Morning, everyone, thank you for joining Hikma's results Q&A today. Hopefully, you have all been able to download our pre-recorded presentation from hikma.com. I'm very pleased to have our Hikma management team here with us today. We're joined by our CEO Said Darwazah, our CFO Khalid Nabilsi, the Vice Chairman of Hikma and Head of the Branded Business Mazen Darwazah, the President of Injectables Riad Mishlawi, and the President of Generics Brian Hoffmann. With no further ado, I will pass the call over to Said.
Thank you, Susan. Good morning, everybody. I'm sure you've already or I hope you've already read the releases. I'm extremely happy with the results this year. In a very relatively tough year, we have delivered resilient results. Our top line is almost the same as last year, and the core operating profit is down about 6%. When you consider the extra interest rates that we paid, the shipping, the fuel, the inflation, and so on, it really shows that the company delivers very good and very resilient results. The injectables and branded businesses, of course, have done extremely well. They were able to cover the downfall in the generic sales with very good growth and still hopefully much more growth to come. We have a very strong balance sheet, obviously.
Net debt is around $1 million, so we still have a lot of firepower. We have successfully integrated two companies, Custopharm and Teligent. We are entering into new markets, especially in Europe. In the MENA, we are the third-largest company there now. We saw that in Saudi Arabia, which is now becoming the largest market there. We are, we are number one. Finally, generics delivered, you know, in my opinion, reasonable results, where we had margins of about 15% and delivered about $100 million in EBIT. I'm very happy with all our results, and look forward to having a great year ahead of us. With that, can we please start taking the questions?
If you would like to submit a written question and are watching via SparkLive, please use the Ask a Question button. Alternatively, if you're participating in verbal questions, please use the Raise Hand feature at the bottom of your screen to ask a question. If you have dialed in, please press star nine to enter the queue. Once you've been invited to ask your question, please turn your camera on, unmute and ask your question. Our first question is from Peter Verdult at Citi. Peter, please unmute yourself and ask your question. Thank you.
Yeah. Thanks, operator. Morning, everyone. Thanks for doing the call. Hi, Said and team. Peter Verdult, Citi. Three questions, please. Said, the obvious one for you, CEO search. If you were to frame the sort of innings we're in, are we in the late stage of naming your successor? Are internal and external candidates still in the running, or is it an external hire we should be thinking about given the time it's taken? Secondly, for Brian, could you talk a little bit about the CMO business within U.S. Generics, the current scale and dynamics, and how you expect to grow that? Just a little bit more flavor and insight there.
Riad, just on the compounding business, I think we're expecting first sales this year, but can you remind us where we are in terms of generating meaningful sales, timelines to profitability, and if I could push you on what you think a peak sales opportunity or when you speak to Said, what you think the long-term opportunity here is? Thank you.
Thank you, Peter, and thank you for getting that out of the way from the beginning. We are really at a very advanced stage, I have to say. We've had a very thorough search, and we are at a very advanced stage right now. We have very few candidates still in the running, and we are still looking at both internal and external. I think that we would be able to announce relatively soon, maybe, you know, I don't wanna give an exact time, but I think within the next, you know, six weeks, we should be able to announce our candidate and hopefully, I'm, you know, I'm sure I will be very happy with the candidate, and I hope the market will be happy with them. Anything more on that, Peter?
Sorry, Said. Can you hear me?
Yeah, I can hear you now.
Yeah. You'd think after three years I'd work this out how to unmute myself, but I didn't. No, I mean, look, I'm not gonna push any further. I think that would be all I can, so I'll.
We are at a very advanced stage, and we should be able to announce quite soon. It's, we're still looking at, you know, internal and external. We haven't, you know,
I suppose-
Okay.
I suppose my only follow-up question would be when Sigi arrived, I mean, obviously the Hikma business was under pressure. He needed to make some changes to U.S. Generics. I mean, it's not as if the strategy or the, you know, the company's in having problems at the moment. You know, what are you hoping for in terms of what do you want the new CEO to focus on or to sharpen up? Because you have a clear, coherent strategy across the divisions. I'm just wondering what you're hoping the new CEO brings to the table.
I think, you know, if you look at the businesses, it's very clear that All three businesses, but specifically the Injectables, has an extremely bright future ahead of it. I think that one of, you know, the biggest issues We could probably sell twice what we're selling if we had capacity and so on. I think we need somebody that can deliver on making sure that we will be able to deliver, to have all these three divisions delivering on time and what's required from them. To push the existing strategy forward give us the luxury to start, you know, again, looking at is there anything else we'd like to enter and how do we enter that, you know, what we'll be always calling the fourth part of the business.
Right now, I think executing on our strategy is very high. Somebody that can deliver and execute the strategy that we have.
Said, would you like me to take the CMO question?
Yes, please.
Hi, Peter. Great to see you. Thanks for the question. CMO is an important part of our business and important part of our strategy for the future. When we acquired Roxane Laboratories in the facility in Columbus, Ohio in 2016, we inherited a fairly sizable contract manufacturing business. Since we took over ownership of that business, we've tried to grow it. We're really grateful to have a fantastic state-of-the-art, high quality facility in the United States. It's one that has over 1 million sq ft of manufacturing space, over 80 acres with a really diversified set of technologies. Within our existing footprint and within our existing infrastructure, we have the ability to increase our capacity.
We're very interested in bringing in more volumes to that facility. We certainly have the ability to do so. Not only are we bringing in business that's accretive from a margin perspective, but as we bring in that additional volume, it lowers the cost overall across our entire portfolio. It, it really works well with the rest of our business. It's synergistic with it. As we've now put a really a focused initiative to advertise it, to engage with primarily, branded partners, we've been able to generate a lot of interest, due to the vast technologies we have, the high quality track record we have, and the U.S.-based manufacturing.
We've been engaged with multiple potential CMO partners at various stages of development, from the early stages, to partners who are already commercial and are looking for a commercial partner. It's an area that we want to continue to grow and improves the rest of the business and also improves our margins.
Okay. The third part of the question was?
About compounding, I believe.
Okay. Okay. Got it.
Hi, Peter. Regarding compounding, I think we still believe that this is a fantastic business to get into, very complementary to what we do. Also this is a business that we started as more of a startup. The disadvantage of starting a business that you have to really build it block by block, get state by state approvals, make sure that all your products are in line with the stabilities and all the data that you have. However, the advantage of building that, you do it right, you do it carefully, you do it in a very strong foundation, and this is exactly what we're trying to do. As you would know, you know, you need to get 50 states. Right now we're at 39. We still have 11 states to go.
We are trying to make sure that we don't overpromise, because in this business, continuity and reliability of suppliers, as much as the quality, is very, very important. We really don't want to go in very aggressively and very prematurely and end up introducing products that we cannot continue or take on more than we can supply. We're doing this very carefully. We're doing this, you know, step-by-step. We're still looking to get another 11 states there before we cover the whole United States. We're really progressing very nicely. We're putting a nice crew in together. We're adding to our portfolio more and more products. We're going to the hospitals, having interviews with the pharmacists in the hospitals to make sure what are their needs.
We want to go in with a niche products, not like the any other compounding company that we have out there. We know that we learned a lot from Nephron and their experience there and the void that they had left in the market when they are mostly right now they're not delivering a lot of the compounded products there. We believe that this is still a great opportunity. I don't know what meaningful means. I think we'll do this year, of course much better than last year, which we haven't done much. I don't think we really see the meaningfulness of this business until maybe a year or two after, maybe in 2024, 2025. We're still building.
I think, we'll get to the 50 states by the middle of this year, I hope. We will be able to start aggressively growing the business.
Thank you.
Thank you, Peter.
Our next question comes from.
Yes.
All right. Our next question comes from Thibault Boutherin at Morgan Stanley. If you'd like to unmute yourself and ask your question. Thank you.
Yep. Thank you very much for doing the call. If I can just push a little bit on the assumptions behind the guidance for generics and Xyrem within that. You know, I know you're not going to give us exactly what you expect from Xyrem, but just maybe the assumptions that you are using in particular for the second half of the year of this product.
You know, what we know is in theory, you have three more generic makers who have signed agreement with Jazz to launch an entire generic. As far as we can see from the FDA website, it looks like only one of them actually has an approval. When you think about, you know, the evolution of the Xyrem opportunity in the second half, you know, can you tell us kind of what expectation, what assumptions you have behind the evolution of the market? The first question, and maybe just related to Xyrem again, and thinking ahead of 2023, when you think about the generic business, obviously the Xyrem piece is probably going to, you know, to start eroding next year.
If you could just tell us conceptually if you think it's realistic, to have this business kind of, you know, being flattish or even potentially growing, you know, out of Xyrem, or if we should reasonably assume that we have a step down on generics in 2024. Thank you.
Okay, great question. First off, our generics guidance of low single digit revenue growth does include sodium oxybate. That's including in that number. I can't give you specific guidance on sodium oxybate, but we're excited to have launched the product in January. You know, we view the product as making a contribution across the entire year. We expect the other filers to launch on day 181 in the second half of the year. We expect that to have an impact in the second half of the year. Then we also, as we've disclosed, the second half of the year, our royalty payments for the authorized generic to Jazz do increase.
So we expect sodium oxybate to be a significant contributor in 2023, and then as you mentioned in 2024, we do expect, you know, following the exclusivity period, that that'll be a smaller contributor in 2024. But what we're really focused on strategically is to continue to grow the business. We're working very hard on growing our base business, our complex generics business. We're continuing to grow our contract manufacturing business as well as our specialty business. So our aim is to continue to grow this business beyond 2024. But of course, sodium oxybate will be a lower contributor then.
Our next question comes from Paul Cuddon at Numis. If you could please unmute yourself and ask your question. Thank you.
Hello. Thank you very much. I've got a few questions, please. I mean, firstly on the success of Custopharm and particularly Calcitonin, kind of far beyond the kind of six-month exclusivity. If you could kind of elaborate on the expectations for that particular product and maybe how you think about the broader kind of injectables pipeline. Secondly, we've been kind of discussing antibiotic shortages around the world and to what extent that might be benefiting Hikma. Thirdly, just on the kind of strong recent prescription trends for things like Vascepa and Advair and what your expectations are for those for the rest of the year, please.
Thank you. Riad, can you take the first two parts and then Brian, the last?
Sure. As far as Custopharm and Calcitonin, we Custopharm, we will have the benefit of a full year this year. We had integrated the company very well. I think we benefited a lot. The good thing about it is when we acquired this business, we dialed in in our assumptions that a new competitor will be in the market, and there was, as you know, Endo had entered into the market. That has been, you know, assumed when we, when we did the, when we did the acquisitions. It has contributed very well to the overall growth of the injectables and with very high gross margins. We're happy where we are today.
We're benefiting both from the pipeline, from the commercialized product, as well as from the team that we have in the R&D and the development. As you know, Bill Larkins, one of the CEO of this business, has joined us now. He is heading the injectables R&D. We're benefiting a lot from his experience and from his knowledge in this business. We're happy so far. Things have been gone exactly as expected and in line of what our expectations were when we acquired it. As far as the shortages, it's been, we're learning more and more that the shortages are not only in the U.S., but it is worldwide. Now that we're expanding in Europe, we're learning that countries do have shortages as much as the U.S. does.
We were able to work with those countries to take it from one country and feed it to another country. We're working with the agencies. Canada is a great example. For example, they had contacted us for some products that we have already approved in the U.S., but not in Canada, and we've had some shipments go there because of that. Same thing with France, same thing in Spain. We think that this is something with that we can really capitalize on with the large portfolio that we have and being so global and having products all over the countries, we can definitely be watching this very, very closely and try to capitalize on it whenever it's possible.
One is to make sure that the patients are benefiting from having a product on the market where they really need it, and from us creating a really good relationship with the regulatory agencies. This has been happening and it's been we're doing good at it.
Brian, do you want to take the last one?
Yeah, happy to do so. I think I'll address the antibiotic shortage first. You know, in taking a step back in 2021 and 2020, we really saw limited, much more limited antibiotic use in the United States and due to COVID and social distancing and, you know, people not traveling as much, we saw much lower demand. The shortage situation that we experienced as an industry in the fourth quarter of last year really caught a lot of us by surprise. It maybe caught our customers by surprise, caught us by surprise, and certainly put a significant stress on our operation. I'm really pleased with the way that our teams responded. We quickly ramped up our production.
We went through a 24/7 scheduling of production. We went above and beyond that, and even air shipped products to get the product into our customers' hands as quickly as possible to do everything that we could to resolve that shortage. It was a revenue growth opportunity from 2022 over 2021, but it is a lower margin product for us, so not as material to the bottom line. Of course, very important to our customers and very important to our patients. I'm really pleased with the way that our operations and supply chain teams responded. You know, since then, we've seen that demand taper off a little bit, but we're expecting a little bit more of a spike now going into the spring season.
We're preparing for that and working very closely with our customers. My hope is that given the situation that we can begin to think longer term with our customers and how can we prevent these shortages in the future. I think it requires a really good partnership from both the manufacturers and our customers about, you know, let's plan for demand better and maybe excess demand so we can avoid this situation in the future. That's my hope for antibiotics. I think if we partner well, we can do a better job moving forward. Regarding Vascepa and generic Advair, I'll kind of put them in a similar bucket. Our expectations for this year is that we will see on both those products some more competition, which could result in price erosion.
Our, our guidance anticipates that. The opportunity, I think both for Vascepa and generic Advair is that we see greater brand to generic conversion. In the case of Vascepa, the brand still controls over 60% of the market share, and with generic Advair, the brand still controls just over 50% market share. Where I think the opportunity is for generics, even if we do see more competition, if that equation starts to shift more toward generics, I think that'll create more volume opportunities and give us the chance to grow those products. That's, you know, that's our hope, but our guidance does anticipate some price erosion on both.
Our next question is from Emily Field at Barclays. Emily, if you'd like to unmute your line and ask your question. Thank you.
Hi. Thanks for taking my questions. Just a couple on generics. One, just I think that you've been talking about expectation in the guidance for 2023 of double-digit price erosion, if I'm correct. You know, given I know IQVIA data can be helpful or not directionally, but it does look like that's been, you know, trending much better lately. In your view, is that a conservative assumption or just, you know, any thoughts on sort of base business generic pricing? Maybe also if you could give just a little bit more color or figures around this rationalization of the R&D pipeline, that, you know, resulted in the impairment charge and just more details on how you realigned the portfolio there.
Then a question on branded. You know, the guidance now with a range between mid-single percent and high single percent, not that that's a significantly wide range, but just if you could give any details on the drivers that will, you know, result in the lower end versus the higher end. As that is constant currency, if you are expecting significant currency, a currency impact at this time for the year. Thanks.
Thank you. Brian, then Mazen.
Great. Thanks, Said. I'll start off with the generics questions for the first around price erosion. In 2022, we certainly saw low digit price erosion, a low double-digit price erosion, I'm sorry. That was pretty consistent throughout the year. Given that we saw that in the fourth quarter, our expectation and certainly in our guidance, we're expecting to continue to see that trend. You know, I think there are some signs that it could be improved next year, and that's always our hope that things get better rather than worse. I think we're seeing the FDA be significantly more active in inspections. You know, could that create disruptions? Could competitors have supply chain disruptions, et cetera?
All those things could help improve the overall environment. But our guidance does contemplate that that low double-digit price erosion will continue into 2023. In terms of the rationalization of the pipeline, as what we do as part of the ordinary course is we're always constantly reassessing our pipeline. In every, any given year, we're also constantly looking at, you know, what can our P&L support in terms of investment, and we'll make prioritization decisions along the way. So that's really part of the ordinary course. We manage that very closely as a division and as a group overall. In terms of your specific question around the impairment, we did take an impairment, as you saw. That was due to, you know, really two things. The first due to the intangible assets around generic Advair for our reduced expectations.
We reassess that every year. We've taken impairment before. This was another one that we took on the intangible assets. Then we also took an impairment around the property, plant, and equipment, due to some excess capacity for generic Advair, as well as some of our other respiratory assets in the pipeline.
Good evening. For the MENA, actually this is the first time that we guide the mid to high range single digit in the MENA. The reason is that we're growing in the MENA with new therapeutic classes, and we're getting more in-licensed products in the MENA in the pipeline. Now, what really depends is the Egyptian market. You know, Egypt today is our third largest market in terms of volume, and the currency in Egypt has been quite, I would say during last year and the beginning of this year, it has been very volatile. A lot depends on how the market will end up in Egypt, what the currency will be like. We will update the market hopefully within half the year half. We still do see a growth in the MENA region and other markets.
We're doing quite well in Saudi Arabia and North Africa, like Algeria, and in other markets where we have presence for a very... we've been here 45 years, so we've witnessed this before and we can maneuver through the different cycles that we have in this market. We're confident that we'll be able to achieve the guidance that we've had on a constant currency basis.
Thank you.
Thank you.
Just a reminder, if you would like to submit a written question and are watching via Spark Live, please use the Ask a Question button. Alternatively, if you are participating in verbal questions, please use the Raise Hand feature at the bottom of your screen to ask a question. If you have dialed in, please press star nine to enter the queue. Once you've been invited to ask your question, please turn your camera on, unmute and ask your question. Our next question is from James Gordon at JP Morgan. James, if you could unmute yourself and ask your question. Thank you.
Thanks a lot. I think I'm unmuted. Yeah, thanks. James Gordon, JP Morgan. A couple of questions. One was also about the generics and the respiratory impairment on the right-hand there. Are you generally investing a bit less in generics now and redirecting that investment into injectables and branded, and they're more a focus? Or are there other areas of generics where you're gonna invest a bit more? How should we think about that? Is this an investment division or more like a one-off cash division? Second question would be on branded. The faster growth you guided for this year, mid to high single digit local currency, is that the growth rate at which we could now sustainably plug into our model? As in it used to be a mid-single digit business.
This is now mid to high, and it could even be high single digit over the next few years. How should we think about that? The last question was, I think Said mentioned the fourth arm of the business or what could be a future fourth arm. What areas are you considering investing in as the fourth arm, and where would you not invest? Which bits could be up for downfall there?
Thank you. The company is growing and our capacity to invest obviously is growing. I would say we are not cutting down on investment in generics, but with the extra capacity that we have, we're dedicating that more to the branded and to the injectables. We have been talking about expanding capacity significantly, both in MENA and in U.S. and in Europe in the injectables. We're building new facilities for the injectables in the MENA, expanding Italy, Germany, Portugal, and in the U.S.A. A lot of emphasis has been going on there. We are still going to be investing in generics. As I said, we're not reducing, but maybe not increasing. Brian, would you like to put a little color on that?
Happy to do so. You know, I think as Said mentioned, we continue to invest as a group. I think overall, we're contributing about 6% of our revenues to R&D, and generics is also in line with that. I think in any given year, we need to make adjustments to reflect the performance of the business, what the P&L can support. I also think in any given year, you could have particular products that are in your pipeline that may be more expensive than others. We could go up from that 6% in a given year as the P&L supports, as well as which specific projects that we're working on. We continue to reinvest for the growth of the business.
Thank you, Brian. The idea of the new businesses, we started some time ago a VC fund with $30 million to invest in digital health. This was like six, seven years ago. Recently, we've really expanded that fund. We've increased the value of the money that they can invest. We've asked more of our new board members to become involved, they are more savvy about the business in the States and so on. We'll be looking at, you know, getting not just into digital and so on, but maybe start investing in, you know, stage three, things like that. Products that initially we can bring to the MENA, because the MENA has the infrastructure to support originator products, because we have a lot of in-licensing.
Then see how where that trip takes us. I think, you know, again, we need to. We have been adding expertise in biosimilars. We have been adding expertise in biologics. We'll probably keep adding in that kind of expertise, looking at different opportunities. Before I hand back to Mazen, Riad, do you have anything else to add to what I just said? You're on mute, Riad.
Sorry. No, I just wanted to emphasize what you had said. We're putting a lot of money in expanding our capacities and getting into new technologies. As Said had said, we are expanding Portugal today as we speak. Same thing with the U.S. in Cherry Hill. We're doubling the capacity in Italy. Expanding in Germany, and we're building new facilities in both Algeria and Morocco, and we have big plans for Saudi Arabia. We're putting a lot of money in investing in new technologies and capacities, also in BDs and increasing our in R&D to increase our portfolio.
Okay. Thank you. Obviously, in the portfolios that we have, we're looking more and more at complex generics, both for the injectables and the orals. As Mazen said, for the MENA, more and more in-licensed products, oncology products, biosimilars, things like that. Mazen, you wanna take the branded question?
Yeah, sure. For the branded, I mean, when we got to the branded, one of our major issues in the MENA is not selling. The MENA is a very volatile market. It's very important for us to collect our money. We are very prudent on how much we want to expand in the markets and keep our healthy cash cycle. This is why we're witnessing many companies now leaving the MENA for the factor of the currency fluctuations. Because we are very entrenched in the MENA for the last 45 years, we know how the system grows. We will continue growing on a single to mid to high as we go forward.
What's more important than that, which we stated five years ago, that we want to sustain our profitability and increase it by 40 basis points as we go forward. It's not how much we sell in the MENA, it's how much profitable the MENA business will stay as we go forward. In, in a nutshell, a lot will depend on the fluctuation of the currency. A lot will depend on the political situation in these markets. A lot will depend on how we have managed our cash cycle as we go forward and continue improving our margins going forward.
Okay. Next question, please.
Our next question comes from Harry Sephton at Credit Suisse. Harry, if you could please press star six to unmute your line and ask your question. Thank you.
Brilliant. I should be unmuted now. Thanks for taking my questions. We've seen some Form 483s and importation bans at some of the Indian generic companies. I'd like to get your sense on whether you're seeing any significant benefits to yourselves from any of those, and how do you view your ability to gain market share and injectables in the current environment? My second question is, you partnered on a peptide formulation partner two years ago, and I wanted to get your take on the peptide injectable market more broadly. Clearly, it's one of the largest spaces in branded medicines currently. Is this partnership a sign that you're looking to be a meaningful player in this market longer term, including in the GLP-1? Maybe a third question, just on financial fees.
How are you seeing the impact of inflationary pressures on margins in 2022? Can you quantify how much that has been a drag in 2022? We've tended to see an inventory lag effect from inflation impacts to cost of goods sold. Is this something that you're expecting in your guidance for 2023 as well? Thank you.
Thank you. You know, I've always been saying that during COVID, the FDA was not really doing major foreign inspections. Most of the inspections were being done online. Although in the U.S., they were still being very active for the U.S. companies. I've always thought that once they go out there and start doing the foreign inspections, they will be issuing a lot of Form 483s and warning letters and so on, which we have seen. We have seen a major ramp up. We've seen this before. I don't know if you remember six, seven years ago. That was really what caused the major growth in those years and then caused the shortages and caused all these things to happen.
Obviously, there are benefits for a quality company that can deliver, that is ready to, you know, to pick up the slack. Maybe Riad, would you like to talk a little bit more about that and then answer the other question? Then we can ask Khalid to answer the financial question.
Sure. Yes, of course. You know, between, I think the major ones that were lately hit by the FDA as Sun and Intas and both we have some overlap products. We're watching the market to see how we benefit and capitalize on this. Sun, in particular, we have few important products that we overlap with. Intas more in Europe. Yes, I think as this happens, how ready and how flexible we are to capitalize on and benefit from that is important to us. We are agile, we are flexible, and we think that this, you know, will be able to capitalize. How much and... It's still not clear. We don't know.
We know that there's an input alert on Sun, we don't know what they can send to the U.S. and what they can't. This wasn't clear for us, I think the market can tell and shortages can tell. We're watching the market very closely, and we'll be ready to capitalize whenever the opportunity arises. As Said said, this is the course of business. This happens all the time. It hasn't happened in the last two, three years because of the pandemic. I think the FDA did not make it to a lot of inspections, we will see it more and more right now. I think they're getting more active.
As far as in our R&D, yes, peptides is a very important area where we're developing. We're looking at it, and we're hiring a lot of expertise in our development centers. We're also looking at partnering with a lot of other companies through some kind of a BD licensing or co-development. We understand that this is a very complex, but also it's a very key to our, you know, differentiated product ambition that we have. We are trying to find few partners that we can co-develop with and create together some kind of a partnership in getting to the market with those important products. You know, this is amongst our strategy of bringing in differentiated products to the U.S.
Thank you, Riad. Brian, is the generic business going to benefit from all these Form 483s and warning letters?
You know, we are starting to see some disruption on the market. You know, similar to injectables, there are a number of companies who've gotten significant Form 483s and/or, and/or warning letters. We're always monitoring to see if there's opportunities, and we're hopeful there will be some.
Okay. Thank you. Khalid, you want to take the financial?
Yeah. Thank you, Said. In terms of cost of inflation, as you know, this is a global issue now, and we are seeing it more in utilities, consumables, freight, labor. We continuously look into our cost, supply chain procurement using our scaled relationship to drive efficiencies. In 2022, we've seen around like $20 million+ in cost inflation, and we will see some as well more in 2023, but all anticipated into our guidance. In terms of inventory, I would say, as you've noticed in our financials, there's this big jump in inventory of around $100 million. We have like the cost more of stocking the inventory, and for the reason to make sure that we have continuity of supply.
We don't anticipate significant, I would say, increase in API, but mostly in the consumable side, but it's all reflected in our margin and guidance for the group.
Thank you, Khalid. You know, I'd like to add.
That's helpful. Oh.
I'd like to add, there are two things that are different now than they were, let's say, six, seven years ago, regarding the Form 483s and the warning letters. In the past, when a company got a warning letter or a major Form 483, we used to see the FDA not approve new products for them. Right now, that's not happening. They still get the warning letters, and they still get some products being approved. We're trying to figure out, you know, where the FDA still stands on that. The other thing was prices used to rise significantly when there were shortages. Right now, it's more difficult. Obviously, somebody that's not on a contract, you will have to pay more than those that are on a contract.
Relatively to where we were seven, eight years ago, we could, you know, where the industry used to raise prices significantly, that has, you know, moderated. The price increase, there will be benefits, but not as big as they used to be.
Yeah, that's helpful. If I could just quickly ask another one on the U.S. generics. I understand that your U.S. pricing assumption for 2023 is for the erosion of price to continue to be low double digits. It seems that commentary from some of the Indian generic companies is that it's more stabilized pricing. I'd like to understand a bit more whether the pricing you're seeing is being largely driven by specific products and your product mix. Is it generic Advair and icosapent ethyl as the larger products which are seeing a more meaningful price erosion? Or are you seeing the low double-digit price erosion more broadly across your portfolio?
Great question. As I mentioned in the fourth quarter last year and pretty consistently throughout the course of the year, we saw double-digit price erosion. We're expecting that trend to continue. As you highlight, you know, price erosion is always a function of your portfolio. In some of our larger products like icosapent and generic Advair, we do anticipate that some new entrants could come into those markets which would result in price erosion, which given the size of those products, would be more significant for us. We are seeing, we're still seeing, you know, competitive intensity in some of our other products. Overall for the business, that's why our guidance reflects low double-digit price erosion.
Okay. Thank you.
Our next question is from Christian Glennie at Stifel. Christian, if you could please unmute your line and ask your question. Thank you.
Hi. Good afternoon, guys. Just following up on the generics and the guidance for this year, 2023 on the margin side, the 16%-18%, just to understand what some of the swinging factors might be there to go to lower or higher end of that range. Is it really just your success with generic Xyrem or is there anything else to be aware of there in terms of the fluctuation there? Then, which may be a related point, any comments to make at this point in terms of expectations around some of the specialty products, RYALTRIS obviously launched last year, but this will be the first proper sort of allergy season this year?
KLOXXADO, any impact you're seeing or expectations around the change in Narcan to OTC and the like. Any comments on that one? Thank you.
Okay. There's a couple questions there. First on the, on the guidance range. There's a number of factors that could push us to the higher end of that range. Generic Xyrem just being one of them. You know, others we're just talking about price erosion. If that's lower than what we're anticipating, that could improve. Some of our other products, if we don't see new entrants on and/or if we see them later than we're projecting, that could push us to the higher end of that range. We have some new product launches, and we have some products that we launched late last year, which we're ramping this year. If they do better than expected, that could push us to the higher end of that range.
We're also seeing volume growth this year, whereas we saw volume erosion last year. To the extent that that volume growth is greater than we've anticipated for this year, that will also push us to the higher end of the range. It's a number of factors that we've reviewed as part of our guidance. I'm sorry, your next question on generics was?
Yeah, any comments on the, on the specialty products, KLOXXADO, RYALTRIS, in terms of expectations this year?
Right.
Versus last
we're, you know, we're continuing to focus on our KLOXXADO product in both the RX pharmacy market as well as the state government market. We're looking to continue to grow that product over the course of the year. We also got approval and launched our RYALTRIS allergy nasal spray products. We're now going into the peak allergy season right now, so we're seeing some good prescription growth on that. We're working closely with our retailer partners to get that stocked and get the pull-through at the pharmacy level. Both those products we expect to be contributors to our growth this year.
Our next question comes from Victoria Lambert at Berenberg. Victoria, if you'd like to unmute your line and ask your question. Thank you.
Uh.
We can't hear you.
Okay.
No.
Hello? Hi, can you hear me?
Yeah, we can hear you now.
Oh, there we go. I've got a couple of questions, please. The first one is just on the brand of business. You guys mentioned at the J.P. Morgan Healthcare Conference that you guys are now number three in MENA. Who did you overtake? What are the things you're doing right? What is the goal in that region? Just on your biosimilar strategy, is the strategy there just still to go into partnerships? Is there an update from Biothera and Rikta with timelines for those products? I just noticed for your generics business, your target, I think it was to reach 30% of sales from specialty that's being moved to 2026 from 2025.
Just wondering what informed that change. Thank you.
Thank you. For the biosimilars, right now our main strategy is to work with partners. We have been adding quite significant amount of products both for the MENA and for the U.S.. I'll let Mazen and Riad, explain a little bit, more regarding those. Mazen, also you have a question of, who did you overtake to become number three?
In the MENA, the market has always been dominant by multinationals. We have Sanofi, we have GSK, we have Pfizer and these companies. We took over the market share of becoming number three...
Now we are one of the top five players in the MENA in terms of multinationals. We took another multinational, and we succeeded them. That was GSK, if I remember properly. The reason is that we increased our market share in Saudi Arabia and in Egypt and in Morocco. We have advanced in these markets, and therefore, we were able to upbeat those companies. Now, like we said, we are number three in terms of volume. Also, you have to look at another thing in the MENA, that there is a called tender business, and many times this tender business is not being calculated in the IMS or the IQVIA data. Now we're talking about the pure private market in terms of statistics. Riad?
As far as the biosimilars, you know, as Said has said, you know, our biosimilars continue to be a very important part of our business, and we would like to grow it and would like to keep it, you know, continuously filled with the pipelines and products. In MENA today, we have three products that are commercialized. We have six products that we have agreed with Celltrion and three to be launched soon. We think that this business has been a good business for us, a good partnership with Celltrion. I think we're trying to expand that one to see if we can do fill and finish as well with the new facilities that we're building in North Africa.
We can get the advantage of being local manufacturers of those. There's a lot of focus in MENA on biosimilars, and it's a big driver for the growth that we have. As far as the U.S., with Biothera and Vidian Therapeutics, we feel that we are on time. We're anticipating launching those two products in 2025. We are looking and talking to a lot of different partners also to expand our portfolio in biosimilars. I think very soon we'll start building the commercial arm for that, and we have already started hiring expertise in this field.
We think that this is something that we'll be focusing on as we grow the business into the biosimilars. So it is an important part, and I hope this will grow, and we'll have better news or more news about partnership, partnering with other companies with bringing more products.
Thanks. Just on the generics business, the specialty target being pushed out by a year, just any comment on that?
Yeah. Every year as we do as a group, we refresh our five-year business plan, and we reassess how, you know, all components of the business are growing. We're still very optimistic about our specialty business. We have three branded products on the market today. We have two more in the pipeline, and we're still looking at other opportunities for that business. Our expectation is that business is gonna continue to grow, but we're also making some very good progress on some of our other strategic growth areas. Our contract manufacturing business, our complex generics business, and growing our base business and looking at where we can selectively look at international market opportunities.
I think as a function of putting that all together, the percentages and timing may have changed, but we're still optimistic on all those strategic growth areas for the business unit.
Cool. Thank you.
Thank you.
I will now hand over to Guy Featherstone for written questions. Thank you.
Thank you. Yeah. Just, one in for Brian. Brian, how do you see Amazon's new generics prescription business affecting you, and could you be a supplier?
To date, we haven't really seen much of an impact on our business with Amazon. We are speaking with Amazon, and we are finding opportunities to collaborate with them. We do supply them some products today. We do see that there's a potential opportunity for us to do more business with them. Their focus so far has been more on cash paying customers, so it's been a smaller portion of the market. We'll stay close to that new channel and see how that evolves over time.
Thanks, Brian. One more question, a two-parter. Firstly, for Khalid. On the balance sheet, could you explain the shareholder equity fall from $2.4 billion to $2.1 billion at end of 2022? Did the acquisition of Custopharm affect this? Secondly, to Brian, on chargebacks in the U.S., is there anything to update here about chargebacks and changes in policies for 2022 or 2023?
Sorry, Guy. What's the first question?
Just on the balance sheet, the reduction in shareholder equity, I think probably related.
Yeah.
To the-- or kind of the-
Yeah. It's mainly related to impairment and dividends. It's nothing I would say impacting the business itself.
Thank you. Brian, did you get that question?
There's a question about chargebacks. You know, chargebacks are part of the ordinary course of the business. You know, as a company, we're a continuous improvement company, so our internal operations, we're always looking at ways, whether it's chargebacks, whether it's other, you know, support areas. We're always looking to see how we can do things more efficiently. Chargebacks being one of those areas. I don't see anything noteworthy for me to highlight there.
Thanks, Brian. I think with that, assuming there are no other questions on the line, which I can see there aren't, I will hand over to Said for some closing remarks and to wrap up the call.
Thank you. Thank you, Guy. Thank you to all of us that participated. Thank you, team. We'll see you soon. Take care. Bye.