Hikma expected to revise full year guidance in trading update after delays to generic Advair drug

Hikma Pharmaceuticals reports its first quarter trading update with its full year guidance in focus following delays to its generic version of asthma drug Advair

Hikma and Vectura hope to receive FDA approval for a generic version of asthma drug Advair

Hikma Pharmaceuticals plc (LON:HIK) and Vectura have said it was unlikely their generic version of GlaxoSmithKline’s asthma treatment, Advair, would be approved this year.

Last week it emerged that the companies received a complete response letter (CRL) from the US Food and Drug Administration categorising the drug as 'major', which means the application will require significant amendments.

In light of the delays to the drug’s launch, analysts expect Hikma to revise its annual guidance when it releases its first quarter trading update on Friday.

US investment bank Jefferies said in a note yesterday that it thinks approval of the drug is unlikely this year, as it cut its rating on Hikma to ‘underperform’ from ‘buy’ and  lowered his 2017/18 earnings per share forecast by 25%.

“Although momentum in injectables remains robust, we believe the delay is likely to act as a serious drag to sentiment until the US business turns around; hence our double downgrade,” said Jefferies analyst James Vane-Tempest.

“We believe the delay could be until the second-half of 2018 at the earliest assuming three months to get an FDA [US Food & Drug Administration] meeting, six months to put together a re-submission package and six months for a class-two review,” said Jefferies analyst James Vane-Tempest.”

If another trial is needed, Jefferies estimates it could add six to nine months. The broker chopped back his valuation of the stock to £14.50, which is 16% below the current share price of £17.29 (down 2%).

Numis is also of the view the approval of the asthma drug would not happen this year.

“We continue to view a first-pass approval as unlikely, and expect a minor CRL with a 3-6 month delay to launch, which has been factored into our bottom of the range forecasts for fiscal year 2017 that are based on a $50mln contribution from Advair, albeit at a very conservative 10% EBITA margin, which equates to just 1% of group underlying earnings (EBITA).”

“We would see a minor CRL as a significant derisking event, and therefore a materially positive development for our FY18 forecasts. We believe Mylan has a major deficiency based on its clinical trial, and so see Hikma as the only substitutable player in 2018, driving material upside to our forecasts, which underpins our £30 per share Bull case valuation. “

Hikma will manufacture the drug using Vectura's inhaler and a drug formulation.

In March, Hikma reported a 21% drop in full year operating profit US$302mln, reflecting a loss in the generic drugs division as it sold off products and bought US business West-Ward Columbus.


Friday's agenda

Interims:  LightwaveRF Plc (LON:LWRF);  Grainger PLC (LON:GRI); Future PLC (LON:FUTR)

Trading Statement: Hikma Pharmaceuticals PLC (LON:HIK)

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