Wednesday, September 9, 2009


A pharmaceutical growth story

High exposure to Emerging Market pharmaceutical markets
Our positive view on Hikma reflects: 1) Double-digit organic growth ('10-'13E EPS CAGR of 16%) driven by Hikma's exposure to the Middle East and North Africa (MENA) markets where demographics and economics are more favourable than in the developed pharmaceutical markets and; 2) Opportunities for further acquisitions and in-licensing that could see upside to forecasts and valuation. Our 533p price objective assumes the stock trades on 16x 2010 earnings, in-line with our sum of the parts analysis. Maintain Buy.

MENA demographics and economics drive organic growth
Hikma has a strong brand in MENA and a top 5 market position (behind Sanofi, GSK, Novartis and Pfizer), making it well-placed to benefit from a region whose population and healthcare expenditure is growing twice as fast as the US. At the same time, healthcare expenditure per capita is 4% of US levels, offering the scope for increases as GDP grows, the young population ages and patients become more health-aware.

Potential upside from further acquisitions and licensing
Hikma continues to pursue acquisitions to both increase market share in territories where it feels it lacks critical mass and to expand into territories where it does not currently have a presence. These acquisitions, which we believe are likely to be accretive, should offer upside to forecasts and valuation. The stronger the MENA business becomes, the more attractive Hikma appears as a licensing partner to companies with no sales presence in the MENA region, increasing the potential for Hikma to acquire high value products.

To see full report: HIKMA (MERRILL LYNCH)