JP Morgan downgrades Hikma Pharmaceuticals on generic pricing pressures

JP Morgan Cazenove downgraded Hikma Pharmaceuticals to ‘neutral’ as it expects the company's new asthma drug to have a short term impact.

The bank downgraded the FTSE 100 company to ‘neutral’ from ‘overweight’ but raised it price target to 2,400p from 2,100p after a review of its generic version of the asthma drug Advair, which is forecast to add about 7% growth to earnings per share in 2018, however a more rapid erosion is excepted from 2019 onward.

JP Morgan took a more cautious long-term view as it expects continued pricing pressure and likely further generic entrants into a category with modest growth, so its sees the contribution by Advair declining after 2018.

The downgrade came despite Hikma reporting a set of first half results that beat expectations, although it did post guidance for this year that needed a 5% reduction to 2017 consensus.

With Hikma’s shares up 20% for the year to date against the FTSE 100’s growth of 3% and the Stoxx Europe 600 healthcare index’s growth of 5%, the bank believes that this includes a market approval of Adavir.

Even on its upgraded 2018 earnings per share, assuming the launch of the drug will definitely go ahead later this year, Hikma now trades on 15 times the 2018 price-earnings ratio.

“We see this multiple offering limited room for further re-rating, with generic Advair being a finite opportunity, and with limited visibility on the long-term growth rate.”

Shares in Hikma Pharmaceutical were down 1.22% to 2,269.44p at 0801 GMT.