Hikma Pharmaceuticals PLC (HIK) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Hikma FY '24 Results. My name is Aida, and I will be the operator for today's call. [Operator Instructions] I will now hand you over to CEO, Riad Mishlawi. Riad, please go ahead.

Okay. Well, good morning, everyone. Thank you very much for coming. Thank you very much for being online to listen to this. I have to introduce my -- I should introduce my colleagues. I'm usually here with Khalid, but this time, we're all together. So you'll have a chance to ask directly to the presidents and the responsibles of each of our divisions. So starting with Susan, Head of the Investor Relations. Bill Larkins, he's Head of the Injectables division. Khalid Nabilsi, as you all know, he's the CFO. Mazen Darwazah, he's President and Vice Chair of MENA. And we have also Hafrun, she is the President of the Generics division. I have to start to say that we had a fantastic year this year. It's been a year since I've taken over the CEO position. And not only that, but also 3 of the people that we have in front of you here had -- this is their first year in the positions that they are in. Hafrun had joined us in April; and Bill took this position replacing me when I took the CEO. So despite new management, we also had added a new management into the EC. We managed to work very well together. We managed to really do a lot of things that is part of the execution of the strategy that we had. And I believe we had really a stellar year. A lot of things we had done in preparing for the medium term and the long term for the company. So let me start with the year. So I think we have a great momentum here. We had excellent results. We were well ahead of our original guidance in February last year. We are about $140 million ahead of revenue and $40 million ahead of the EBIT. Injectables, 10%. Growth of 10% in revenue, $1.3 billion for the first time with $468 million, up from $444 million last year of core operating profits. The margins were 35.3%, and really the most impressive part about it is in all 3 geographies. As you know, the injectables is the only global division that we have that services MENA, Europe and United States. And in this case, in last year, all 3 of those geographies had significant growth, especially in both MENA and Europe. Branded division were up by 9% in constant currency to $769 million with a core operating profit of about 25 -- exactly 24.6%. $182 million of core EBIT. Very good performance and really a lot of things that has happened in that division also to prepare for the medium term and the future, a lot of construction, expansion of capacity and putting and installing new technologies there. In Generics, very impressive 11%. As you know, with sodium oxybate coming in the year before, coming in into this year with a very low margin since we -- our royalties had increased significantly. Still, we managed to do 11%. Over $1 billion in revenue with a core operating profit of $170 million. Two years ago, we came in to all of you, and we're talking about this division saying $100 million to $120 million. And since then, we're really doing much, much better than this. And even in tough years when we had headwinds, we still had managed to do very well. 16.4% of the margins that for a year that we had some headwinds is very, very impressive. And I think we will talk a little bit about the future of this division and tell you a lot that is happening there. We had some really excellent strategic progress. As I said, we really put a lot of irons in the fire in the last year, not only externally and not only with the investors trying to communicate our strategy correctly, but also within the company. We've done a lot in the management and our structure. We've done a lot in looking at expansion of markets. Europe had expanded. We did a lot of in R&D, and we'll talk about this in the next section when we talk about next year. But what we did last year, of course, Xellia was a big thing for us. I think it was a great acquisition. It's really giving us exactly what we needed. R&D was our focus. We really needed to increase R&D. We needed to increase capacity. We needed to get some infusion to our pipeline and really Xellia has given us all of this. So some very good products and with a good future with good pipelines that we are finishing right now. And I think also coming in with the -- in the United States with a huge facility and very unique technologies in aseptic backfillings and lyophilization. At this time with the geopolitical situation, I think it's even -- it made it even sweeter. So we have a lot that is going on with Xellia, and we are progressing well against it. We launched liraglutide. We're still the only ones in the market. We were the first in the market after Teva had gotten the authorized generic, we're still the only one approved besides them. And yes, it just shows that our BD had chosen the right partner, very active in doing more business with them. And I think this is really a testament of how we're going about expanding our pipeline, not only through our organic R&D, but also through partnerships. We signed a significant CMO for generics. And this is also something that we have talked about when we talked about the generics and what do we need to do in the generics. We talked about we have capacity that we can use some contract manufacturing for that capacity. And we did. We went after big branded companies, and we have a very impressive facility, very impressive quality record in the U.S. So that all gave us a huge advantage, and we found a lot of people that were very, very interested. We finally chose one that has a great potential, and we signed a significant contract there. So that is very much of how our progress against the strategy that we have put forward. We partnered with Emergent on Kloxxado. We can talk a little bit more. I'll leave it to Hafrun if you have any questions about that, but I think this is very good. I think we can do better that way, much more effective marketing and much more cost management there. So I think it's a great deal, and I think Hafrun can expand on that one. And the branded, the branded business for a long, long time, it was very much stagnant at 20%. In the last 3 years, you see the growth. This year is not an exception, and the future will not be an exception. We feel that the momentum is there. We feel our size has been grown. We are still growing and investing significantly in MENA, and you can see the results. So this is something that will not stop and the momentum will continue. Injectables, we're keeping the margins in the mid-30s. We're looking at absolute increase in profits. So we need to invest in the business, and we are investing in the business. We are investing in R&D. We are investing in capacity. All that costs money. So to be able to maintain the margins at a very high level, highest in the industry and still from absolute value increase the profitability, I think it's a great achievement. We're really prioritizing this absolute profit growth. I know a lot of people are stuck up on the margins, whether it's 0.5% more, 0.5% less, but we had some impressive ratios. But as you grow, we need to also look at other geographies that we can expand in, not as high, but still give us an absolute growth in our profit. So we have to really give a balance to how much are we growing versus how much is our ratios being affected. For 2025, strong guidance also, good EBIT growth. Even when you include -- and this is something that is very important. We have committed that we want to spend money on R&D. And this is why we recruited the people that you see in front of you. The R&D experts, they've all been in R&D, the PhDs done this, done that. And you can't recruit those people until they know we cannot expand the budget. That's what the reason why we recruited them, and that's the reason why we're expecting them to do. R&D is our future. We really need to -- we are now a very significant company, and we can't get away with just simple R&D. We have to go into the complex ones, and we have to go into very sophisticated R&D, and that requires some spend. So we are increasing our spend by 20% and still coming in with a good forecast for next year and good guidance for the 2025. So I'll leave it at that. And if you have any questions, the team is here, and we can just go as deep and detailed as you want.

James Gordon from JPMorgan. I have 2 questions on injectables. That's why I've had some questions from people this morning. The first one was on the top line. So I think in H2, you did something like 8% organic local currency. And then the guidance implies for this year for '25, more like 3% to 5% organic local currency. So I guess the first question is, why would there be that slowdown? And does your previous guide that you gave in 2023 that injectables should be something like a high single-digit business. Does that still apply? Is '25 a little bit exceptional? Or have things actually slowed both for '25 and for the medium term?

No, I don't think so. I'll take parts of this one. I'll give it to Khalid to talk a little bit more about the numbers. But -- so our growth in the injectables is still very, very healthy. However, you do have 2 markets that is affecting your ratios when you talk about ratios in particular. We're growing significantly in Europe with the lower margins. If you compare this year to next year, Europe had done over 20% growth this year. They took a lot of opportunities, and they grew significantly. For next year, we're not expecting the same amount of growth because of 2 things. One, we really grew very much this year. And the second thing is the fact that the euro and the FX headwind is not really helping you much there. At the same time, you have MENA also that is growing and also impressive that is not -- with not the same expected ratios as we have in the U.S. Still though, the U.S. is growing. We do have also -- if you look at some of the things that we're doing like liraglutide, we have growing some products that are partnered products and that you would have to share some of the profitability with the partners. So it's not as high in terms of ratios, in terms of the profitability. But again, from absolute value, it is more. So maybe this is why compiled together and taking Xellia out and you would get to the 5% growth rather than -- but I don't think -- I think it's very hard for you to take a chunk of something that we are all working on. The whole unit is working on Xellia. We are putting a lot of effort into R&D to complete some of the pipeline. We've put a lot of effort in regulatory. A lot of our engineers and operations are doing so much to complete the plant, although this is all behind the line, and it's not really has to do anything with revenue, but still there's a lot of effort at being there to make it to start producing.

So as in Xellia, for example, focusing on certain products, you take some of the products that we've been working on. So all in all, the strategy is to grow the business. So you have, as Riad mentioned, you have a very tough comp for Europe, growing at 20%. You have the FX in Europe. At the same time, you have the normal price erosion for the injectable business that you have to compensate. And we always said part of our strategy is either BD organic or new acquisitions. So with Xellia, this would have helped to achieve a very strong growth of 7% to 9%.

I just want to add something. When you put guidelines and you put ratios and all this, you have to put yourself in our place, too. There are a lot that you're doing, a lot of it you will achieve, but you have to also give some room to yourself because you do have products that will get approved, but it's not up to you to when you get that approval. So you have to estimate. Would I get it in July or would I get in December? And that makes the whole guideline shift. So you have to be somewhere in the middle. But I'm very optimistic how healthy is the injectables. It's with the addition of the Xellia and the pipeline that we have with Xellia, and some of the products. We did put in the guidelines some of the interesting products that we are going to have in the medium term. This is something that is unusual. Usually, we don't talk much about the medium term. But we would like to talk about those things. And if you can ask questions, and I think Bill will explain to you some of the key products that are coming in with -- and Hafrun with both of those divisions. So you can see that there is a lot that is happening, not only just the hope.

Maybe just as a follow-up on the second part. So would that imply then, say, in '26, '27 on the medium term, do you think injectables could still be faster than 3% to 5% medium term because actually there's going to be benefits from Xellia in subsequent years, you're investing in R&D. So you haven't changed the medium-term aspiration of still bit high single digit. And is the medium-term aspiration still that you keep to the mid-30s injectables margin even with faster growth from some of the lower-margin areas?

I think the growth is going to be very, very healthy in the medium term for the injectables, and there are reasons for it. So we expect in the medium term, for example, for Xellia to be completely integrated into the division today. We think that the facility will be completed. And even now, while we are building this facility, we're getting a lot of people knocking on our doors for contract manufacturing. We will be making our own products right now. We depend on some of the products for contract manufacturing to fill some of the products that we have. We will be able to fill our own. We will have some of the biosimilars at that time approved that we are waiting for approvals for. And then we have one of the interesting products that we're working on right now, which is the vancomycin ready-to-use. I think Bill can talk a little bit about it. This is a very, very big and key product. Vancomycin is a huge product used in a lot of hospitals for many infections. And it comes in a powder form. We will be the only company that will offer it in a ready-to-use liquid form, which we think that we can have the opportunity to take a lot of that market. And on top of that we have a lot of pipeline products that are being worked on, some on our own and some of the ones that we also got after we bought Xellia. So all of that is coming from the medium term. Coupled with what we have originally and what we do originally, I think that gives a very healthy outlook for the future.

And markets as well, like in Europe, we're still seeing growth in MENA. We are investing in manufacturing capacity. So we'll see more growth. So across all divisions, across all regions, I mean, in the injectable business, we will see continuous growth. So no change to our outlook on the medium term.

And that's on both the top line and on the margin for injectables?

Yes. It's -- we always said that the margin is going to be in the mid-30s. So -- and this is...

Yes, we see no reason why it should grow. We're investing a lot in R&D, but still, we are managing to continue the stable mid-30s.

I'm Alistair Campbell from RBC. Just a couple of questions on generics, if I can. So I still get a few questions on generics profitability. So basically, you talked about the $100 million to $120 million base, which clearly you've exceeded significantly in 2024, the outlook for 2025, around $160 million-ish that kind of level. The question I still get asked though is, is there still a meaningful contribution at the profit level from oxybate in that 2025 number? Is there a risk that some of that erodes going into 2026? Can you sort of to the degree you can quantify that? And then maybe in terms of the investments you're making in R&D in the generics unit, what sort of time frame do you think before that starts to feed into an inflection upwards in terms of top line for the unit?

Do you want me to talk about sodium oxybate? I can go for that.

Go for it. Go for it.

Yes. I mean, we expect, I mean, similar numbers, both on the top line and the bottom line this year as we had last year for sodium oxybate. So I think in the beginning of next year, we expect it will be a number of generic who will be able to launch that product, so that's something, which is quite visible and quite well known. So we still assume, I mean, significant contribution from that product into our pipeline next year as well. For short term or for new product, I mean, when I came into the business, of course, I looked into what products were ongoing and which one were progressing well. And probably one of the most exciting one was epinephrine nasal spray, which we are hoping that we will be able to submit sometime this year. We have had a lot of discussion back and forth with FDA, and we are starting some discussion with other regulatory bodies as well. And -- so the plan now is to submit that sometimes before the end of this year. I'm not going to talk about any specific month, but that will be a 505(b)(2) application. So it should not take more than -- yes, of course, you never know how long time the regulatory procedure takes, but under normal circumstances, it should take maybe 12 months. So hopefully, that will benefit us latest in early '27 or so. Then we have over the last 9 months. We have started 9 new products internally. And then we have also been utilizing the capability in the other functions. And now we are co-developing. We started 5 new co-development with MENA, which will clearly benefit us as well. So I'm quite optimistic about the future and the new pipeline, but we will, of course, continue to add new product in. We are very focused on nasal sprays. We are very focused on inhalation products without naming any. So -- and that's, of course, as Riad mentioned, that's why we need to spend more money on R&D. And that's, of course, that will not necessarily help with the profitability in the short term, but of course, in the long term, it should, so. And the new CMO partnership that we signed will definitely support the profitability of the generics business from 2027.

So sodium oxybate in -- correct me if I'm wrong, 2026, January 2026 will be open. So we will have also the choice whether we want to stick to being the authorized generic or go on our own. So that's a decision that we have to make. A lot of the generics can come in at that time. The only complexity with this one is if you -- if we go out and go on our own, the patients will have to resign with our REM program. So it's not you'll lose everybody and everybody will have to be coming in back. So if you do have generics coming in, then that's going to be now a challenge with what you need to do to make sure that the patients continue coming to you for your RAM program. So there's a lot of decision-making that we'll have to do by the end of the year to see what is the best way we should go. But either way, I think we have done a fantastic job with the way that we are today as an authorized generic. And we may have a chance to see if we can continue with what we are, maybe just change some of the royalties there or go on our own. And so we'll have to choose to find out what's the best way for us. And as Khalid saying, CMO is a big thing. We're spending a lot of money, capital. I mean our client is spending a lot of capital in our plant to get the plant ready. It's a big product that we will be servicing for this company. And I think for the medium term, it will be very healthy and profitable and healthy for this division. You put on top of it some of the products that are coming in, including epinephrine and some of the products that we're coming in today. I think we have a very healthy medium term also for the generics as well.

[indiscernible] BNP Paribas. Just 2 topics, please. Hafrun, maybe for you. I'd love rather than peppering your questions about exact products and when you're going to launch them, just I'd love to hear what you liked when you turned up at Hikma in terms of the R&D? What you'd like and what you've done in terms of changing the strategy just high level rather than product specific. That's question number one. And then to Riad or Khalid, just on compounding, I know it's a slow burn and it's -- you're investing for the long term, but it feels a little bit -- just reading between the lines, it feels that a little bit of momentum has gone there. Just give us an update on how you're thinking about that business and what expectations? I think last year, we were talking about maybe even getting breakeven this year. That doesn't seem on the table. But just let us give us an update on the compounding business.

Okay. Well, maybe I can start with what I liked when I came into Hikma, I mean, from the R&D point of view. I mean there is, of course, it was quite an impressive team, which is located in Columbus, Ohio. And -- but we've still been trying to figure out, I mean, did we necessarily have all the right people there or did we need to replace people and -- or add some new people in. And I hired the new Head of R&D in middle of last year, and he started in end of last year. So I mean, his expertise is mainly on inhalation products. So that is something, which we want to be focusing on moving forward. And we also have the capability, of course, in Columbus to produce those products. So that's something which is important. I mean we've been -- I've been looking into all kinds of processes and procedures, and there is always an improvement opportunities, and we are just working on those and making good progress. And -- but also, as I mentioned earlier, I mean, there are more opportunity to collaborate cross-functionally between the functions and do more together. And that's something, which we have already started on and I strongly believe in. So...

And we have Zagreb as well.

Sorry?

We have Zagreb as well and that we capitalize on and having the team there as well for both generic and injectable.

Yes. To talk about the compounding, we are very happy where we are with compounding. So we had to actually start from a blank sheet of paper and start again. As I told you before, when we got into the compounding, we thought, okay, we do exactly the same thing just on a smaller scale. When we got into the compounding when we found out that, no, it's a different business altogether. It's a different client that you have to service. It's a different way that you have to manufacture. It's a different way that the FDA is looking at you. It's a whole different that we really do benefit from the fact that we know this business well that we manufacture the products well. But as a business, it's a whole different ball game. You have to ship your products straight to your client. So in the United States, we are the third or the fourth largest -- second or the third largest in volume, but we have about a handful of customers because we sell to the wholesalers. That's what we have in our system. Now you have 4,000 different customers that you would have to get the DA license for that we have to invest that you would have to get the credit -- financial credits for and all of those things. So it took us a while to get going. Coupled with the fact of how do we manage this facility, we thought managing this facility would be very easy. We know this inside out. One, we started finding out, look, our people that are selling this product should not be selling our core business or not the same people that should be selling the compounding. The people that manufacture in our core business are not particularly -- would be very good in managing the compounding. So we did a whole reshuffle. We create -- we got new Head of Quality, new Head of the Plant, new Head of the Laboratory. We changed the way that we manufacture things. We got the Head of Commercial, who had 20 years' experience with SCA in the past, another compounding. And once we did this change, since then, every month has been a record month from the month before, every month, including this month, including January, which is the toughest month to do with. So we are very happy where we are. We still want to take it easy. As you know, Fagron just the other day, got a warning letter. QuVa got a warning letter. SCA got a warning letter. So the FDA is looking at this business and saying, I'm going to straighten out this business. I'm going to make it a lot more compliant than what it was before. We are doing well. We're communicating with the FDA. We have fixed many of the issues that they want us to fix. So we believe we're a good foundation and the future, I think, is very, very positive for this.

Is breakeven on the table this year or...

No, it is there. It is -- if it is not there, it's just slightly less, but it's there. I think that's...

Paul Cuddon from Deutsche Bank. Bill, in 1 year, you've increased the submissions for injectables products by about 50%. I'm just wondering if you could kind of elaborate on kind of where those submissions have gone, particularly therapeutic categories, geographies and kind of what that might mean for the midterm kind of growth aspirations?

Yes. So overall, it was a focus when I came in to make sure we drove the products through the pipeline. So we had a lot of things that were either in development that had technical challenges or were sitting at FDA. So we spent a lot of time in R&D kind of, what we call, cleaning out the pipe. So it's really around driving those things to completion. It was really mostly in the U.S. was the focus on that. So the bulk of those products came through there. It then freed us up to be able to do more, which is then to add in more complexity into the pipeline, which has been one of our focuses going forward. So it freed up the capacity to do that. Then along with that, I think with the Xellia acquisition, as Riad talked about, a little bit as well, we got this interesting development center in Zagreb as well. And they have some unique expertise in what we're calling in our strategy, these ease-of-use products that are ready-to-use bags, ready-to-dilute products, ready-to-deliver products. They had a basket of those products in the pipe. We have a basket of those in from our Bedford site as well. And so we've kind of combined all that together strategically. So I think in the coming years, we're going to continue to see that kind of growth coming out of those types of products as well.

And secondly, on the generics CMO, which I think you must have signed before the talk of tariffs sort of entered the kind of pharma narrative. So to what extent would others like you to be manufacturing products for them in the U.S. with the potential of kind of tariffs coming on Canada, Mexico, kind of others? Or is that something that you're not -- don't really see as...

Maybe I can start. I mean, we get a lot of requests of new CMO potential contracts. And yes, we have visitors almost, I would say, every other week, companies which are interested. So it's not a lack of interest. It's maybe more capacity. So we can, of course, only do so much. And this deal, which Riad mentioned earlier, is it will take quite a lot of effort, and we're just preparing for it. And when we start the manufacturing, it will be significant volume. So we had to decide what can we do, what capacity will we have and so we don't have endless capacity. So we could clearly take on more if -- yes, it all depends on what kind of capacity.

I think there are 2 things when it comes to the CMO. I think if you want to grade yourself that you are a good CMO, you have to see if those companies that come to you continue coming to you and continue adding products to your pipeline. We are having that. So we have a limited capacity in the injectables. But still, we see a lot of people coming to us. As you know, we did a great deal with Gilead for remdesivir. We introduced that product in record time to the U.S. during the COVID time. And we see Gilead still coming to us with a lot more interest in doing more business with us. I think that's a testament of our quality, our collaboration. Still also we do biosimilars. We are lacking capacity, but capacity is coming. We are building -- probably doubling our capacity, especially in the lyophilization in the next 2 years. We're adding a huge facility in the U.S. with 6 lyos over 300 square meters -- 300 square foot. Those are considered very huge lyos. We're adding 6 of them. We're also adding lines for filling. We're adding lines also for bag -- aseptic bag filling. So capacity is coming also in Portugal. As you know, we have a big facility that we broke ground and that will house 4 huge 400 square meter lyos, 400 square foot lyos. So I think from the capacity point of view, we're in progress. We're ahead of the game. We should be -- a lot of that should be coming in, in the next year or 2. So when we talk about medium term, we're considering all of that, too, because that will be coming. We are still healthy today. And I think that in addition to what we have today, we will be sitting in a very good position.

Christian Glennie from Stifel. Maybe one on branded and the margins there. And yes, you did come in at your -- at around about sort of 25% level for the year, but the split between the first half and second half was particularly dramatic. And if there was maybe some expectation there may be a bit of upside, it would have been maybe on the branded margin, for example, maybe a bit above the 25%. So it's come in sort of sub 20% implied by the full year number. Is there anything particular to call out there that maybe didn't quite sort of come through in the second half? Or was that -- I mean, I know it was on track, but nevertheless -- and then as you think about '25, what might be the sort of rough split again in terms of all the sort of weightings in terms of that margin for '25?

First of all, I think in the MENA, our team did a great job. And you have to remember that MENA is 17 different markets. It's not 1 market like the U.S. or -- so every market has what we call the private sector and the public sector. The public sector usually is a tender. So our sales are split between private and public sector. So the margins really are differentiated, whether it's a tender business or it's a private business. So it's a matter of timing when you sell these products and when you ship them. This is what differentiates the margins. So as a whole, this is why we say we're near the 25% margin as a group. Remember, 5 or 6 years ago, our margins used to be between 19% and 20%. So during the last couple of years, we have really switched our business model from acute medications to chronic diseases. And chronic diseases basically is a long-term project where we are adding on our pipeline, cardiovascular, diabetes and hypertension. So this is where our growth momentum will be in the future. So we are shifting gradually from an acute business to chronic business, and we are shifting from tender business to more private sector business. So this is where we will be able to maintain our margins. Plus in the MENA, as you are aware that many countries have what they call protective legislation. So once you are in a country like Iraq, for example, or I'll give you Iraq. Iraq today has something like 92 manufacturing facilities. So if you don't manufacture in Iraq anymore, you will be stopped from exporting to Iraq. So the same thing goes in Saudi Arabia. Now we're seeing that shift. We're seeing it in Egypt. We're seeing it in Morocco. So this is why we have an extensive footprint. And this is why we are trying to maintain our margins in difficult situations. So we are confident medium term that we will continue to be in the range of 25% going forward. And growth, we will have a CAGR of 6%, 7% as we go during the next 5 years for the margins.

But in terms of the split between H1 and H2, it's in line with our expectations. So it's timing of tenders that took place in the first half related to certain high-value products. In the second half, we continue to sell, of course, but not the same, let's say, amount of tenders, but we have as well increase in sales and marketing activities. Usually in the MENA, most of the marketing activities takes place in the second half more than the first half. You have -- we increased our R&D spend in the second half. So it is -- this is why nothing, I would say, abnormal for us other than the split between H1 and H2. But for the full year, it's in line with our guidance.

I have to add just a little bit to this. I think if you look at the U.K. market, for example, there are many tenders going on. If you look at some of those, so they're not all at the same time. In MENA, huge tenders happened at one time. Algeria, 1 huge tender. Saudi Arabia, 1 huge tender. It used to be many tenders. They combined them all into 1 tender. And because you win that tender at one time, you deliver at one time, and that's why the bulk happens at one time.

And that probably is similar repeat in this...

Maybe to a lesser extent than 2024.

Maybe on the usual question around pricing, but maybe specifically just to clarify on the injectable price in terms of how -- to what extent there's any -- been a shift? What is the sort of ongoing pricing erosion within both injectables in the U.S., particularly and in generics?

Price erosion, is that what you're talking about? So mid- to low single digits kind of typical trend.

And that's unchanged. I'm just trying to get...

Yes, we're not expecting any significant change in that going forward.

And similar in generic?

I mean, it was around 6% last year. But I mean, it's all based on the product mix. I mean, so you can't -- it's difficult to guess. I mean many of our products, which we are selling in the U.S. are quite old. They've been on the market for a long time. So maybe you see less price erosion in this kind of product. You see normally the highest price erosion for those, which you are launching and then more company comes in. So it's difficult, but this is a similar average that has been over the last 10 years. So some years have been more. Some years has been down to 15%, but last year was around 6% for us.

And maybe quickly on liraglutide. At the moment, you're still the only straight pure-play generic as it were. The longer that goes on, I mean, just to categorize or give a bit of context around the potential benefit you might have from staying the only player in that market as you go through the year? Or another way to say how much is that expectation put in the current guidance for injectables?

Bill, do you want to take that one?

So yes, I think -- a couple of points on this one. So one, I always like to toot our Hikma horn on this one. So we are the first and only approval on this product. So Teva actually is the authorized generic, so they actually don't have an approval in the U.S. We're the only one. So I think that's important about our performance. And so we're expecting near-term competition. We're hearing that competitors are launching in the near term. If they don't for various reasons, then there'll be potentially upside to what we're forecasting for the year. But we're forecasting in more competitors coming in this year.

Not approved as yet?

They're not approved as of yet.

[Operator Instructions] Our first question from online is from Beatrice Fairbairn from Berenberg.

I just had a question on the U.S. biosimilars. I was wondering whether you could provide an update on the status of your partner denosumab biosimilar following its FDA filing in December. When kind of should we expect an approval of biosimilar? And what sort of ramp-up should we anticipate?

U.S. biosimilar progress.

Okay. So we have -- as you know, we have 2 biosimilars in the U.S., ustekinumab and denosumab. Both of those products are under active review with FDA as we speak. So expectations on timing, we're forecasting that we'll launch both of these products in 2026.

And maybe just a follow-up to that on biosimilars [indiscernible] I know there was a lot of attention to this Formycon announcement last week that the pricing discounts are developing in a much more aggressive way than they had initially expected. And I think some investors have been seen extrapolating this across U.S. biosimilars. Do you have any -- have you noticed any changes in the pricing outlook or discounts to branded products just at a high level?

So we did see the same thing on ustekinumab. So the drop already is over 85%. So just with the few launches already. I think what maybe puts us in a more unique position than a lot of others is the partner that we have on ustekinumab specifically and the cost structure we have on it, we think we'll be able to be in a really competitive place overall. And so we've kind of forecasted in our view of our launch in '26 with kind of this kind of level of erosion, maybe even a little bit more. So it's not shocking to us.

Just a few for me. [indiscernible], BNP Paribas. Just to the whole team, just the ambition, if any, that you have as it relates to semaglutide. I mean you've got -- you've done liraglutide, and I apologize already looking beyond that. But just what level of ambition, if any, do you have in terms of semaglutide? Two, just could you help me here sort of qualitatively if -- how much of the U.S. business can you supply through Cherry Hill and Ohio versus the network you have in MENA? I realize you can't give exact numbers, but it's a tariff-related question. And then we had asked you this every year, which is, you're not going to say what you're looking at and what size, but just the environment to do business development in terms of what you're seeing, I mean, how excited are you about being able to do further utilizing the balance sheet further this year? Are there opportunities out there? Or yes, just characterize the environment for BD at the moment.

So maybe I'll jump on a few and then you can add the rest around it. So in -- so I'll start with peptides and then move into GLP-1s. So I think peptides specifically, I think we have a unique skill set within Hikma. So as I mentioned with liraglutide, we also had the first launch of calcitonin as well. So we do have a skill set both in R&D and regulatory in peptides, and we're going to leverage that going forward. We're certainly going to be in the GLP-1 space going forward, both either through internal development or partnerships, and many products and combinations of those. So we'll be certainly going to be participating in the GLP-1 space going forward. As far as then the plant in Cherry Hill and what part of the business for the U.S., Riad probably has a better view than I do. So it's -- that plant can do over 200 million units out of that facility. We do have the ability between Portugal and Cherry Hill, where there are overlaps in the production. So if we see opportunities for the U.S., specifically around tariffs, there is an opportunity that we can shift production of some products from Portugal to Cherry Hill and vice versa. So we have those types of opportunities as well. But you probably know better on the overall markets furnished out of Cherry Hill.

Sure. So overall, we have generic completely U.S.-based, manufactured, sold in the U.S., over $1 billion. And then we have the U.S. injectables that around a little bit more than $800 million actually is coming from the U.S. manufactured between 3 plants: Cherry Hill, Portugal and a little bit in Germany. Cherry Hill actually makes probably around 60% of this, and the rest between Germany and Portugal. And as Bill said, we have the ability to change that ratio if we choose to move some of those products to the U.S. So all in all, I would say not more than 20%, maybe a little bit more that is made outside of the U.S., none in India, none in China, all in Europe. And I think compared to many of our competitors, when it comes to this, we are a lot more U.S.-based than a lot of our competitors that even U.S. companies that we compete with.

And with Bedford coming on...

And with Bedford coming in, that will be -- that ratio will be incredibly big as U.S. manufacturers.

For BD?

For BD, I think we have a great opportunity right now, especially with the world being so nervous. A lot of the foreign companies that had invested a lot in going to the U.S., making facilities that are FDA approvable. Now they're very nervous what would happen. We would like -- some of them are our partners that we have products from. We would like to expand that relationship and see maybe we can help in this where we can move some of their IP into our own facilities in the U.S. I think we will be discussing a lot with our partners. I think also because of our manufacturing, majority of our manufacturing happens in the U.S., I think that could be a good proposition to most of them.

Paul, back on. Just a clarification on the vanco-ready product. You acquired, it was on the market and you now need to gain approval for a reformulated version. So I'm just wondering kind of what was wrong with the original product, and for what the implications are for kind of when you might get approval and the market potential thereafter?

So the product on the market today is a product that has a black box warning on it as people are probably aware. We have a reformulated product, NDA product that's under review actively with FDA now. We're expecting some news on that later this year. And that box is a reformulation and it will be -- sorry, it's a product that has a reformulation where the box will be removed. Sorry, just one other thing on that, too, and it is a patent-protected NDA at 2035.

Yes. I think I just wanted to say a couple of words about this product. This is -- would be or will be a very important product. Vancomycin is used for a lot of infections. It's used in all hospitals. It's a huge market in the world, especially in the U.S. because they use this one more than anything else. In Europe, they use another antibiotics that doesn't exist in the U.S. But it's a big, big product. It is usually offered by body weight. So you have different brackets of it, and it is offered in powder. So in order for you to infuse it to a patient, you need to dilute it into the right ratios of liquid, which is complicated. And so what happened, most of the vancomycin administered in the U.S. is compounded. So the compounding pharmacies, the compounding companies, the pharmacies, they get the product, they dilute it, they put it in different brackets of bags and sold to the hospital. In this case, once we get approval, that there's no need. There's something that exists already, 6 different brackets that we have depending on the body weight that you have. Ready-to-use liquid form doesn't need to be compounded. And the most important thing, the one that comes from the pharmacies that are already compounded, it's good for a few weeks, months, a couple of months maximum, while our products definitely have a much, much, much longer expiration date.

I'm going to actually add one thing on top of that. So this product is used for sepsis. And so getting this product to the patient quickly is important. If you don't, people can lose limbs and/or die. So you have to get this administered quickly. So all of these things that Riad is talking about taking it from a freeze-dry product to dilution, the time really matters. So this product really has an enormous upside if you can just grab it, administer it to a patient. So that time is really, really important.

One more maybe on generics and thinking about the CMO contract and then the potential impact of that 2027. I think in broad terms, I think you talked about utilization in generics being 50% to 60% or so, if that's the right number. And therefore, once that product is fully online '27 and beyond, does that shift with -- is that sort of a contract that would shift significantly that utilization rate, if it's possible to say?

I'll say a couple of words and have Hafrun answer this. The capacity utilization that we keep talking about is with the existing equipment that we have today. This contract will put a lot more equipment and capacity in addition to what we have.

Yes. And also how you calculate capacity. I mean do you calculate it based on the number of people you have? Or do you calculate it based on the equipment that you have? I would say that maybe Riad doesn't fully agree with me. I say, we are 100% utilized based on the number of people, which we have. But with this contract, we will need also, of course, to add a lot of equipment, but also people to support that business. And that's something, which we are already in progress of doing. So I'm not willing to give you utilization numbers because I think that's -- you can calculate that on so many different ways. So...

But the fact that you are able to increase the capacity today by adding more people, working more shifts, working on weekends, you can do that. We're not doing all of that today. So yes, maybe we're utilizing more than that 50%, 60%, but usually, again, what Hafrun is saying, depending how you calculate capacity, is if the maximum capacity that you can get to or what your capacity you're working at today. I think we're working at the capacity that matches our demand. But if the demand increases, we can also increase the capacity. I just wanted to repeat what I started with and what we tried to put across, which is the medium term. We talked about it in many of the questions that you had asked. But if we look at the next 2 to 3 years, so let's take division by division. If you look at the generics, we're just talking about it today. And the next medium term, we will have the project of contract manufacturing will be at full throttle, delivering a lot of financially healthy numbers to this division. We will have interesting product coming and then getting approved. Nasal products like epinephrine and other technologies that we're working on. I think a lot of what we have, the R&D that we're spending money will be coming to fruition. So I think that generics will be in a very, very good position in the medium term. If you look at the injectables, we talked about -- the last question was talking about biosimilars coming in also soon. Talked about the vanco ready, the vanco ready-to-use coming in also very soon. We talked about Xellia, a plant that will, in the United States, with huge capacity and technology, something that is very good to have, especially today that will also increase our capacity, give us breathing room to also get more contract manufacturing opportunities. We also talked about the pipeline that we got from Xellia and the R&D center that we will be looking at completing many interesting projects there, and we think that we can complete it. I think a lot of them were halted by Xellia because of financial -- their financial means, not because of any obstacles in developing those products. So we feel that we can complete those products. And compounding business should be healthy. It's going in the right track. We think that we also can be doing a lot with this business. I think this business is going to be a big contributor to our growth. MENA also momentum is very, very healthy, continues to show the capabilities. We had invested significantly in the last 2 years or 3 years in MENA, and we are still investing. We have new facilities in Morocco. We have new facilities in Algeria. We're breaking ground into new facility in Saudi Arabia. We're doing another facility of oncology in Saudi Arabia. We just finished a facility in Tunisia. So we have been investing in capital expenditure there and increasing a lot of spend in R&D. All the group is increasing in R&D, about 20% significant increase in R&D, still being able to get you numbers that are good, healthy with healthy growth and spending. We need to spend on this business to grow. So doing that while we're still maintaining growth and healthy numbers, I think, it's a great formula. And I think we are delivering this today, and we will be in the medium term.

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