.S., American-made, to make the supply, you know, 250 million volume in capacity. It's a relatively small plant on the overall scale of the U.S. market. It will take quite a few years, you know that. I think Hospira can tell you how long it takes from when you start to break ground until you have first moved in products and validated and gotten FDA approval. So this is not even in the short to the medium term. This is medium to long term, where this will start to affect the market. So in a way, this is not of concern. They are a good partner. We are happy with the relationship.
So really, we monitor obviously what they're going to do, but at this point in time, we don't see this as a risk to our business. In terms of quality challenges of our competitors, we always monitor this very, very carefully. We have done a full overlap analysis of this plant versus our portfolio. We sit with a little bit extra inventory on these products if the case would be that they can't supply it to the market. At this point in time, we don't see... There might be one or two products where we are seeing them struggling a little bit at this point in time, but really it's nothing. Because you have to remember, they probably are sitting on five, six months of inventory themselves.
So, you know, but just in case, we want to be ready to step in if that opportunity would come, but we haven't assumed that in our guidance, that there will be a big shortage in the market due to that. But we always need to manage, and we need to be ready now in preparing and having an inventory on the overlap portfolio if this would happen.
Very clear. Makes sense. Thanks, guys.
Our next question is from Emily Field. Emily, please go ahead and ask your question.
Hi, thanks for taking my questions. One quick one, just how many launches in U.S. generics does your guidance anticipate for 2021? And a couple, I guess, more structural, high-level questions. The first being, you know, there's been a lot written in the press, like a few articles in Stat talking about, you know, coming out of the pandemic, U.S. hospitals potentially having more political power. And I was just wondering, you know, would that resonate into purchasing power as well? You know, if you see sort of the competitive dynamics between yourselves, the manufacturers, and the GPOs changing at all coming out of the pandemic.
And then also, you know, just, about a year ago, kind of when the pandemic started, all of the, you know, big kerfuffle about, you know, the re-domiciling of API or, generic, manufacturing, seems like that's gone completely dead. Is that still an issue that you're hearing at all, you know, in the—in either the U.S. or Europe? Thank you.
Yeah. So the answer to the first one, we are assuming mid- to high-single-digit launches on the generics, so five to10 launches. We don't know exactly. We had six in 2020, so similar number in 2021. In terms of the pandemic and the influence of the hospitals and the buyers, I think this is highlighted by my previous comments about inventory. So really, we haven't seen so much conversation about maybe pricing or changes of that, but many of the conversation we are having now with the hospitals and the GPOs is they're asking us to secure that we sit on a significant inventory just in case. And that has changed.
You know, people are even asking us to sit with up to six months of inventory, which, you know, isn't the best use of working capital, as long as you have the flexibility of manufacturing things. So we are working with the customers of having inventory of API, but maybe not of a finished goods. But that really is the conversation now, is how can you secure the supply just in case? So we are changing the supply chain from just in time to just in case. And how we can address these concerns and the requests from the GPOs and the hospitals of sitting on more inventory without really ruining the working capital we are working on. Because we want to maintain a good service level, but there is also a balance of...
Because they can then change. You have to remember how the chemistry is with the customers. If they get a 10-cent lower price on a vial, they can move to somebody else, and I'm sitting with six months of inventory of a product. So there has to be some kind of commitment both ways, for us to invest in that kind of things. So we feel there will be a change, but will the economy change? I'm not sure. I'm not seeing that yet, but we obviously are keeping an eye out. But what I say, based on the previous question also is, people, the customers, wants to be closer with us. What they mean is, they ask us much more now: "How much inventory do you have of this product?
Can you supply me over the next three months?" You know, so they are, they are more on top of the supply chain than ever before. So the transaction relationship that was, you know, very much, and is still in the U.S. generic, is less in the, in the hospital setting, where they want to understand the supply chain and where they, where they have less of a risk of shortage. The re-domiciling issue, it's probably not dead. It will come up again. But I think most people have realized it. I think in total there is about 3,500 molecules that are generics around the world today. And we are not going to re-domicile 3,500 APIs to the U.S. Will never happen. But are there a few APIs which is critical to manufacture here? Yes, probably.
Are there a few products which are critical to be manufactured locally for the security of the market? Probably. So I think this conversation will happen. You heard in the news yesterday that Biden was talking about re-domiciling. Now he's talking about computer chips, so I think the next thing might be coming into pharmaceuticals. So we need to keep an eye on it. I think we are extremely well positioned to do that with our plant in Columbus and in Cherry Hill. So majority of our volume that we sell in the U.S. is locally made.
But I think people will need to find, and will find, this balance of finding the key and critical products and molecules that should be manufactured locally versus trying to make it as a political issue, that everything should be moved back to the country, because I don't think the pricing will allow for it.
Thank you.
Our next question is from someone on the phone. Can you please introduce yourself and go ahead and ask your question?
Hello?
Hello, we finally got you.
Oh, hey, so sorry about that. Hey, thanks a lot. Just, I wanted to get a bit more clarity on your strategy for the leverage of the business. So-
Sorry, could you introduce yourself?
Can you hear me?
Could you introduce yourself?
Yeah, sure. Alexandre Craye. Alexandre Craye from Oddo BHF.
Okay. Very nice. Sorry, go ahead.
Yeah, I just want to get a bit more color, if possible, on the leverage strategy. So I think you had very low leverage over the last few years, and now it's kind of ticking up close to 1x. I think with this acquisition in Egypt, if it goes ahead, maybe you're gonna be close to 1.5x. Is that fair? And then I want to get a better feel about what's your strategy on the leverage side? Thanks.
So maybe if I start, and then I hand it over to Khalid. But, you know, we haven't made an offer, so we don't know what—if a transaction would happen, what the purchase price is. So we can't comment on how and if it happens, how that would affect our leverage. But, Khalid, maybe you can talk a little bit about our debt financing and where we are.
Yeah. Thank. Thank you, Alex. We always said in the past that our target leverage ratio is around net debt to EBITDA of not more than 3x . So three, three and plus, it depends on if we have a transformational deal. And we've never, if you look since we went public, we never reached that level. The maximum we reached was, like, 2.7, and immediately we were able to deleverage very quickly. So this is the level. We have now, I would say, enough facilities in place, enough firepower. We managed to issue our bond, Euro bond this year. We got two investment-grade status from Fitch and Standard & Poor's, and we are in a very good position so far.
Got it. But, on, like, for example, for 2021, our understanding is, like, you don't really have, apart from the Egyptian asset, many opportunities which are likely to realize this year. So is it fair to say that this year, your leverage is likely to remain between one and two times?
It's impossible to say at this point in time because, you know, transaction might take us shorter than a year, so it's opportunistic. But, you know, I, I think the commitment is that we, we, you know, we, we have a ceiling or a soft ceiling of three. If we go above that, it has to be a transformational that we deleverage within 12 months below three. But overall, we, we, we can't commit to exact leverage level, during the year. That, that would be the right guidance for us to give, but we, we have a guidance for, for the company as a whole, overall.
Fantastic. Thank you so much.
Thank you. Our next question is from Amy Walker. Amy, please go ahead and ask your question.
Hello. Sorry, sorry about that. Had trouble unmuting myself. Thank you for taking my questions. I just had a couple left again, they were both about the margin impact of some of the mix changes that were alluded to in your video earlier. So I wondered, in Europe, you know, with the high containment facilities and the growth that you've talked to in the injectables business within Europe, what is the effect of that, if anything, on your expectations for your medium to long-term margins in the injectables business? Clearly, the outlook today, again, sort of at the upper end of the 30% range. In the past, we've talked about that may be coming down. I'd just like you to update us on that. That's the one question.
And the other question was in the generics business, where you've talked about the rise in contribution from the nasal sprays and that side of your product portfolio. Again, I wondered if you could comment on the gross margin effect, if anything, on that. Are those higher, lower? You know, how's the mix at the gross margin level? I appreciate, you know, what you've already said about the OpEx and investments, but just gross margin, please.
Yeah. So thanks, Amy. So I think on the injectables, the impact of the high containment really now isn't so much because, you know, there's not a lot of oncology products coming out there. Where we are using that facility now is to help us in a way to address the extra capacity we had to take on due to the contract manufacturing on remdesivir. So we are using this plant because it's part of the Portugal plant. So we don't have to manufacture the oncology in that plant. We can also do regular product. So we are doing some regular product there.
So there isn't an impact in 2020 on the gross margin, but it gave us the flexibility which we needed that year because the demand was going up and down, and we took on remdesivir in the middle of the year to do it. So it was extremely helpful to get the FDA approval in the first half of the year. If you think about the margin, so I've always said that, you know, in a way, the base margin is around 35%. In good years, we hopefully do a bit better than that. In bad years, we could go a little bit lower. We are guiding now to 37%-38% for 2021, which is a good margin. The reason why it is a little bit lower, and you alluded to in your question, is that...
I think most of you know this is our highest margin, even though we don't report it like that, but I've been quoted in saying this previously. We have the highest margin in the U.S., next in MENA, and the lowest margin is in Europe. And that's the fact of it. It's a tender business in Europe, all the injectables. So the more business we have in Europe, even though it's profitable and it utilizes the plant better, the margin is a little bit diluted. It's still a relatively small business in the overall scheme of things, so it's not having a big impact on the final margin. But the more Europe grows, unless U.S. grows, you see that there could be a tiny bit of dilution on the margin.
It doesn't mean it's going to be a big transformation on that, but that's the reason why I'm always clear that 35% is, in a way, the base you should think about, and from there, the opportunities, risk and opportunities. The reason why we feel good about the year on injectables, a little bit outside of your question, is that, you know, yes, we don't expect the same demand for COVID-related products in 2021, or in a way, on a personal note, I hope we don't get the same demand, because of vaccination and other things like that. But I also think the elective surgeries will pick up to compensate for it. And, you saw in the graph on our slide how low they were. So this is why we feel good about the margin being in the 37%-38% range.
In terms of the generic margin, we don't report, obviously, on product category, the gross margin. The only thing I can say on the nasal spray is, it is a very competitive market. There are both Apotex and an Indian player, Wockhardt, are competing on all the nasal sprays, so it is a competitive market. On top of that, the devices, the nasal spray devices, are quite expensive. So it's not a huge contributor. It's not like. It's not a key thing to the improvement in the gross margin that you have seen over the years.
So it's not that, but I think we are managing well because the beauty of it now is why we have improved the margin a little bit is because we have a lot more volume, and that has helped us to offset both the pricing pressure on the competition and also the cost of, especially the devices for the product.
That's very clear. Thank you so much.
One last question, Leanne?
Yes, we have one from Pete Reddon. Pete, please go ahead.
So it's Pete from Fidelity. Last question, and apologies. Going back to the U.S. generics margin. If you execute on your strategy on Vascepa and Advair, can you just reassure us that, if Hikma does what they want to do, and you have a tailwind behind you, you know, with the products that you have and the potential of Vascepa and Advair, the ability for the U.S. generics business to post sustainable margins north of 20% is on the table. Obviously, you're not guiding to that, but I just want to make sure in your, you know, range of scenario analysis, if you execute as you hope to on Advair and Vascepa, just that you still feel that that is a potential margin out for the U.S. generics business.
I just want to frame the debate a little bit better, as it relates to U.S. generics.
No, absolutely, Pete. I fully agree with you. If everything goes our way and we get an early launch of generic Advair, we get additional supply of icosapent to the market, we have the opportunities to be in the twenties. There's no question about it. The question for me is, and it came to the typo question, was, you know, how much of that do we want to invest in R&D? And that's the question, you know, because with the extra inflow of bottom line, where do I want to position the profitability? Because I can spend a lot more on R&D, but obviously, I want to run the business to the best return on investment.
So, so I, I would like to do a little bit more R&D if I can, but it has to do with... You have to remember, with guidance around 20%, as we gave this morning, it has a lifter both in sales and marketing dollars and in R&D and generics to get to that number. So, so the run rate, if you compare to the cost basis that you saw in 2020 versus 2021, the run rate is in the 20s. But the question now I'm, I'm doing is: how much do I want to invest in the infrastructure that gives me the outer years benefit on sales and marketing and R&D?
Thank you.
Very good. I think we are just out of time. Happy to talk to any of you. If there's any burning questions, we are available. Susan, Leanne, Guy, and the team, available on the phone all day today, and if you need to speak to me or Khalid, they will be happy to set it up. But I appreciate you joining this morning. Thank you.