Hikma Pharmaceuticals plc. (HKMPF) CEO Siggi Olafsson on Q4 2018 Results - Earnings Call Transcript

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Earning Call Audio

Hikma Pharmaceuticals PLC (OTCPK:HKMPF) Q4 2018 Earnings Conference Call March 13, 2019 5:30 AM ET

Company Participants

Siggi Olafsson - Chief Executive Officer

Khalid Nabilsi - Chief Financial Officer

Conference Call Participants

James Gordon - JP Morgan

Max Hermann - Stifel

Peter Verdult - Citi

James Vane-Tempest - Jefferies

Paul Cuddon - Numis

Siggi Olafsson

So, good morning, everyone. Welcome. Thanks for joining us this morning. I know a few more faces than a year ago when I first joined the company. So to introduce myself, I'm Siggi Olafsson, the CEO of Hikma. With me here today is, Khalid Nabilsi, the CFO; part of the Executive Group of Hikma; and of course the Investor Relation. Joining us for Q&A will be, Said Darwazah, the Executive Chairman. So he will join us for the Q&A after the presentation.

So at the Capital Market Day, we presented the strategy for the Group. And what I'm going to do is to give you an update to that strategy, where we are, how we are progressing. Then I will hand it over to Khalid, to provide overview of the financial performance of the Group. And then of course, we will open for questions.

So turning to Slide 3, this is our Group highlights. The Group has delivered a strong performance in 2018 with a revenue and profitability significant above the guidance that we set at this time last year. Across the Group, we have been implementing a transformational changes and I'm very, very pleased with that we are starting to see the benefit of those efforts with a revenue up 7%, and importantly, the profit increasing 19% in 2018. These results show considerable progress and I'm confident we can continue to build on this momentum going forward.

But let's take a quick look at each of the three businesses. So starting on Slide 5. This year, we increased our market share by volume in the U.S. by 200 basis points, leveraging our strong position in one of the leading supplier in the U.S. hospital segment. We continue to expand our product portfolio and we added a new 50 new products to the portfolio offering in the U.S. And our broad product portfolio and the flexible manufacturing enables us to respond to the needs of the customers, which drove the volume increase in 2018. For some time now, we have flat that we have been seeing increased competition on the three largest product, glycopyrrolate, neostigmine and thiotepa.

As you can see on this Slide 6, on the left hand side, these products contributed around 35% of the revenue around 220 million in 2016. This number decreased by 50 million in 2017 to 170 million. And in 2018, the competition further intensified and the revenue from these products dropped by more than 100 million. These products are no longer our top three products. Together they only represent around 10% of the sale. And I would just call them the ordinary three products we have in the portfolio. So despite the significant headwinds, our U.S. injectable business grew in 2018.

So how did we do this? We saw a very good demand for our broad portfolio of 100 products. So the operating portfolio had the good demand and we supply them to the market with a good service level. We had a high number of new launches. We launched 50 new products to the market and combined with the products we launched in the previous year, although each and every one and maybe not big in terms of revenue, consolidated they have started to make a significant impact on improving the business. And then we also have an increased demand for some of the products that were in shortage, particularly products used for pain management. The increased sale of these pain management products amounted to around 70 million on a full year basis. That meant that the demand for these products was significantly less in the second half of the year versus the first half of the year.

But it's not only U.S. our European injectable business had another good year and we expected to continue the growth going forward. In MENA, our biosimilar Remsima is doing very well. Conversion of biosimilars has been much quicker than we expected. And I'm particularly pleased to see the market expanding as more people now have access to the products. We expect to launch another biosimilar this year Truxima, which is rituximab, which will be launched by the end of this year. To support the growth in both markets, we're expanding our manufacturing capabilities. We are putting the finishing touches to our high containment facility in Portugal and expect to commence manufacturing in the facility by middle of this year.

So turning to Generics on Slide 9. We give a little bit of an update on the market itself. We continue to see somewhat positive signs in the U.S. Generic market. The market really looks like it's stabilizing. However, it's important to know that the price erosion is still in the high single digits. And this might be the new norm of the market. It's reinforces what I've said before, to be successful in this industry over the long term, you must have a pipeline that consistently deliver to offset the price erosion.

The graph on the bottom is looking at ANDA approvals. As you can see in 2017, a record number of ANDAs were approved and we continue to see a high number last year. However, we are seeing a change in what companies do once they receive approval. Increasingly, companies are choosing not to launch products. In 2018, around 70% of the products approved, there was already a significant number of companies already in the market. It often doesn't make sense for companies to launch into these markets as product prices are already in significantly eroded and the size of the market opportunity has shrunk significantly. But the number - and so the numbers at the end of the day don't stack up. But I emphasize, companies are certainly not sitting on good market opportunities or exclusive products.

In this challenging environment, we've been doing very well this year. You can see from the table on the right that we are only one of five companies in the top 15 generic companies in the U.S. that grew last year.

So how did we do this? How did we achieve this? We really have focused on the things that we can control. This year, the team has done an outstanding job in driving demand for our marketing products, either through new business or by increasing the volume. This has been supported by improvement in our service level. We have remained extremely focused on the optimistic - to optimize our cost structure. We have completed the consolidation of our manufacturing and distribution centers. And we have started to see some benefits due to that in the numbers. We also have been focusing on expanding our product portfolio with 30 new launches under the number of partnership opportunities, some of it had immediate benefit to the top line. We are certainly happy with the progress we have made and the speed of the turnaround has exceeded both mine and the company's expectation. However, there's still more that needs to be done to deliver the sustainability of the margin improvement.

Our key priorities for this year are focusing on what more can be done to reduce the cost base. We have done a lot of work to reduce the cost of goods sold. But it take time for these changes to impact our numbers. We expect to start to see the benefit in the second half of 2019, and then into 2020. We also will continue our effort to improve the pipeline. We are investing in our internal R&D program. We will also continue to look for opportunities to leverage partnership and business development to add more products, especially complex products to our pipeline. In the medium term, we will start to see the benefit of our effort to strengthen our pipeline with more consistent flow of products coming to the market.

So let's turn the focus to the Branded on Slide 12. At our Capital Market Day, we discussed how we have adopted a tiered market approach to our markets in MENA to ensure that we have aligned our resources with the best opportunities. This is significant change for MENA. We've gone from focusing on expansion to solidifying and securing our position in the top markets. We've been investing in our Tier 1 markets. In Saudi Arabia, we acquired a direct distributor license, which is giving us more control of our supply chain. In Algeria, we have expanded our local manufacturing capability by acquiring new cephalosporin manufacturing plants.

In 2019, we will continue to implement this strategy. We are also undertaking a detailed review of our pipeline. There's a lot of products in our pipeline. And in fact, I think there are too many. We want to make sure that our efforts are focused on the largest opportunities. Partnership will continue to be an important part of our branded strategy and continue to form a new partnership and expanding the existing one. In the first half of 2018, we signed a partnership agreement with Perrigo, giving us an exclusive right to more than 30 consumer health products, and also first right of refusal to their pipeline.

So at our Capital Market Day in November, we discussed the three pillars of our strategy and you will see those on Slide 14. The focus in 2018 and into 2019 is on the first pillar, delivering more from the strong foundation. How can we execute better on what we have, improving cost, execute our new launches with what we have in hand today. The second part is building a portfolio to anticipate the future healthcare needs, expanding the pipeline in the environment where we see a significant price erosion, how can we grow the pipeline at a faster rate, and we see the price erosion in the market. And last but not least, it's inspiring, enabling our people.

Really the Hikma employees are the asset of the company. What they have done over the last 40 years to grow this company from nothing to 2 billion revenue company is astonishing. We have many employees that have been with the company for 20 years. But now over the last year, we have added to that Group, people with extensive industry experience from other companies. So combining that is very important to have the experience from others, but also having lived the Hikma life and values throughout the time to build it to the company that we have today. Across the Group, we have been focusing on these three area as we highlighted today. And I'm pleased to say we are already seeing the benefit and you also see that reflected in the numbers today. There's more to be done. But I'm confident by continuing to focus on these areas, we will deliver a long term sustainable growth.

And now I will hand it over to Khalid, who will take us through the numbers in more details.

Khalid Nabilsi

Thank you, Siggi. Good morning, everyone. As you can see, the Group achieved very strong set of results in 2018 with all three businesses delivered top and bottom line growth.

Core Group revenue was up 7% and core operating profit was up 19%. And given the Group's strong performance, and the board's confidence in the outlook and the board has recommended a final dividends of $0.26 per share, bringing the total full year dividends to $0.38 up from $0.34 last year.

Moving to the segment results. I will start with the Injectable. As you can see, the global Injectable business performed well with core revenue up by 7%. Just over 70% of revenue came from the U.S. business, which grew by 4%. And as Siggi highlighted, competition accelerated on our top products, however we were able to more than offset this with the new product launches and higher sales of in-market products. In particular, we were able to meet significant increase in demand for our pain management products, due to the shortage of supply in the market.

MENA sales were up 21% in constant currency, reflecting strong growth in Saudi Arabia, our largest market and a significant increase in sales of Remsima, the biosimilar product we licensed from Celltrion.

Revenue in Europe grew 15% in constant currency, as we had a very good contribution from recently launched product and expanded capacity for our lyophilised product. So core operating margin remained extremely strong at 40%, despite increased investments in R&D.

Generics. As you can see, Generics revenue was $692 million, up 13%. As Siggi highlighted, the retail generic market in the U.S. remains very competitive. However, the actions that we have taken to strengthen our commercial and operational capabilities enabled us to drive good demand for our differentiated products and for new product launches, which more than offset the impact of continued price erosion.

Core operating profit increased to $93 million, and the margin was 13.4%, a very strong improvement over last year.

Branded revenue grew 5% in constant currency. We've achieved strong growth in a number of markets, including Egypt, Jordan, Iraq, Libya, and Sudan and all in constant currency.

Revenue in Saudi Arabia was slightly down, due to the timing of sales. We have a number of strong pipeline to retain the business to growth in 2019.

Our business in Algeria was impacted by the temporary closure of one of our manufacturing facility, while we carried out some upgrades. However, sales accelerated in the second half and once the plan came back online, and we expect the momentum to continue into 2019. We also began manufacturing at our new cephalosporin plant at the end of last year, which will be another growth driver in 2019.

In terms of margin, Branded core operating margin increased to 21.6%, up 30 basis points. This was due to higher gross margin and the release of doubtful debt provisions following collection we had during the year.

In terms of investments in R&D and CapEx. Our R&D investment was $118 million, 6% of Group revenue. We continue to develop our pipeline in 2018. We've increased our R&D spend for both our Injectable and Branded businesses. Generics R&D spend was slightly lower this year following a detailed review of the pipeline that we did late 2017. So now we have fewer products in development for that business.

In terms of CapEx spend, it was $107 million, just under half of that was invested in the U.S. Expanding capacity, adding new capabilities for both the Generic and Injectable business. And a similar amount was spent in the MENA and the maintenance and expansion of our MINA facilities. This included upgrades to our facility in Algeria and Egypt and in Jordan, which enabled us to manufacture new in-licensed product. We're also building two manufacturing plant in Algeria, one for oncology and one for injectable.

In Portugal, and as Siggi highlighted, we are now close to completing our new high containment facility, which will come online later this year. So you can see we are still investing to ensure continued growth for the future.

In terms of balance sheet and cash flow, the Group continue to be highly cash generative in 2018. Our operating cash flow was $430 million and our balance sheet remained very strong. So net debt decreased to $361 million. Our net debt to core EBITDA was less than one. So this will give us the financial flexibility to add to our pipeline through partnership or through acquisition when the right opportunity comes.

Finally, the outlook for 2019. As you can see, we now expect Injectable revenue to be in the range of $850 million to $900 million in 2019. And we expect core operating margin to be in the range of 35% to 38%. Generic revenue is expected to be in the range of $650 million to $700 million. And we now expect core operating margin to be on the mid-teens. Branded revenue is expected to grow in the mid-single-digit in constant currency. And now we expect a Group net financing expense to be around $50 million and cost effective tax rate to be around 21%. Group CapEx is expected to be on the range of $120 million to $240 million.

I hope I gave you a good overview of our financials. Now ready for questions.

Question-and-Answer Session

A - Siggi Olafsson

So let's open it up for Q&A. We first take from the room here and then maybe later on from the phone, people calling into this meeting. So just raise your hand, there will be a microphone, if you would introduce yourself. There's already a hand. Yeah.

James Gordon

Thank you. James Gordon from JP Morgan. A couple of questions, please. One was on Injectables. So, can you quantify how much of a benefit you're expecting from new launches this year? I think previously you said 15 to 20 products, but that will be quite small. So how much when you launch, benefit can we have and you also refer to growth of in-market portfolio. So are there particular products there that could be helpful growth drivers for the year? Second question was just M&A in terms of, are we likely to see anything big this year, so timing and scale? And then the last one was just generic Advair. I know you said a re-filing this year, but can you just remind us on data is where you are on the study, if you fully enrolled the study, and when do you think you're going to get data from the generic Advair study, please?

Siggi Olafsson

So, thanks, Jim. So, first one, in Injectable business. I think in terms of the launches, we have highlighted that each and every launch is relatively small, usually between 2 million to 5 million in revenue. But 2 million to 5 million, if you have 15 to 20 launches, they start to make an impact into the overall business. I can say that in terms of revenue contribution from new launches in Injectables this year, in the U.S., it was 7% for the full year. So really, I think they have started to pick up. And for the international markets in MENA and in Europe, it also was 7%.

So you heard my goal at the Capital Market Day. I'm aiming for 10%. So we still have some way to go, but they are well on the way there. I think in terms of big projects, we haven't highlighted it. That's probably part of the confidentiality. We want to surprise our competitors when we come to the market. But maybe I can highlight one product that we saw approval of our first prefilled syringes, we got the approval for the first prefilled syringes by the end of last year. We haven't launched that to the market because we want to have the full set of strengths available when we come to the market. But you will see some of the things that have been talked about in the past will start to come to the market this year. So I'm really pleased with the effort on the Injectables, also on the R&D as Khalid mentioned, the Injectable business was a business that we invested more in R&D than we have ever done before. And we want to continue with that. Obviously that requires when you're doing more complex R&D on the Injectables when you have to do clinical studies, also when we are doing device prefilled syringes, pans, some things like that. So I'm pleased with a pipeline. Would I love to have a blockbusters? Yes, I would. But at the moment, I'm pleased by having the number of smaller products. But also, as I've talked about, smaller products usually don't have as many competitors in the market. So even with a small products, maybe that's good for the bottom line.

In terms of M&A, I think few things to think about. My preference and focus would be if I would get products into the pipeline. I think that would allow me to fill our manufacturing plant. We have the infrastructure, we have the opportunity of expanding. Based on the people and infrastructure we already have, we are looking for that, we will in a way we have added to our business development team over the last 12 months. We have a great team in place to execute on it. We wouldn't shy away from a bigger M&A if it would make sense. But it would have to make a strategic sense for Hikma. I say often that we are in this good position that we don't have to do an M&A to make up for bad numbers. We have a very solid performance. We have a very solid guidance for 2019. So it's not that we have to run out to make an M&A to meet these numbers. This is what we do with what we already have in place. So I'm pleased with that.

But that being said, obviously on our balance sheet, our net debt to EBITDA is 2.66 at the moment, which is low. So we have the flexibility of making the acquisition when the right opportunity comes along. But it doesn't mean that we need to run out and M&A s an opportunistic process, when the right opportunity that fits us, we wouldn't shy away, but there's no desperation in the camp to look for it at the moment.

And then quickly on generic Advair. So as you know, we are running a big clinical trial. In total, we are - the total size of the study is just over 1,500 patients. As of now, we have just over 900 patients recruited to that trial. On the recruitment rate that we currently have, our best estimation is a fourth quarter submission hopefully earlier but that's our best estimation with the recruitment rate that we have in place today. I think the marketing opportunity is still very significant. Remember now that every week in the U.S. Advair the generic or brand today, there's about 150,000 units that are sold in the market today. So it's still a very significant product, that's per week. So I think it was a good sign to us. The markets here that Mylan has been able to get in the market, they got approximately 25 plus markets here in the third week. That means that the market is opening up for generic. So when we come we feel comfortable that this is a good opportunity, whenever that will be, that depends obviously on the approval on first of all on positive outcome of the clinical trial and then approval from the FDA.

Max Hermann

Max Hermann from Stifel. Just a couple of questions. One follow-up on generic Advair in terms of, you've alluded to the commercial potential, I mean, I think when you were originally starting to look at the launch, there was a sort of $100 million estimate in the first year, I think that was guided to and I just wonder whether now we should be thinking a smaller opportunity when the product comes to market? And then the second one was just on the Generics business. Just interested in the benefits that you got from return of Air and kind of how much of a headwind will that be, obviously you've given guidance, I just wanted to understand what are the offsetting factors, an update on MITIGARE might be interesting as well, how is colchicine doing? Thanks.

Siggi Olafsson

Yeah. So, on generic Advair, I'm not going to guide on what the opportunity is. But overall I think the market opportunities in terms of size is very significant. Also I want to remind you that over the last, two or three years, generic Advair has decreased because there has been a movement to other products, AirDuo from Teva, Symbicort, Breo, of course. I think we have to see, I think that will be a very interesting to follow now if any of these patients come back to the generic Advair that now comes to the market to expand the opportunity.

In terms of pricing, I'm not surprised of the pricing. I think the net pricing in the market is in line what we think. But to think about, because when I don't know when I have the product is impossible for me to guide on what I think the opportunity is. But the patients are there, the usage are there. Is it as because four years ago, probably not in the brand value, but it's still - and what has changed since few years back, I don't expect there could be more than three generic players in the market, when maybe three four years ago, people were expecting up to five players in the market. So I think the challenges of developing generic Advair is clear. We have learned it firsthand. We can write a book about it. At some point in time, it's a very challenging product, but that also makes it a good opportunity when you bring it to the market.

In terms of return of Air, return of Air, we did fine. It's a relatively small project, you have to keep in mind that on day one, when we launched, we got an authorized generic in the market. So you always have to - there is a split of the market with the authorized generic plus the brand. Still, that was a benefit last year that we don't have this year. And I think that is reflected in our revenue guidance with a midpoint a little bit below where we ended this year, still within the range. I think the opportunity this year is the execution of what you have done last year. We are doing, we are guiding towards mid-teens in terms of profitability. And when I was in States in answering question a year ago, I said, that would be my three year goal to get to the mid-teens in the profitability of a generic. So the improvement in the generic business, the reason I'm pleased about it, it's so much faster than I foresaw a year ago. Really, the execution has been tremendous. And that is part of the reason that you know, we need to catch up on the pipeline. But clearly, we don't have any exclusive first to file in our pipeline for 2019 in our guidance. So there's no assumption and number of launches in the U.S. generics is six to eight versus what was before. No, sorry, it's eight to 10 is the guidance for the generic launches for 2019.

In terms of colchicine, that's a very interesting product for us. It's been steadily growing. We gave you a slide on that on the Capital Market Day. We've been included in this. We have a sales force. It's a growing business. It's a very interesting thing. We're exploring may how to utilize the sales force better. They have really, really good sales force that's been executing. It's been steadily growing. We feel there's still some patterns left on that product. So in a way, that's our hidden little secret that we talked about finally at the Capital Market Day, but we hope to be able to continue to grow that business.

Peter Verdult

Thanks. Peter Verdult, Citi. Just three questions. Can we go to Branded, Khalid talked about much in the last couple of years. But in terms of the effort you're making to improve the margin, is that something that could happen in 2020 or that - is it still a long way away for the margin improvement to a way Branded sort of become, you know, to get into focus?

And number two, Siggi, city on capital allocation. Your fast approaching in net cash balance sheet, if you'd be very consistent on your capital allocation strategy, but in this scenario where the right opportunity doesn't come, how comfortable is the board or you to run an unleveraged balance sheet and what would you do, what other alternatives are there if you're not going to pursue M&A?

And then thirdly, just on Injectables. If I back out the 70 million benefit you got in '18, you've got a very strong margin, that's way above the guidance that you laid out at the Capital Markets Day. So can you just help us understand what's changed since the communication in the Capital Markets, is it just the pricing environment is more benign you expecting or the volumes are stronger, just to get a bit more sense of what is driving that better underlying performance in Injectables? Thank you.

Siggi Olafsson

So I think if we start on the Branded strategy, so as we laid out in our Capital Markets Day, the focus there is a margin expansion over the medium to long term. We have delivered in the 21% net operating margin from this business over some period of time. We still growing this, growing low single digit. But also, as I've highlighted to, it's that the market itself has changed. A few years back that wasn't so much price erosion in the market. We are seeing a significant price erosion, due to local competition. We still have a big sales force. We have 2,000 sales reps and sales support in the MENA region. And really what I have said and I clarified in the mid-year results is, I want to - I don't want to cut cost in the sales force at the moment, I would rather give them a new opportunity, patent protected product. So give ourselves a little bit of a time of changing the shape of the company of being - from being a branded generic to patent protected specialty company in MENA. So that's the emphasis of the business development, is to look for companies that have patent protected that's don't launch the product in MENA. Most of the products approved as an ANDAs is in the U.S. are from companies with one or two products on the market, most of them. And they've never foresee to have any revenue and opportunities from MENA. And who would be their ideal partner with 2,000 with the infrastructure, with a compliance programs that we have in place to be their partner.

So we are shifting - the tearing of the markets is one thing where we put the money where we can grow, but the shifting the portfolio will make a bigger impact on the market - on the margin expansion. The issue is, this will take a little bit of the time. I'm hoping to see a little bit in 2020, but this is probably '21 and beyond when we start to see a real impact of this. There will still continue to be improvement in margin. This year we guided to it and things like that. But overall, what we are thinking about this, how we can expand the margin in the medium to long term with a strategy that we are doing, we don't guide on margin in MENA, of course, very important, so we don't guide on the margin for the overall company, but it's the expansion that we are looking forward to have a better business, differentiated from the local competition because the local competitors can easily do most of all branded generics that we have in place today.

Capital allocation, maybe I'll start and then I hand it over to Khalid. So in our Capital Market Day, we said we would be comfortable to get to about three times net debt to EBITDA. I think that gives us some significant flexibility. I said we don't feel the pressure but we need to jump? Yes, obviously it's a low leverage at the moment. But I think for us, it's most important now is to find the right opportunity. There's plenty of asset that is being shown to us. We don't shy away to look at it. But in essence, we also have the time on our hand because we have a good company. We used 2018 to fix the foundation. There was no need to run into an M&A at that point in time. But obviously with the experienced people that we have today, with a new infrastructure, with an understanding of our integration and with a balance sheet, we wouldn't shy away if the opportunity comes and the board is fully aligned with the management on that approach.

Anything else on that?

Khalid Nabilsi

No, I think let's say your spot on Siggi, the company will continue to be highly cash generative, so we'll have enough cash as well towards the end of the. And, of course, you know, next year, we'll have just Eurobond that will be as well paying down from our cash resources. So it all depends on the opportunity that it would come. As Siggi mentioned, we have a group of M&A and business development team. So once the opportunity comes, then we will decide how we are going to allocate the chapter among that three segments.

Siggi Olafsson

So - and the answer to your last question, it's a very interesting thing. So what changed in the Injectable businesses mid-year, why did we in a way do us well? If you take out the benefit we got from additional sale on the shortage product, overall, we did very, very well especially in the light of the top three products, how much sale we lost as we highlighted, it was more than hundred million that we lost on those top three products. The underlying business is growing. The hundred product that we're offering in the U.S. was growing. We have a significant growth in MENA and we had a significant growth in Europe. That's number one. That really - and part of that is the benefit of how good partner we have been with the hospitals on the shortage product. So the hospitals and the customers are coming to us to ask for our base portfolio. So if you strip out the shortage products and the top three products from our business, the injectable business grew 7% - sorry 13%, 13% if you strip those two things out.

So really, it is a very interesting situation that the base business is executing better. But it is about the execution. So I want to highlight, yes, we were pleased to be able to supply a shortest product when our customers needed it. But the underlying business is extremely strong at the moment. That on top of the new launches, you know, they are small and each of them is relatively small, don't pick up as one of our biggest product. But to have seven plus contribution from new products in the injectable business is a very significant thing. So I think those two things, growth in the U.S., growth in MENA and Europe and then the contribution of the new launches, which were better than we expected allowed us to grow 13% outside of the top three and the shortest impact.

James Vane-Tempest

Thanks. It's James Vane-Tempest from Jefferies. Two questions if I can please. Siggi, in your prepared remarks, I think you said the pricing in the U.S. is around high single digit, just curious about what was in better than your guidance. And also some of the data points we've seen relatively recently you suggest that maybe an easing. So I'm just curious whether there's an element of conservatism there that you can maybe look to address out of the first half or if there is a portfolio specific impact?

And the second question is just on Remsima, you mentioned doing well. I'm just wondering if you could comment on the behavior of originators and some of your markets just given some of the outcomes we see in here. Thank you.

Siggi Olafsson

Thanks, James. So you're right. So I think the overall market, if you look at IQVIA for 2018, I think IQVIA calculated on the year ago, I said don't trust those price erosion number, so I have to be careful now to refer to them, but let's do it anyway. IQVIA, as said in 2018, the price erosion was about 11% for the overall market. I think we did better than that we were in the probably - we did better than that we were in the mid to high single digit. Built into our guidance is a mid to high single digit price erosion continuing basically from what we have seen before. So I think the market itself is probably in the high single digit. I think out differentiated portfolio, hopefully compared to be maybe in the mid to high single digit in terms of where the price erosion. Your guess is probably as good as mine. It changes every day. But, you know, I think the price erosion is somewhere between 7% and 10% overall in the market. It's difficult to say where each company falls on that line. But I think that's not a reasonable number to think about for the generic industry in the U.S.

In terms of Remsima, I've been extremely pleased with the execution of the MENA injectable team and the biologics team, because not only as I mentioned in my introductory remarks was we have expanded the market many, often time 50% to 70%, and we have taken 60% off the market. How has the brand reacted? It's different between different markets. So some they follow you in prices and others, because you have to remember the total value of Remicade in MENA before we entered the market, was only $40 million. So it's a relatively small market for the brand. This is a multi-billion dollar brand, so it's a relatively small market. So in some of the markets, more important market, they follow us down in price and others. They're a little bit less sensitive to it. So I think we have today launched in seven or eight markets, so we still have a little bit more markets to go, because the approval process in some of the markets can be over three years to get to it. But overall we are pleased with your overall uptake. We are pleased with the sales. We are pleased with the reaction. And also the beauty of having Celltrion as a partner, the experience that Celltrion has from Europe, all the safety data that's being gathered by the thousands, tens of thousands of patients in Europe, we utilize that to promote the product in MENA. And that has helped us enormously to get, because biosimilars is all about the trust and safety. Usually doctors fully understand the efficacy. The efficacy is the same as the brand, but is it safe? And that is the hard burden of trying to market biosimilars. I think by having the right partner in Celltrion, having the right sales infrastructure, we've been able to do what we have done in the market.

Paul Cuddon

Paul Cuddon from Numis. Just three questions, two on Injectables. Firstly, the performance in Europe, understanding the key drivers of growth that you're certainly bucking the trend. In Injectables, the coverage of oncology injectable medicines now, with your agreement with Hansoh, I mean, how important could that be to closing the gap between your market share by volume and your market share by value? And then thirdly, on the Generic side, are there other ongoing costs of that generic Advair trial and are you continuing to kind of strip them out as exceptional? Thank you.

Siggi Olafsson

Can you ask the last question, again, sorry?

Paul Cuddon

The costs of the generic Advair trial that's continuing in 2019?

Siggi Olafsson

So let me start by Generic in Europe. So Generic in Europe, it's a little bit - it's a hidden gem that we have. We have just over 100 million business here, it's growing double digit. We're in relatively few countries, our biggest market is Germany, second biggest is Italy. We have a strong manufacturing plant in both markets. There is a practitioner for it. And really what has hindered our growth here is our significant growth in the U.S. So our Portuguese plant, the utilization of a Portugal plat is obviously it's a bigger market, bigger opportunity. So we have shifted the focus to supply the U.S. market which really has taken down the growth opportunities in Europe. So I think the opening up of the oncology plant will help us, because currently we're taking a fair amount of the oncology injectable from Germany, a relatively small plant. So it will already give us opportunity to grow. The growth in Europe is mainly through new launches, new launches is how we grow the business. Still, it's just over 100 million. So it's less than 5% of the overall revenue of Hikma of course, but it's one of the fastest growing part of the business. And it's something that we're putting more emphasis now when we have more capacity to supply the market decently and be able to grow it.

Nicely then into the injectable oncology, we have a little bit of that. I think there's an opportunity, especially now with a new high containment plant. We don't want to call it maybe oncology plant, because we can't manufacture high containment that needs special manufacturing containment to be done in that plant. But the opportunity of the new oncology, non-biological product that we could take obviously increases the opportunity and the capacity. Will it bridge the gap between the IQVIA volume versus value? I'm not sure, because obviously generics, it's difficult if you don't have a brand or branded generics to get to that level. But I think in terms of the value, we stayed flat on the value on the IQVIA scale where we grew in terms of volume. So you understand that the generics, it's difficult to bridge that gap but hopefully the oncology will be a step in that direction.

And the cost of the Advair trial, obviously very significant trial, as we said, just over 1,500 patients. We basically, we got the payment from Boehringer Ingelheim of approximately $30 million to run that trial as part of the agreement on Roxane, so it was already baked into agreement. That's why we treated as a non-core in our accounts, it's very highlighted. The cost of the trial will be somewhere between 30 million and 40 million, that's our best estimation of fully, fully allocated costs, you know, but - so it's pretty much in line with what we went into. We knew the size of the trial when we came. The main cost component that you don't understand is how many sites you need to go to get 1,500 patients. So that's the main thing. But overall, we feel that we understand the budget and we are managing accordingly.

Any more questions from the room? If we ask on the phone, if there's any questions on the phone?

Question-and-Answer Session


[Operator Instructions]

Siggi Olafsson

That sounds like no question on the phone. How many times have I done this in investor meetings, there's no questions on the phone line. So this is a little bit, but I really I want to say I'm pleased with the results, I think Hikma is amazing company. I've been pleased with the last 12 months being with the company. The results are above my expectation coming into the company. I wouldn't have dreamed about delivering this when I was here 12 months ago being introduced to you. We are on a solid path going forward. We have achieved more in the first year. I think we have a very solid 2019. We have a strong balance sheet. We have the right people in place. So I'm excited about the future.

Khalid Nabilsi

I think the biggest challenge when you know when you bring in a new CEO and a significant senior management team is how, you know, the company meshes together. And I think Siggi has done an amazing job of making the new people that came in feel, you know, already part of the family, part of the team and managing to mesh the whole company together. And I'm very, very happy with the results. We are one team not working together very well. And I think the results speak for themselves. Again, a year ago, we had, you know, we didn't have dreamt that we would be achieving this kind of results that we have. And as Siggi said, you know, the balance sheet is great. We have a great team in place. Company is very solid. And we are very excited about the potential, you know, the future for Hikma, really very, very excited. I'm very happy by what we have done this year, and I'm looking forward to '19 and forward. Thank you.

Siggi Olafsson

So, thank you all very much. We close the call. Thank you.