Hikma Pharmaceuticals PLC (HIK) Earnings Call Transcript & Summary

Good morning all, and thank you for joining us for the Hikma Interim Results Call. My name is Carli, and I'll be coordinating the call today. [Operator Instructions] I will now hand over to Riad Mishlawi, CEO, to begin.

Okay. Good morning, everyone. It's always great to sit in front of you when we have good results. Makes the day much more pleasing. Anyway, I just wanted to go over some maybe overall messages. We had -- as you all know, we had an excellent performance in H1. Revenue was increased by about 10% with the 3 businesses performing well, underpinned by our strong commercial and operational capabilities. We continue to invest in the businesses and deliver on our corporate strategy. In the first half, we had grown our portfolio, launching 59 products across our businesses and continue to strengthen our pipeline with more than 300 products currently in the pipeline. We further strengthened our leadership team. As you know, we had some additions. We had some shuffling around and some changes in responsibilities. We announced the strategic acquisitions of Xellia products. It included -- the Xellia acquisition included products, manufacturing facility and R&D assets. Of course, as you know, we're still waiting for the final FTC approvals. We expanded into other territories, especially in Europe in both U.K., Spain, doing exceptionally well there. We are well positioned for sustainable long growth -- long-term growth and have upgraded our guidance for this year. Group revenue is expected to grow in the range of 6% to 8%, up from 4% to 6%; group core operating profits to be in the range of $700 million to $730 million, up from $660 million to $700 million. Injectables, very positive first half, revenue growth of about 4%, good strategic progress with the launch of 39 products across all of our markets. The Xellia acquisition that we have announced positions us very well for the medium and long term. Europe officially entered into the U.K. and Spain. We continue to expand to expand our portfolio with new launches, and we're seeing some good demand on our products. We had a low CMO revenue in the first half, but this is all due to timing. MENA, solid growth. We continue with the momentum supported by -- in both our own products and the biosimilar franchise, good progress with our new plants in Algeria and Morocco, which will open in 2025. Guidance maintained for the year with revenue growth expected in the range of 6% and 8% and for core operating margins to be in the range of 36% and 37%. The branded, again, excellent performance with revenue up 12%, 13% in constant currency. The timing of the tenders in first half means that the revenue and operating profit is strongly weighted towards the first half. Momentum continues to be driven by oral oncology portfolio and focus on the medication used to treat chronic illnesses. As with the last year, timing of tenders will result in a skew of revenue and profit to the first half, expected to -- operating cost to be second-half weighted. Upgraded the revenue guidance which is now expected to grow in high single digits in constant currency or 6% to 8% on a reported basis. Previously, it was low single digit on a reported basis. We expect core operating margins to be close to 25%. 2023 margins were 23.9%. Generics also had a strong half with volumes growth, driving revenue up to 15%. Appointments of Hafrun as the President of the Generics business who brings extensive R&D experience will help further expand Hikma's products portfolio and pipeline. Our authorized generic of sodium oxybate continues to perform well on a revenue basis albeit, but at a reduced -- albeit at a reduced margin due to the expected increase in royalties payable. Increase in guidance for both revenue and core operating margins, revenue to grow in the range of 5% to 7% for full year '24, up from 3% to 5%. We expect 2024 core operating margins to be between 16% and 17%, up from previous guidance of mid-teens. Expect increase in competition on certain products and higher R&D costs in the second half. I'll open it now for any more questions.

Emily Field from Barclays. Maybe just a question on R&D in the Generics segment. I know that this is expected to step up in the second half with obviously some changes in leadership. Is there any fundamental changes to the R&D strategy in Generics or changing any prioritization of any projects as a result?

Yes, all of the above actually. Hafrun's strong experience is in R&D. And the first thing that she had done, she evaluated our R&D strategy, our R&D pipeline and our R&D team, and she had done changes to all of those 3. So we have a different pipeline than we had before. Some products were discontinued. Some products were recontinued that we had discontinued in the past. She had shuffled the teams around. She had added some key members to the team. And she has a strategy of expanding the R&D, expanding in the number of projects, and expanding and collaborating with other divisions. And making it more efficient to deliver more with less.

Pete Verdult with Citi. Just a few topics really. Firstly, the balance sheet gets stronger. I know you've got some litigation going on, but just from a BD environment, you've done Xellia, but just I realize you're not going to call out assets but just the environment to do deals, is that improving versus 3 to 6 months ago? I'd be interested in whether you feel that you can utilize the balance sheet further to complement the strategy. Separately a quick return to the compounding business. I know you're building it out. It's a slow burn. But anything material to update us on or -- and is breakeven at some point next year still on the table? And then lastly, the obligatory pricing environment question. You seem to be calling out business as usual. Sandoz, the same. You did talk about pockets of competition in U.S. Generics in the second half. Anything you're willing to call out there? But it does seem -- just wanted to clarify, it does seem that the pricing environment in U.S. Generics and Injectables is nothing untoward. I just wanted you to confirm that.

Okay. I think for the first part, for the M&A part, we've been very active. Actually, I've been in the company for quite some time, and I don't think I've seen the company so active with M&A. So we are looking everywhere, and there are potential prospects. We're talking to a lot of different companies for M&A, for partnership. So BD is very, very active. We know that we have our balance sheet and part of our strategy is to use that. We've done Xellia. But I think the potential of doing more is really on our radar, and we've been talking to a lot of companies. And hopefully, we can see some results out of that. In terms of your second question was related to the Generics, I believe?

U.S. compounding.

U.S. compounding. So I don't think there has been anything new for U.S. compounding, except I think we are learning more as we go. I think we are really purposely trying to make that growth to be slow. We know that this is a very delicate business. We don't want to make any mistakes. I think the potential of growth is there, but we're not very desperate to grab it right away. I think the foundation is very important in this business. We're buying equipment, we're validating more equipment. We automated a lot of equipment. We have the now Water for Injection systems. We have automatic labeling, automatic filling. And I think this is important. I think the foundation, as we did in Injectables, building the foundation first before you start pushing everybody to produce more. You really don't want to produce more and get in trouble for some reason or another. So we're happy with the progress. We could have done -- I think we could have maybe grown faster, but I think we're happy where we are today. And I think we can look at the future and see that the growth is going to continue.

And is breakeven at some point next year is still on the cards?

I think it's fair to say sometime next year should be breakeven. And lastly, for the Generics business, as far as the pricing, I don't think there's a dramatic change from where we were at a single digit. We see some increase -- I would say, increased competition to some key products that we have in the second half. We know that some of the contracts are going to be due for the second half. And we think that maybe the competition -- we're trying to be very careful about going after the business that we have. So I don't think there has been a lot of change. I think the momentum of the first half was very, very big, and we accelerated some of the shipping. We did a lot in some of the big products. We did a lot of shipping there, but that would be progressing. I think the reason of the -- I think your question is why we have a lower first -- second half than the first half and try to explain it by product mix, spending on R&D and some of the competition -- increased competition on some of the key products that we have.

Paul Cuddon from Deutsche Numis. Just firstly, digging into visibility on CMO recovery in Injectables into the second half of the year, particularly within Europe. And just a slight niggle on the margins. I mean my understanding is CMO would be lower margin. Your own products is higher margin and yet you're tracking toward the lower end of the range. So if you could just flesh out those dynamics, that would be appreciated.

Sure. The demand -- we still have a demand that is very healthy. And it's a good problem to have. So you have demand and you have CMO. And you have to shuffle between them and you have to prioritize. And in some cases, we do prioritize our products depending on the tenders, depending on looking at failure to supplies. We continue talking to our CMO clients to see when they can -- when they need the product. And this year, I think the CMO is heavily weighted on the second half. So we have a lot to do in the second half. As far as the margins, yes, CMO is usually higher margins than our products. But I think what happens is when you have CMO, you will have to take the space and the capacity for your own products. So you have to be very careful how to balance this out. We've been doing a good job with this, and the CMO can grow if we have capacity. Our capacities are being built today. So we have a lot of expansions happening in the Injectables in all areas, in Europe, in the U.S. Also as you know, hopefully, if Zagreb comes online too, that would be an additional capacity. So we feel that the CMO business has tendency or has all the future to increase at -- when our capacity increases. You want to add anything, Khalid, on the margins?

No. I think it's [indiscernible] just know that it's just the timing of the CMO business, but we reiterated our guidance. We're comfortable with our guidance today and even on the medium term going forward for the Injectable. I think Xellia is going to add a lot of capacity. So I think this will as well drive future growth.

Okay. And then secondly, on the Branded business. So I hear the message about the tender orders and sort of phasing in that business. But I'm just wondering if you could talk to any sort of market share dynamics that you're seeing in any particular areas where Hikma is performing exceptionally well.

Well, one of the big -- the 2 biggest markets that we have, both Saudi Arabia and Algeria, are performing really well. Our growth in Saudi Arabia is notable. We are now the top #1 pharmaceutical company in Saudi Arabia; in Algeria, where we're the top 5. We had invested a lot in both of those countries and now we're seeing the results. In Algeria, we had built an oncology operations. We also had -- are just closing out our construction on the Injectable operations, and we also are in construction to build distribution center offices and a few, also, plants there. So there's a lot of investment. There are a lot of investment in those 2. As you know, Saudi Arabia, we are also planning to construct -- we are in design phase now, but we're planning to construct a very impressive facility there. So we are -- we believe in those 2 markets. We're leaders in those 2 markets, very respected, very good reputation, and we'll capitalize on this and continue to grow it. So yes, we were very happy with where we are with those 2 markets.

At the same time, we've been growing across all of our markets and due to the product launches that we have, we have as well a strong -- very strong growth in Iraq. We have a strong growth in the UAE. So Morocco -- so all markets are growing in a very healthy, I would say, trend.

Victoria Lambert from Berenberg. My question is just on your biosimilar strategy in the U.S. I know Gedeon Richter's now filed the denosumab in Europe and they were saying they think you guys together will be filing soon in the U.S, with the launch possible next year. So I just wanted to get maybe some update on timing and how you expect to compete with some of the larger biosimilar companies in the U.S. and maybe if you look to do private label strategy with the PBMs.

Yes, it's too early to decide on the exact strategy. We know that this market has not been stable. A lot of -- you can see how there were a lot of acquisitions. A lot of approvals is still not settled yet. We know that we are coming in not #1, #2 or #3. So it will be maybe, I don't know, 6, 7 depending when we land. So our strategy of how to sell is going to be key. I think we will have to depend on the costs and the prices rather than on having a big -- like Sandoz, having a big basket of products and going to be the leader of the biosimilars. We just have very few. And the good thing about it is our partners. They make this product very efficiently. Our transfer prices are very competitive. And we think we can get some market share, albeit a small one, but based on these parameters, good cost and good transfer prices. But we really don't know when we're going to land. We know that we'll be filing soon. We know that there will be legal -- also some legal implications for that. We just -- we're not relying on it big time. We like to have it. We will be ready as soon as we know when we're going to land and when we're going to launch, I think the commercial side needs to be ready. And at that point, we decide how -- private label or no private label will decide how we're going to sell it. But definitely, it's not going to be an easy market.

And then just on the biosimilar strategy in the Middle East. Are you guys looking to -- I don't think you have a Humira biosimilar in the portfolio yet. Are you looking to maybe branch out more into the immunology and doing deals in those sort of big products that have come to market or are coming to market soon?

Yes, I think this is our strength in MENA. So our biosimilar portfolio is as big as Celltrion. So our agreement with Celltrion that any product that they have approved, we have the -- we can introduce it to MENA. So we're very tight partner with them, and we're planning to transfer all their portfolio to MENA and get it in all countries. And it's been doing well, growing significantly. We're not only growing in -- we're actually growing the market itself because now it's more affordable for a lot of people. So we're growing the market, and we're taking a big market share. As far as the chronic diseases and those critical disease, we're doing very well with that. I think our BD team had done very well. We're going into interesting chronic diseases medicines. We're going into diagnostics. We're going into a lot more than just being a medicine provider. We're going to -- we're really going in to become a partner with the physicians, more of a health care solutions provider. And we're expanding. I think we have a lot of partnership with hospitals, with doctors. We're a lot more than just a provider of a medicine -- of medicine. So yes, I mean, I think if you look at our history at the last few months in BD, you can see that we're getting very much into interesting products like that.

But just to answer your question about Humira, yes, we do have Humira and it's launched in one of our markets.

In which market?

One market.

It was announced on our website. If you go to July '22, you'll find it.

Christian Glennie from Stifel. On Branded, maybe just set a bit of context. Obviously, 30% margin first half, you're guiding 25% for the full year. Those are like multiple multiyear highs for that business, obviously, reflecting some of the investments you've been making. But what should be the sort of midterm expectations for Branded in terms of margins? Is 25% the new base and then move from there? Or how do you think about?

Although we are not guiding till next year for 2025, but we see very good momentum going on in the Branded business, especially with the new launches that we have and the growth that we are seeing in different markets. I think we are becoming really the partner of choice. As Riad mentioned, you've seen many of -- like the BD deal that we have signed over the past, like, just this year. So this is driving -- continue to drive growth. We see very positive momentum, and that trend will continue, hopefully.

So I think -- just to add to this, I think there are many -- in MENA, many parameters that -- many variables that are making us strong. So we have been increasing our local presence. So we have been investing in oncology. We've been investing in building new plants. And that really takes us a long way. As you know, you get preferential treatment if you are local. The second thing is the situation in the Middle East, as you know, made a lot of the people that probably intended to go themselves to the Middle East to go and partner with somebody like us. It's just the currency in Egypt, the wars that's happening all around, and this has been repeated every other year. So I think a lot of people look at us. They know that we will cover all the areas. We know it very well. We have local teams in all the areas. We understand what's happening locally and we can kind of maneuver around that. So the -- it's easier for us to make deals with those companies and take the products ourselves and distribute it. And lastly, I think the business itself, the leadership is motivated, a lot happening. And as you know, success brings success. And if you're motivated with the success, teams are very motivated and adding more and more talent and the results are -- and it's not -- it's been going for the last 3 years. You can see that gradually is going up and up.

And then on Generics -- U.S. Generics. You've called out a few competition things, but just to understand the margin impact, I guess, that you're implying for the second half to get you to your sort of 16% to 17% for the second half. And then related to that, you try to sort of reset, rebase expectations, I guess, for operating profit for that $100 million to $120 million. You're obviously well north of that this year. But even if we look into consensus, it's around $140 million, right? So it's well above that one. So what -- is there something we're missing on the consensus side? Or is that $100 million to $120 million just too low?

In terms -- as Riad mentioned previously, we -- it's a matter of the timing of sales for this year. So some sales were kind of -- occurred more on the first half versus the second half. So it's not like we are exiting with such a margin for next year, and we always said that we are confident with the $100 million to $120 million, as you mentioned, so -- and now Hafrun is on board. So there will be much more focus on the R&D, on launches or BD. So there's a lot as well to come for next year. So maybe all what I can say that 2025 consensus, it would be a good base for where we are, but -- although we are not guiding, but I would assume so.

Look, I think, just to add to this one. It's a tough business. It's the toughest out of all the divisions that we have. And we have to tread very carefully. So although the Branded and the Injectables, the strategy was set and with us following, the strategy was clear to us. With Generics, we have to redraw the strategy. Hafrun came in because we really needed to have R&D. We needed to have our own pipeline. We knew we cannot survive from 1 year to another year without new pipeline. We knew that we have to increase our contract manufacturing. We have a beautiful facility, great compliance. It's in the U.S. It's not fully utilized. And when we started with this, we got a lot of takers. So this is something that we're focusing on right now. We have good technologies. We have the respiratory, we have innovation. So this is something that we're also looking at. How can we increase our pipeline? How can we get more products like this? So I think the way that we're looking at the Generics right now, we're looking at it in a different eye. We're really focusing on it to stabilize it. We stabilize it by the team that we put there, by the focus that we have, by the money that we're spending to support it, by how we're doing R&D. In the past, R&D was should we be spending money on this unit or not? Now we're saying let's spend money on this unit because we can't just leave it like that. And we can't leave it up one day and down one day. And I think the strategy is paying off, I think, and it hasn't been for a long time. So this is why we're very careful with guidance, but we're comfortable. We're comfortable to be a little more -- for everybody to expect a little more than we're giving. And we're hopeful that this is -- it will take a few years, but it will become as stable as the other divisions.

And then maybe finally, if I can, on Injectables. The 4% in the first half, 6% to 8%, maintain that full guide. But are we looking -- are you still comfortable -- confident in getting -- could still end up at the top end of that full year range because that implies a very strong second half? And then just a reminder on Xellia, timings of completing that deal and then the potential impact, if any, on margin.

Well, for the Injectables, the trend is always the same. Last year, the same, always the second half is stronger than the first for many reasons. CMO in this case is a big reason. So we're comfortable to be where we are. We didn't want to push more. This is why we kept the numbers the same way. There's a lot of focus on making sure that we meet those numbers, and we're comfortable that we would meet them. It's -- the Injectable business has a very strong foundation. And I believe that we have a lot of the elements to continue with the growth. And as we always telling you, we're spending a lot of money versus spending incredible amount of capital to feed it. We keep feeding it with new equipment, new automation, new portfolio, new product technologies. We're adding technology. And this is why Xellia is so important because Xellia can give us a lot more, can give us more products, very interesting portfolio; most importantly, also new technology with the bag filling that we have that's really it's very, very unique. Bags are made differently. And one of the difficult ones, if you can have IV bags that are filled at -- in an aseptic way, those are -- it is a very difficult technology and very unique, and we will be getting that. And of course, 6 lyos, large lyos will add to our already big lyo capacity that we have. But we see -- we know it well now. We know this space well. We know the demand well. And we're excited about adding all this capacity. I think we can use it. And I think we have a lot of contract -- clients for contract manufacturing. They're trusting us right now and want to add more business with us. So all in all, I think it's a strong business, and we believe that they will deliver what we set for the future.

And in terms of margins, as we highlighted when we announced the transaction, that it will be neutral to group earning. So that implies that it will be slightly below the margins for the Injectable business. But at the same time, once we get the products from the CMO to our manufacturing plant, so this is a medium-term impact, but going forward, all the portfolio with the R&D, I think we are very much, I would say, comfortable with the medium-term guidance for the Injectable business, which is in the mid-30s. But at the same time, we are growing in Europe. We are growing in MENA, and these have much less margin than the U.S. So all in all, mid-30s guidance is very comfortable assumptions for this business.

As far as the FTC, we're following the rules. You send it to the FTC and you answer all the questions that they need and you wait for approval. So we are confident that there is not that -- it's not that complicated. We don't have any -- we won't have big problems between us, but FTC have to bless it before we go.

Emily Field from Barclays. Maybe just going back to Generics. Now that we've seen Victoza generics launched in the U.S., like any updated thoughts on generic GLP-1 strategy?

The generic launch is an authorized generic by Teva, I believe. And as you all know, I think they launched June 24, and they have 6 months exclusivity. So we're the only one that is approved. A lot of applicants there, but we are the only one that is conditionally approved for this. We're excited about it. I think we -- it's a good opportunity for 2025 since we're only going to be able to sell it very, very last few -- for Christmas gift. I think it will come on 25th of December. So yes, we're excited about it. Those are one of the many products that we have done in BD, in Injectables in the last few years that are coming out now. And we hope that this will -- it's still a big one. It's declining market, but it's still a big one. And then we hope we can capitalize on the remaining part of it.

Peter, we're just going to just go to the line first and then we'll get back to you if it's okay.

[Operator Instructions] Our first question comes from James Gordon of JPMorgan.

James from JPMorgan. Two questions, please. One of them was the guidance implies quite a sequential contraction in Generics margin in the second half. I heard part of it is higher R&D. How much is it higher R&D versus other factors? And on the R&D, can you talk a little bit about where it is going in terms of what is going to be the focus in terms of where you're going to try to move into for Generics? And the other question has been touched on a bit already, but in terms of GLP-1, so you've got Victoza next year, so it looks like you can make GLP-1s. You've got fill finish. You've got spare manufacturing capacity for Injectables because you even do manufacturing for other people. I was just on the Sandoz call and they're talking about going for Ozempic. So are you going to have a go at that? I mean it would be the world's -- probably the biggest opportunity for generic companies. It looks like you'd be well placed to do it. So will you also have a go at doing Ozempic? Or there are reasons that it doesn't make sense to do it?

You want to take the first part?

Yes. If I heard you well in terms of the Generics, we said the second half is going to be like maybe more weighted for the R&D. And one of the reasons -- we are not giving exactly what -- how much is it going to be. But one of the reasons Hafrun -- when we were expecting Hafrun to come, so some of the R&D were put on hold. Still, Hafrun came and evaluated the projects. So -- and as Riad mentioned, there were some R&D projects that they were put on hold, some of them that we resumed, and some of them were introduced. So it's going to be more second half weighted. In average, usually, we spend around 6% to 7% on -- as a percentage of sales on R&D for the Generics business. So in the first half, you saw in our financials, the spend is not that -- in total for the group was not that high, which is around 4%. So we should expect more to come in the second half.

Yes. And going to the R&D, you're right. Everybody is now -- the craze used to be biosimilars, now GLP-1. So everybody is going the same way. I remember 10 years ago, it was oncology, oncology, oncology. So it just changes and everybody goes in the same direction. And so would we. We are looking at the market. A lot of people are going to -- for the generic, Ozempic is still a few years before it's off patent. As you can see, we are in the liraglutide. There are a lot of other products, as you know, Lilly coming in, in a lot of different ways. So we will be part of it in one way or another. It could be in development, our own development. This could be by partnership or it could be by contract manufacturing, but it's something that is going to be a big part of this industry, and we are a big player in the industry. So definitely, we should be part of it.

Our next question comes from Sebastien Jantet of Panmure Liberum.

So just a couple of questions. I'm not sure whether you're going to answer this or not but I'll try them anyway. So obviously, you outperformed at the revenue level in Generics. I'm just trying to get a sense of where that outperformance came from. Was it solely from sodium oxybate or were there other kind of products contributing? And then the second question is just wondering whether you can give us an update on where you are with generic Korlym?

Khalid, You want to?

The first one is across all products. It's not like one specific. So it's sodium oxybate, of course, contributed to the growth, but at the same time, add that contribute. So we have other products as well. They contributed well. It's not like just one direction where we had such a strong performance. But as we mentioned, it's more of a timing of certain sales and some contracts that we had.

Yes. I mean it's -- you see that what's happening in the U.S., the market share of GSK and on some of the products that we have common with them and we picked up some of that volume, some of the contracts that we have. So we've been very active pushing the team. The team has been very motivated. They've had a tough year, the year before. So it's just natural that we have good products. We're introducing more products, and they've done very well with the products that we already have in the market. So that's answer. Susan, you want to comment on the...

On Korlym, we don't really say much about the products in our pipeline. So all we can say is that we have settled. We have a settlement date that's out in 2034. Yes. And beyond that, we can't comment.

I just want to maybe generally talk about R&D a little bit. As you can see, we don't have to spell it out. But as you can see, we have 2 presidents that are -- have joined us in the last year and both of them with an R&D background. So obviously, we are looking at R&D as something that is very important. We believe in organic R&D. We believe to have our products made by us, developed by us. Of course, it's not always possible, but we would like that arm of the businesses to continue to be strong. We benefited in our other divisions in the history that we have with organic R&D. As you know and people have been following us for a while, the Injectables, strong -- the strength that we have with Injectables is based on the products and the portfolio that we had. And although a lot of it maybe we did not develop, but a lot of it we bought. As you know, the Bedford deal had brought many products there that we reengineered, we transferred into our own facilities. And we have to just go back to the market, and that really helped the growth. So we believe in organically be in control of the product as much as we can in development, in manufacturing and in distribution. Sometimes it's possible. Sometimes it isn't. Then the problem happens is, well, how much are you going to spend in R&D. You still have a budget. So how much is your budget? And we wanted to -- our goal is how can we get more for less. So we want to do more R&D, but we also don't want to spend all our money on R&D. So there's going to have to be a limit. We did say between 6% or 7% of revenue. So how can we continue with this -- with these numbers and still get what we need? And as you know, of course, having Hafrun coming from big company and $1 billion budget there to limit her. The same thing with Bill. These guys, they want to develop, they want to grow and bring more products. So this is where the attraction of Xellia came about because it does bring in a very good center of development in Zagreb where it is relatively less expensive or, I would say, costly than other areas. And we want to capitalize on that one. So we will make more in R&D for less. Same thing with Jordan. Hafrun was in Jordan a couple of weeks ago, and she saw a lot of potential on how can we get the 2 units, the Branded units and the Generics units collaborate on R&D. Typically, we run our company very much independent units. But we are finding that there are some collaboration that we can do that will allow us to do more for less. And this is one of the things that we're doing. So we're doing a lot in R&D and our ambition to do a lot in R&D, but we also need to do it for less. And there's a lot of potential that we can do that, especially the fact that we are in Jordan. We have a lot of people in Jordan, a lot of educated chemists. We have laboratories. We have several plants and we have space to grow. Add to that Zagreb, which is a very well-known area actually to be -- to have a lot of competent people that know this business very, very well, came from a long history, some of them from Pliva before that. So I think we're excited about this. We're excited that -- and the presidents of those units are very excited. They are excited that they can do a lot and still be careful about what we promised the market and the budget that we spend on R&D.

We currently have no further questions. So I would like to hand back to Riad Mishlawi for closing remarks.

Sorry, Riad, I've got just -- those closing remarks have to wait a bit. Pete Verdult, Citi. Three questions, just one the Egypt. If we take the currency away, just what's going on in that market on an underlying basis? Two, I think the answer is -- I think I know what the answer is going to be, but the compounding efforts you're doing in the U.S. seem to be very much hospital focused. But obviously, GLP-1 compounding is the hot topic. So any interest there? I don't think you have, but just confirm that. And then just I want to come back to the U.S. Generics strategy because it's clear what you do on R&D, but the message before was, we have a CMO business that does $80 million, $90 million. We want to grow that. I think Said in the past said that could be a $300 million opportunity. We've got the specialty business that you're building as well with the sales force. Just put it all together in terms of are we now to believe that they're going to be deemphasized. Or is that just the strategy there, stay the same? Just wanted to know how it all fits together.

You want to take the Egypt?

Egypt is a very strong market, and it's one of our largest market now due to the currency, of course. Sales went down by almost 50%. But still, we have so many product launches in the market. We are one of the largest players. I think even the impact of currency, government would help companies and increasing pricing in order to make -- continue to sustain good profit. So although last year or this year, we had a significant decline, but the impact, when you see, it's not significant on the assets on absolute term. So it's one of the large -- Algeria, Saudi Arabia and Egypt is our top market. So we will continue and committed to -- for the Egyptian market and continue to launch products.

For the compounding, I was told not to talk much about compounding. They told me be careful. So -- and I don't want to talk much about compounding. All I want to say is compounding is a good business and it continues to be a good business. And it is complementary to what we're doing. So we do have ready-to-use bags. We're adding more now with the Xellia acquisition. So it's very complementary to the compounding business. How fast can we grow compounding business is going to be key because the compounding business -- and as we learned after 2 years now being in the compounding business, it does need different focus than our core business. You sell differently. You promote differently, and you get orders differently than the core business. So it has to be, really, a lot of focus on it. And we wanted -- at the beginning say, well, you know what, we have the clients, so hospitals, so the same clients that we have. We have the knowledge. We have the systems. We have the product. It would be a piece of cake. But I think we learned, and I did communicate that last time we met that it does need a different focus of it. So we have a finite number of resources. And should we just take all our resources, throw out this one or should we concentrate on our core business and let this one grow slowly? I think the decision was to do exactly that. We don't want people to take the focus on the core business. It's very important to continue with the momentum that we have with the Injectables. And with all the Injectables, continue focusing on this while we grow this one as a separate. And we did take it out of the Injectables and put it on the side, and we're doing exactly that. So we know that this business has potential today and will be for the future. But I think it's just a matter of how much energy are you going to put in with that, take away from the other more important arms that you have. And I think we want to do that one slowly, and we want to focus on the core business while this one grows very slowly. So -- and this is exactly what's happening. There are a lot happening within it, but not to take off your attention from what is important today. And lastly, about the Generics, no, it's exactly the same strategy. It's just going with that strategy faster and bigger and have the right resources to implement it. Everybody can have a great strategy, but I think the key here is in implementation. How fast can you implement it? How successful in your implementation can you be? Contract manufacturing, we think can be a great, can be big. But again, you can't take on more than you can -- you can't bite more than you can chew basically. So we can't just take all the customers all at once. Contract manufacturers -- Contract manufacturing requires us to transfer the product. Many of them require some new machinery maybe. And we like to go with big -- with one big customer that has a lot of products rather than having to go a small ones here and there. It seems like it's working and we have a lot of people knocking on our doors. And we're being selective now. Who do we want to deal with in the beginning? But I think this looks good. And I think, hopefully, we can have more and more of this one. The strategy of increasing R&D. The strategy is concentrating on your technology, bring in new technology, spend your money on growing that technology rather than on other things. So this is exactly what we're doing. And I think Hafrun is really helping a lot in implementing this strategy.

Just one clarification. When you talk about contract manufacturing at U.S. Generics today, is that basically the Boehringer business? Or is there a lot -- do you have many more customers? But how should we just -- I know you probably don't want to talk about individual customers. But is it fair to assume that?

No, it's other than BI. It's other than BI. So BI was one that actually got us started when we acquired Roxane at the 2014-'15 time frame. And that continues, although it has been declining as their product is becoming generic. But no, we have a lot of other ones -- big ones that are knocking at our doors. Okay. Well, I think again, just to repeat my first sentence when I walked into the room, is just, very, very nice to come in with good results, great achievements. The team has done a fantastic job. We've added very interesting and capable resources. The future seems to be laid out. We know exactly where we're going. We know what we need to concentrate on, and we're happy that we have the resources and the money and financially strong that we can apply all these resources into implementing the strategy, and we're confident that this will continue. The momentum is there, and we want to make sure that the momentum continues. So thank you very much.

Thank you.

This concludes today's call. Thank you to everyone for joining. You may now disconnect your lines.