Hikma Pharmaceuticals PLC

Before we start, I'd like to remind you that any forward-looking statements or projections made by HICMA during this call are made in good faith based on information currently available and are subject to risks and uncertainties that may cause actual results to differ materially from those projected. For further information, please see the Principal Risks and Uncertainties section in HICMA's latest annual report. And with that, I'll hand over to Riyadh for some opening remarks before we go to Q&A. Thank you very much.

Good morning, everyone. Let me start by maybe a few words. Summarizing the half, the first half, I believe we had a strong half. We have a strong revenue growth of about 6%. That's driven by... Volume growth across all segments. All the segments are doing well, as expected. I think the big story and the most impressive part of it all is that we had revenue growth of 12% in the injectable division. Revenue growth means that we have good demand on our products, and that's very, to be honest, it's a good indication for us that All the investment that we're doing in expanding our facilities and increasing our capacity will all bring in good results, and that's happening as we speak today. And the growth is not happening in one region. We have 26% growth in Europe, and that's something also very impressive. MENA, 16%, and MENA has been doing this year on year for the past few years and continues to do so. And, of course, the U.S., we have a growth of 8%. That's all driven by new launches, driven by volume increases, and, of course, the Zellier portfolio that we had acquired middle of last year. The branded revenue is up 4%, and the branded division has been doing really well year on year with not only good growth but also very stable growth. margins, very stable profitability. That's a division that, you know, everybody questions whether, you know, do the geopolitical problems, if we are going to be impacted at all. I think it's doing quite the opposite. I think the political instability is bringing us new business, and this business has been doing really, really well. And, of course, we're doing a lot to feed it in new products. We're doing a lot of BD products. And as you know, we acquired a few products like the Takeda products last year. And finally, the RX division, the revenue is, you know, about this flat, broadly flat, I would say. And that's a division that everybody was worried about for a while. So I think what we did this year, pretty obvious that it's very stable, poised for growth, good R&D team. We're doing a lot in R&D. And, of course, you know that we had announced a big CMO contract that I think it will be going into the full throttle in a couple of years starting next year. We're doing a lot of investment in that division, and I think the fruits of all this investment is going to be pretty obvious. So I think there's a lot of good news. There are some slight surprises. I would say unexpected headwinds, especially in the margins of the injectables. This is why we dialed down the injectables slightly. The good thing about it is that this is temporary. This is not something that will last. It's mainly driven by the effects, the strength of the euro. As you know, some of our costs in the injectables is in euro, and we pay it in euro. That has slight effect. And, of course, the uncertainty and the unclarity and you know, created some inflationary costs like shipping, some of the tariffs that we'd have to pay, some inventory and so forth that also added to that. It didn't really affect it that much, but we wanted to make sure that we're very transparent, we'll see how things are going, but we also want to be realistic that there are some headwinds and we have to kind of face them. But as a whole, I think we are reiterating our group guidance, and that's what's important. We continue to expect that the group revenue for the year will be between 4% and 6%, cooperating profits in the range of $730 million to $770 million in 2025. And the slight adjustments that we did with the injectables is exactly just to reflect what's happening, what has happened, and, you know, that would be – has been accounted for right now, and I think that will be behind us from now on. I think, you know, and you can see the branded, there's no FX, Edwin, in the branded. This is usually where the FX is, but in this case, it's not. It's in the Euro, something unexpected. As you all know, in the beginning of the year, everybody thought that between the Euro, there would be parity between the Euro and the dollar. It's really not. The opposite has happened, and that will screw our numbers a little. I just wanted to make one point. I was looking at our share price this morning, and we had hit 52 low this morning, and three months ago, four months ago, I believe we were at 52-week high. And I believe that where we're sitting today, we have a much, much stronger business than we had three, four months ago. Everybody was worried about, for example, about the RX business or X generic business as we called it. Everybody was worried, what are we going to do with it? A lot of suggestions, should we sell it? Should we get rid of it? The sum of the parts, we had all of that. What we have today is a very, very strong division. Delivering, we have a great R&D set up there. We've got a leader that understands how it's run. We signed up a great contract manufacturing contract that will stabilize a lot of the income and give you a lot of profits, something that is predictable and it's going to come. And also we are submitting very critical products such as the epinephrine, So we have transformed this division from the time when we used to sit there two years ago and say it's going to bring between 100 and 120 million. Well, you know, brought in 190 last year. Is that approved? The 190 last year. We're anticipating to bring in 170 this year. It's doing well. It's got a great future. And if all the products that we are submitting is going to, you know, get approved, that will be an incredible division. Despite all that, there is a lot of spending on R&D, focus on R&D, and still we're able to come up with numbers that are exceeded what we had said before. You look at the branded. Year-on-year growth, year-on-year stable. Profitability is high. It has increased significantly from three, four years before, and it continues to do so. We're signing a lot of contracts. We're signing a lot of BD contracts. And as I said before, you know, this political instability in that region is making a lot of the big branded companies that operate in that region come back to us and say, are you local? Do you understand? Why don't you just take our products? And we have been very successful in finding a lot of those big products into our own and add them to our portfolio. And you can see that from the numbers. Injectables, I mean, I used to be, as you all know, head of the injectables. And I can tell you, I know all the injectables competitors that work with us and our peers in the same market. We are double or high, much higher in the margins than anybody there. Everybody wonders how we are able to get the margins. And let me remind you that we get this margin while we are operating in the U.S. About 60% of our products of the injectables are made in the U.S., And the rest are made in Europe. So we're not in low-cost areas. We're not in India. We're not in China. We're not in any of those low-cost areas. And we're still able to get margins that are higher than everybody else competing with us. And without any sexy ones. We don't have big products. We have generic, simple products. But we're able to squeeze so much out of those. We run very efficient operations. And the efficient operations are continuing to grow. We have Bedford. We're investing in Bedford. That is going to be an incredible facility with technologies that are very unique in the U.S. and in the injectables area. We're investing in Cherry Hill. We're adding more lines. There are a lot of investments that are happening across all injectables. We built new facilities in North Africa. We doubled the capacity and localization in Italy. We are breaking ground for a very sophisticated state-of-the-art facility in Saudi Arabia. So a lot of investment is happening in this division because we really believe in it and we believe that we can do better than anybody else operating in the same field. It's very confusing to all of us how we see, you know, going from 52-week low to 52-week high. Is it the reaction of what happens on the day, or are we evaluating the company based on what they have in the future and how they're growing and what the prospect of the future is? So if it is about the future, I can assure you that the future of this company is more positive than it's ever been. We are looking at how we are going to be organized to be more effective. We are absorbing 11% more or 11 million more in R&D than we have in previous years. We're still able to get numbers. We're still able to get an EBITDA number higher than any of our peers. We are operating, as I said, in all most of our products are coming from expensive territories like the U.S. and Europe, and we're still able to to manage for a profitability like that. And we believe in R&D. We believe that this is our future. We believe in growth. We are not going to cut R&D so we can get the numbers and everybody is, you know, we need to invest in the future and R&D is one of them. I think the reason why our X has suffered for a while is because R&D investment was limited. If we want to grow, we need to invest in R&D, but not only invest in R&D, invest in smart R&D. So you all know what the people that we had brought in, very R&D focused, very science focused. They know not only how to sell the product, but also how to develop it and how to make it. So we're counting on those people. We're counting on all of the organization, and there's a lot more to do. And I think that it's all to show it. If the effects come in because the euro was unexpected and you have to dial down 1.5% on your margins, it's sad to see that we have been looked at as, you know, the reaction is that it is. But that's how the market goes, and that's what we need to do. So we're open to questions. Yes.

If you would like to ask a question, please press R1 in your chat box. To remove your question, press R1. And then to ask a question, press R1.

Continuing this advantage, like what would you do to be able to keep your high margin, you know, we all know there's more and more commissions coming on. So how would you maintain your high margin at this field?

I think the formula is simple, and we mastered that formula. I think the higher margins didn't come only last year. For the last 14 years, if you look at the injectables, maybe 15 years, I haven't looked exactly where it worked. We had been delivering 34 plus. We even have some years that we got to 40%. So it's not a formula that's strange to us. It's a formula that we follow, and it's been working well with us. But I think even now... We think that we can even do much better in terms of organized R&D better. This is something that we were not very strong at. We've recruited now people that understand this very well. We reorganized our R&D much better. We have a nice center in Zagreb now that we had acquired with the Zalia acquisition that we are going to capitalize on. We're going to reorganize it and spend some money on it. So we believe that the money that we are going to spend in R&D is going to come back much more than ever because of the location where we're spending it and because of how we are organizing ourselves. We're putting synergies together. We're identifying synergies across all divisions. We're doing a lot in that area because we do believe in R&D. So basically when it comes to revenue, when it comes to margins, I don't see there's anything different. In fact, We used to get those margins without any, as I said, sexy product or big high margin or whatever product. We had simple, generic products, and we were able to get that margin. However, today, we do have that product. We do have KaiserVan that is very unique, protected for the next 10 years, only one in the market, a product that has huge potential. There's 30 to 40 tons of vancomycin being sold in the U.S. and we are the only one that has ready-to-use bags, and we have a patent on that one that will stay with us for quite some time. So we do have unique products right now. We have a lot of 505B2 and an entire brand. So if we were able to get that 35-plus margins in the past, we should be able to even do better now.

Thank you. Hi, Beatrice Thurston with Davenberg. So in the release today, you noticed that group outlook takes into account the impact from tariffs and related inflationary pressures. Would you be able to kind of quantify this, which areas it's impacting most, and anything you're kind of doing to offset this?

Okay. Yeah, thank you for the question. I really need to clarify the tariffs thing. The impact of the tariffs is not that big today. especially in our P&L. It might be in the balance sheet because, as you know, if you buy raw materials and save them in your warehouse, it's in your balance sheet, not only in P&L. So the impact on the P&L is not that much. However, an impact nevertheless. Tariffs are today, we are all anticipating what will happen. We're all trying to predict what will happen. Things are changing daily, as you all know. We know that there's some tariff on Europe, but we don't know if generic drugs are going to be included or not. But considering all of that, our U.S. presence is bigger than anybody else. So in the future, we are going to be, you know, if tariffs is going to be severe, I think we are in a great position. If we're actually going to put that 50% on India, you know, most of the Most of the companies in the U.S. are getting their products from India. They're Indian companies, and many of them are sourcing their products from India and China. So we are not. So we have also less risk in terms of the tariffs. But today the tariff is there. It's not affecting us big time. We have only 5% of our product totally in the whole group that comes from China, and in the U.S. it's even much less than that. it's not going to be a big number, especially from China. From Europe, we don't know what's going to happen. If it does, it's going to be a slight small number, but we still don't know. But, you know, if you compare us to the industry, I think we're sitting on top of everybody else because of the way that we're structured.

And these, like, indirect impact, like increase in shipping costs, because of, like, the kind of shipping costs increase, You see, as Riyad mentioned, very minimal impact for this year in tariffs, but combined maybe it's around 6-7 million like impact between shipping, inventory. Tariffs, it's not a significant amount that affects us. That's significant like why we've come down on our margin. It's mainly the ethics. When we gave the guidance, the euro was to the dollar 1.04. Today it's 1.116. If our cost base in euro is higher than our euro income, this will have an impact, a translational impact. Translate today 100 million euro to dollar. It was $104 million. Today it's the same 100 million euro. It's $160 million. So this is the impact.

This is why you brought our... I think what's important to investors is when they look at some downgrade to see if this is structural or not. This is not a structural downgrade. This is not a structural impact on the company. This is something that will react into the environment around us, something that we cannot control. Shipping had gone up. At one point when there was this tariffs war that's happening between China and the U.S., there were no containers. Everybody wants to ship now before the tariffs go in effect. So you pay two, three times more if you want to ship your product out from overseas coming in here. That eventually will have a small effect. you add those little small things together, it becomes a number. It brings you number 1%, 1.5%. But the important part, again, is this a structural problem or is this a temporary problem? It is definitely not a structural problem. Even that there is something that we did say also in the announcement about product mix, and I want to make that point. We, as you saw, the increase and the growth that we're having A lot of it is coming from Europe, 26% Europe. So 26% at a lower margin than the U.S. So the growth is great, but also if you want to maintain your margin, you should not be growing that much because it's going to, you know, but you are growing in areas where there's less margins that need to do in the U.S. Adding to that the fact of Zaria. Zaria is, as you know, it's bringing in, is this a public number that Zaria is bringing in? Can you say what the number is? Roughly. Yeah, roughly around $50 million, a little bit less than that. But these products are coming from third parties while we are getting our facility ready. Facility, as we all told you, we have the facility that is ready to take all those products in and more and have room to also grow in these technologies, like you said, big bag selling and Lyo. It does take time. But right now we're depending on third party. You depend on third party, you are not going to make the very big 35 plus margin. You are going to make less. You have to pay for the third party. You have to pay for shipping. All that is going to disappear once you have your facility up and going in Bedford, which we are anticipating to do that in 2027. So all of the pressures that we have in our margins today to be more than double our peers That will even do better in the very near future because of what we're doing.

Thank you. It's Kane Slutskin from Deutsche. Just on the injectables piece in April, you'd sort of spoken about new entrants coming in, two of your larger products. Just wondering how it's looking there, how have you reacted, whether it's sort of from the pricing or just volume? And then just on the CMO deal, I think you mentioned something around 26. I was sort of on the impression it's 27. Just want to confirm that. And where in sort of clinical development is that asset, if I may ask?

You're talking about CMO? Yeah. Okay, the deal is CMO. All right, so to... What was the first part? About the product mix. Yeah, about the product mix. I mean, this is our business, right? This is the business that we have. So you have to anticipate. You have to look ahead. You know that a competition is going to come. You know that some products are going to be, you know, some margins, and you are going to have to pick them up some other way. This is going to happen. So, yes, unfortunately, this happened at the same time. Two of our big products got competition, and then we had to dial in. on the market share and some of the profits, it did impact us. But we made them up in other ways. So the impact of this is, yes, it does go up and down, but not so significantly because our portfolio is one of the largest in the U.S. We have 175-plus molecules in the U.S. in injectables. Some will go down, some will go up. You just have to be able to be – paying attention to the market, being there before everything happens. We did anticipate those coming in. We did anticipate this was going to be the most market share. We'll see how we are going to – how these competitors are going, how reliable they are. And then we act. So we've been in this business for quite some time. We know how to deal with competition. But, yes, this is one. But the other one that actually affected us, is the fact that the growth in other areas with lower margins. So this is what the product mix is going to happen. As far as the contract manufacturing, we all told you, I think this is not new to all of you, that there's going to be a big, sizable investment in our facility by our clients to facilitate the ability to produce for them the high-technology products that we are going to be making for them. And this is going on today. We're building. We're adding equipment. And it's significant. It's significant value that we're putting in that facility, that they are putting in our facility. And that shows a lot to the trust that a big branded company would do, you know, coming in and putting hundreds of millions in your facility to make it ready. They trust your quality program. They trust your ability to technically be able to produce and giving you a very huge critical product. for you to make for them. So it tells you about what they have found. And these guys, they're very picky. They're branded companies. They get the best of the best. They hire the best of the best. And they come to you and see you, and they were able to give you a big critical product that I think says volumes about your ability and about your capabilities as well. This is what's happening right now. I think we are building right now. We start next year with slight volumes. Towards the end of the year, we expect that will increase significantly. It all depends on the approval time. We are anticipating sometime next year, but with some of our products, we really don't know. We know that that's the forecast that we're getting. But we're very excited about starting as soon as this product gets approved, and we're praying that it gets approved. Their success is our success, so we're looking forward for this to go to full throttle.

And first question comes from James Gordon with JP Morgan. Can we ask a question?

Hello, James Gordon, JP Morgan. Thanks for taking the question. One question was just about injectables margins. So you've trimmed the margin this year, and I think you may have partly asked it, but is it fair to say the majority of the trim is because of effects, or how much of it is effects versus the other factors that you talked about? And then sort of connected to that, Should we extrapolate the margin comments or guides for this year to next year, or do you think things will be different next year? That would be the first question, please. Second question would be a GOP one. So it sounds like your Lyric route, I thought, is going reasonably well. But updated thoughts on whether you will or won't do summer. It sounds like you're not doing summer in Canada next year, but are you going to do it in Europe and US? And then maybe the third one would be, We heard about HICMA-RX with the Generics Pipeline quite a bit at the event a few months ago. How quickly do you think that's going to start coming in? Do you think we're going to see a significant boost from Generics Pipeline coming through next year, or do we need to be a bit more patient?

Okay, thank you very much. Do you want to take the margin part?

Yeah, so if you look into the margin, when we gave the guidance at mid-35, as Riyad mentioned, we've anticipated in depth when we gave the guidance that there would be some pricey origin on some of these products, but maybe it's slightly higher than what initially was. So you bring it to the low end of our margin. But the main impact is coming from the ethics. So you could assume like around 13, 14 million, 15 million coming from ethics of Europe, and the 6 million coming from the other costs related to indirect impact of tariffs, shipping, inventory. So this is where we got into the 32, 33 margins you see today.

As far as GLP-1, as you know, leader blue side is we started this one. We were the only one in the market after Teva had introduced authorized generic. So we... We introduced ours 25th of December, I believe, on Christmas Day last year. Done well. Today we just have one competitor that has been added to this group. The product is doing well. We still are selling it, although I think at a lower price. But we had managed to also renegotiate the transfer price to us, so our margins are still healthy. As you know, there were a lot of compounding happening in the GLP-1 last year. So a lot of people that wanted to get to the semaglutide, they didn't have to buy it straight from the manufacturer or from us. They compounded their product. And the reason why is because they were allowed to because the product was in shortage. Well, since then, the product is not in shortage and compounders are not allowed to do that anymore. So the semiglutide went back to the high price that it has always been, which gave the opportunity for liraglutide. The difference, if you don't know, the liraglutide, very similar in indication to the semiglutide, except it's daily while semiglutide is weekly. So, of course, for convenience, everybody would prefer to go to the semaglutide, but because of the cost now, especially that you can't get it compounded, then we're seeing demand increasing on the liraglutide. Whether we are going to the semaglutide, I think it's still patented. There are a couple of countries in Europe that will be, the patent will be expired next year, and I think Canada will be one also, and a few countries like Brazil and this, but by large, I think most of countries will still be restricted by patents. The thing about patents that maybe people don't understand, it's not about selling the product in a patented country, it's about not being allowed to even make the product if it's patented. So I can't make the product in Portugal and sell it in Canada because It's not patented in Canada. You can't even make it in Europe because it's patented in Europe. It's not about only where you sell. It's also where you make. So this is not something that we're entertaining and doing. We have some deals for the MENA market to bring in this product. I don't have the exact dates for you, but, of course, in MENA, we are the largest, the strongest local company in And we always are looking out for interesting products like this. We do have a deal that we are trying to finalize, or we should be introducing this product. I don't want to say when, but it's depending on – we are actively looking for it. And I think the last question was – I think that's it, right? Oh, I think the last question was about the Rx.

That's right. As in, do we get a boost? You've been investing more in generics or RX, R&D. When does the boost start coming in? Is that a 26-story or do we need to be a bit more patient?

Yeah. So, as you know, I always say our business is like Christmas trees. You plant a tree today so you can set it in seven years. You have to anticipate. You have to be patient. Nothing that you do today is going to get you a result tomorrow. You have to wait. In our case, NRX is exactly what we're doing. But the good news is we can tell you what we're submitting. So we did tell you that we are submitting a very interesting product like epinephrine, nasal, very unique product, extremely valuable one, very easy to administer and a huge demand and potential on it. We had done all the studies and successfully. We had a lot of conversations with the FDA and we're anticipating submitting this product to where it's the end of this year, which means that this, if you give it 18 months of the regular review time, if all goes well, I think we should have it within that range of time, and that will give a big boost to the RX. It's not the only product that we're submitting, but this is the product that I can talk to you about because we made that public, but I can tell you that Bringing Hafron in, that was her focus. She revamped the entire R&D department. She brought in new people. It's a lot of focus. We're working on interesting products. We're submitting a lot of products, and I think the result of all that is going to be apparent soon. But while we're doing this and spending more in R&D, we're still getting great results for the Rx. I mean, it's not like it's suffering because We're taking away the money and putting it in R&D. We're putting more in R&D, significantly more in R&D still. We're coming with a really high-teens profitability margins, operating profits. So it's doing a lot better than we ever thought. And the contract manufacturing effect that is going to bring to it is definitely going to make this division extremely interesting.

Thank you. You're welcome.

Thank you. The next question has come from Victor Sludge with BNP Paribas. You may proceed.

Hi. Thanks so much for taking my question, Victor Sludge, BNP Paribas. So maybe first on tariffs. So, I mean, it's fair to say that concerns for the EU pharma that meaningfully is since Liberation Day. But on the flip side, it's fair to say that it's now broadly assumed that the EU pharma manufacturing capabilities will have to be rebalanced overseas. So in this context, just wondering if you've seen any significant of interest for your CMO offering. So this was my first question. Then on U.S. compounding, I think you frame it as the key driver for the mid-term, sorry, for the long-term and your 5 billion 2030 guidance objective. Should we expect at some point that you will be able to refine the exact attribution from this business to top line and potentially guidance that would help us to better capture this opportunity? And finally, on liraglutide, so I think last quarter you've added it to the fact that the expected end of semaglutide compounding could be a tailwind for your liraglutide, you know, generic. as it would represent a low-cost option compared to the EFT list price of the COVID down. So in the meantime, we have seen that the company is still very much alive, capturing something like 30% of the market. And so we've seen Lili and Novo going for direct-to-consumer cash channels. So just wondering if we – if you still believe that, you know, it could, like, materialize as a tailwind for leaglutide, and with the leaglutide generics, you know, do you still think that you could drive, like, across with leaglutide, even though, you know, a company is still very much alive? So, yeah, that's all for me. Thanks so much.

I'll try to answer some of them, and Khaled will help me with some. Let me start with the tariffs. Again, it's not clear for us how that is going to come about. I mean, we heard that there were some agreements with Europe. We heard there are 15% there, but we really don't know if that includes the generic drugs, if that includes something else or excludes. This is still unclear for us. We're trying to clarify it. We're trying to, you know, talk to the government to see if – but unfortunately, the confusion is not only limited to us, everybody else – a lot of people are confused. So we hope that this will be cleared soon, and then we'll see if this is going to give us to be any effect on us or not.

But even if it has an impact on the industry, we are well positioned, as we have mentioned. So we are well positioned in terms of our manufacturing plants are in the U.S., but let's put the expansion that we have even for the injectable business will be ready in the coming, let's say, 18 months. So we'll be able to benefit from that.

Yeah, so, you know, we have built the business to make sure that the local companies, they operate in the local market. So, you know, a lot of the U.S. revenue that we get is generated and borne in the U.S. So there would be, if there is tariffs and if it's a severe tariff, as I said before, It will affect us. It will affect all the industry. It will affect a lot of the peers that we're competing with, a lot of them. I think the effect on us will be there, but it will be at minimal if you compare it to our peers. It's something we're looking for. I think the government is – they are looking at the tariffs and they are – They are careful about how they are going to implement it because, as you know, shortages in the U.S. is still there, especially in the injectables. If you are going to put the tariffs, you have to be very careful not to increase that problem or create a bigger problem than that. So this is why there's a lot of back and forth on this one. Sometimes we hear it's included. Sometimes we hear it's excluded. Sometimes we hear if the API is Chinese. Sometimes we hear that if you transform the API, it's not. So there isn't really a great and clear definition on how the tariff is going to be implemented. Again, I think the government has their challenges as well, and that's why there's a lot of back and forth. As far as the U.S. compounding, Our compounding business is doing great. I think we are in the right direction. A few things are happening in compounding, and I don't know if you guys are following the compounding business, but the compounding business has been very much challenged by the FDA in the last few years, last few years in particular. FDA doesn't want compounding to be a different business or have a linear rule than the core business. So if you are doing injectables, these rules apply. They don't care if you're doing it by compounding or you're doing it aseptic to aseptic or doing it from aseptic to non-aseptic. The rules apply. In the past, when the compounding started, there were some rules that were a little bit lenient, I would say. They were a little bit more you couldn't get away with. Right now, the FDA is coming back and withdrawing those rules, and they're putting their foot down and they're saying the way you have to act that way or else. And that created a lot of warning letters. It created a lot of people going out of business and a lot of pressure. So if you look and read about compounding, you'll see a lot of our peers, even the largest have gotten warning letters in the last two years. Fortunately for us, we are creating a compounding in the way that we learn how to do a septic business, which is our core business. and we just copied what we do but on a smaller scale. So when it comes to compliance, we have probably one of the cleanest records in compliance. So that's from the compliance point of view, which is very critical and a big risk in compounding. So that has been put to bed. We've done a lot of investment to make sure that this is done. Of course, it's not easy when you have a batch. We make our average batch in Cherry Hill, for example, is one million units. Our average batch in the compounding center is 300, 400 units. So to scale that down is incredible. You have to use everything differently. You have to use a lot of manual steps. But that has been now done. We've gotten all the approvals of all the states. We've gotten the blessing of the FDA. We know what we need to do. From last year to this year, we had tripled the revenue of this center. but it's way short where we need to be. Our aspiration, we think that we can be the leader of the compounding business in the United States. We need to do it slowly. This is a very critical one. You don't want to make a mistake. And in this industry, trust is very, very important. Your client needs to trust you. They depend on your product. You're not going to stop an operation because, you know, the bag of fentanyl did not come in and you cannot do a heart surgery immediately. that you're going to make $600,000 from it, and now because of $20, you're going to be canceling that. That they don't want, and that you do it once and they will cut you out. So you need to build your trust. That's what we're doing, and it's very much proven by the fact that we have tripled the revenue there. We're short from our goal. We think our goal would be big. We think that we should be big. In the next two, three years, we should be really hitting the hundreds of millions, hopefully 100 million soon, and build on that one. So there's a lot of automation that has to happen. We have equipment that are in order for the center. I think there's a lot that we learned in the last two years, what we need to do. We thought it would be very typical and similar to the business that we have. It's not. It's the relationship, the way that you sell, the way that you make, the way that you inspect it. All of that is different. But we all know that now and, you know, it's only going up from now on. So, compounding I'm happy about. The future is bright and, you know, we are really implementing our strategy exactly as we designed it. Finally, the lear glutide and the semi-glutide question. I'm not sure if you know that the semi-glutide will not be off patent until 2031. In some cases, 2030. But it's not in the near future. So, it's not going to be at a time when you are going to have zero-glutide and semi-glutide, both generic and both competing. Of course, semi-glutide, when it comes to generic, zero-glutide will have very weak case for nobody is going to take a daily product when they can do it weekly. And who knows, by then you can take one maybe every year. This industry is advancing so much. They said the oil is going to come out now, very effective. And so this industry is moving fast. Today, we know that clear glutide is doing well. Semiclutide is patented and with a very high price, and we're managing to get some revenue out of clear glutide, and that's all we hope for, and we're managing this as the industry evolves and as the competitors come into the market.

Thank you. Our next question has come from the line of . Let me ask a question.

Good morning, everyone. Just checking you can hear me all right. Fine. Okay. So just three questions, if I may. First of all, just on the branded margins, obviously you have quite strong margins in the first half. You're guiding to margins for the year sitting at around 25% or so. You've obviously got stronger growth coming through in the second half, so I'm just trying to understand what are some of the drivers that are going to impact the margins of the second half in the branded division. Second question is just around the injectables business, and you've called out in the past calcitonin, testosterone as products where you've seen some competition. I know you said you've reacted to that. I'm wondering if you could just let us or give us a sense of whether that pressure is ongoing or whether you're seeing that pressure beginning to stabilize. And then the last question was just on vancomycin. I'm just wondering if you could give us an update on the black box and whether you've had any progress on that front.

Thank you. Do you want to take the first one? I'll take the first one. So the branded business, it's a similar case to last year. Last year we had a strong weighted H1, and we delivered margin in line with what we have this year. This is mainly due to the timing of the tenders. So this year is going to be similar to last year, but maybe to a lesser extent. I would say the branded business is delivering an excellent performance. I think maybe it's slightly now, given that there's no currency impact, maybe this will improve a little bit on where we started initially. But it's going to be around the 25%. So it's on the top end of our guidance, I would say.

For the injectables, the two products that we have difficulties in, or let's say we face competition in, is I think we did say that in April, testosterone and calcitonin. We did anticipate people are coming in. We've been in a leading position with testosterone for years. So it's just a matter of time before somebody comes. There are seven right now people that are in the market. So for us to be able to continue the lead on the testosterone for the past years was magical. So it was only a matter of time before this is not going to hold any. It doesn't mean that we lost the entire thing. We still have it, but of course, with the competition, prices are going to suffer. This is a very tough product to make, and that's why and expensive to make, so it's not an easy product, but the margins are very, very healthy. Of course, if you are going to lose some of that margin, you have to replace it maybe with more volume or less margin. This is exactly what we have been doing. This is why you see, and this is why it's such a great indication when you see our revenue had gone up. You know, it shows that we can replace, by volume, we can replace the high margins with medium margins but more volume just to replace what we had lost. Calcitonin, I would say, the same exact thing. But I think the product mix that we refer to is not the loss of the margins of those products. It's the fact that we have other geographies with lower margins growing faster than the ones with higher margins. You saw that MENA and Europe had grown at a much higher pace than the U.S., at a lower margin than the U.S., and what is anticipated. So, of course, Zaria adding significant revenue with healthy margins, but with less margins than our organic products. So, with that, the combination of that, that really had a little bit of pressure. Not much, but we offset a lot of it. But still, we're discounting a very small number related to that. And finally, for the Vancomycin, we did get approval for the Vancomycin for removing the box. And the new product without the box is called Pizeran now. It's going to be a branded product, patented, unique to the market. And that will be replacing our product that we used to call Venco Ready, which used to have the black box. So we are in the transition in doing so. We are expected to launch TigerVan towards the end of the year. And as you know, it's a branded product, so it needs to be detailed. But we are very optimistic that this product, as soon as we get the momentum going, it will be a very, very big and interesting product for us. But yes, there's no black box on Taizavan. It's safe to be used with everyone, including pregnant women.

Thanks.

Thank you. Our last question is from Siddhartha Mudri with Barclays. You may ask your question.

Hi. Thanks for taking my question. Continuing with the last question, Taizavan, was approved, but then, like, what I got from my call with IR is there is still some inventory left for WANCO Ready, and you would like to exhaust that inventory before you can launch Tizer Run in a meaningful way. So I just wanted to know how much of that inventory is left, and, like, would this spill over in the next year? My second question is on the contribution of 503B and compounding – and your CMO business into your $5 billion, you know, peak sales ambition in 2020, yeah, I mean in the future, yeah, how much of that would come from these two businesses and what would be the impact on margins? And third, if I may ask you like one last question, a lot of manufacturers, banded manufacturers have been talking about, you know, DTC sales. Do you want to give any color if such thing is implemented? What would be the impact on Hikmal's general business? Would it be a headwind or a tailwind to you?

I think the third one, the manufacturing, I missed that one. Okay.

Sorry, Sid, please could you just repeat the third part of the question? Thank you.

Yes. So the first question that I asked was about TigerVan. And, I mean, basically what we were told is, like, there is still some inventory left for venture at the end. We would like to exhaust that inventory. So how much of that is left?

Thank you. Just the third part, thanks.

Yeah, yeah, the third question was about DPC sales. Like a lot of branded manufacturers have been talking about DPC sales in the U.S. What would be its impact on the general business of FICMA? And like, do you see this as a headwind or a tailwind for yourself? Direct to patient sales is what I mean.

Yes, okay. Well, I'll talk to you. I'll talk to the Tiger brand. It's... Tyler Van today is being manufactured by third parties. So the flexibility of dealing with manufacturing with the forecast and inventory and all that is not as flexible as if we make it ourselves. So as you know, if you have a third party making it for you, you have to give them the forecast ahead of time and you have to give them a committed forecast. This is number one. The second thing is Tyler Van and those bagged products. The label and expiration and all that is printed straight on the bag. So you have to not only be able to anticipate, but you have to commit to it with a label on it. So there's a lot of parts that you have to pay attention when you put orders in, how much risk you're going to have, and how much dating are you willing to sacrifice because you're not going to make the product ahead of approvals and wait until the approval happens, which we do in some cases. But in this case, the expiration date is printed on the back. So if you do it before the approvals and wait, you might only get the few months left by the time you have approval. So the risk is big, and of course, this is not made by you, so the flexibility is not there. And that's why the strategy is to get all the inventory done with Vancouver ready while we are making the change to Tazavan. This is going on as we speak. Tazavan is being manufactured today, and we are depleting all of our Vancouver ready before we have the Tazavan out. We don't want the customer to have to tax the product. We want the product to go away and replaced by a better formulated product without a black box. As far as our goal of the $5 billion in five years, I think we're very much compliant with that, and we reiterate that, and we think we can get that. It's not an impossible goal at all. As you see, our revenue is growing. All our divisions are striving to get there. So we have no worry about that. Now, how much CMO would the $5 billion include? It would be a significant part of our business. I cannot tell you exactly how much, but I would say it would be a lot more than what we're doing today. I don't know if that influences tell you much, but I really can't tell you an exact number because it depends on many things. Contract manufacturing is going to be coming. We have today contract manufacturing in our businesses, as you know, today. We are adding a significant contract manufacturing in Columbus that will be making a critical product for a branded company, as we had announced before. That will add significantly to the revenue of contract manufacturing. And from the injectables point of view, as that forward gets completed, we believe that A lot of contact manufacturers that we deal with today would want more volume that we are limited to give to today because of our limited capacity, and our capacity is more working for us than the contact manufacturers. But we will be happy to add more volume to them once the Bedford facility is complete. So with the Bedford facility and with the CMO in Columbus, we believe that – a significant amount of contract manufacturing would be added to the business that we have today. How much of the five, how much of the compounding business is going to be in the five billion? I hope, I don't know, I hope a lot. You know, let's see. You know, we are working very, very hard on this business because we see there's an opportunity there. This business is not going to go away. This is a need that hospitals actually really, really need. They've been very hesitant to trust somebody, and whenever they trust someone, they get big warning letters and big compliance problems with the FDA. The biggest leader of compounding today has gotten two warning letters in two years in a row, and a lot of other ones that have closed some facilities and hit with warning letters on others. We have been spared, we have been compliant, and we have been doing that very slowly because we don't want to get into that position. So I think we are now, we've built a great foundation to build a great business on, and I hope by 2030 this business will be significant and doing really well. And the last thing is direct business. We love direct business. I think it's great if we can do it, and we are doing it, and we're trying to increase it. But there are a lot of difficulties. Today, our dependency on GPO in the business is about 50% in injectables, and the branded is a lot more when we go through the PBMs. Direct business is difficult because of the contracts that hospitals have with the GPOs and how the business really runs. So there is some compliance that hospitals need to have. So if you are a hospital that works with a GPO, you have some commitment to be in compliance to continue taking volumes from them, and they give you some credit. to the volume that you take from them. So with that, it makes it very difficult for them to buy directly from you. They have to go to the wholesaler. They have to go through the GPO contract. So we like it. We like to increase it, but there are some difficulties in logistics of how to go about it. We do have a significant one today, though, more than our peers and direct customers. direct selling to our clients. Yeah, lastly, I think I would say that the compounding business is direct, and it has to be direct. By law, you cannot go to a wholesaler. It has to be straight from your manufacturer to the customer. So as we grow this business also, direct sales is also going to increase.

Thank you so much.

If there are no questions on the line, I'll pass the conference back over to Yair Mishlawi for any further remarks.

Well, thank you very much, and thanks for your questions. I think I just want to reiterate what I said in the beginning. We have a better business today than we've had three months ago or than we had last year or the year before. We had grown the business significantly. We had put the foundation to grow the business, but we know that this business is not a business that the reaction or the result happens immediately. It does take time. Today, we are investing in this business, and you can see how we are investing in this business. We're increasing our R&D spend. We had changed the organization and the people in the organization. We identified our needs. We identified that R&D is something that needs to be improved, and we did exactly that. We brought leaders that understand R&D, and we gave them money to spend on R&D. We created a portfolio selection committee that knows exactly what products to go after. We enhanced our BD team. And now BT team is going beyond what we know. We're going to China. We're going to India. We're going to Europe. We're going to all where the opportunities are to see if we can bring in technology and expedite the approvals or the portfolio that we have. We have been increasing our infrastructure. We've been spending around $200 million in capital expenditure every year. And that's for a good reason. You can see that's Ford facilities. Now we will have state-of-the-art facility in Ohio. We have Cherry Hill that we are adding more and more lines. It's extremely modern now with a lot of robotics there and making a lot of products. Same thing with Portugal. We're adding another plant in Portugal. Our capacity is not only being built, but it's being utilized. In the injectables, our capacity is being utilized at a very, very high level. In the RX, our capacity is being utilized by us, and it will be also utilized a lot of it by the contract manufacturers. So the money that we're spending on capital expenditure in both IT, in automation, in capacity, in equipment, all that is going to benefit the future. It's benefiting us now, but we can see the future is definitely going to be benefited especially with the indicators that we see today. Our volumes today or our capacity today is at a very high level, especially in the injectables. Our demand is there. You can see 12% increase in top line. It shows you that the demand is there, so there's no worry about where that is going to be utilized. Our contract manufacturing demand is very, very strong. We have a lot of contract manufacturers coming to us, especially of hardware acquisitions. We are offering clients redundancy in the U.S. and in Europe. We have clients that are capable to do the same thing. So if you want to have a safe product, you make it in the U.S. and you make it in Europe. You reduce your risk significantly with this redundancy. So we have all what it takes for us to grow, and we are growing, and we are showing the growth. But, again, you have to spend before you see a result. We are spending and we are continuing to show good results. So it's not that we are spending and sacrificing the margins. On the contrary, we are spending and we're still bringing in higher revenue, higher margins, and the top of the industry. I mean, I looked at a lot of our peers. We heard a lot of our peers' results this quarter. You look at our results. Still with a downgrade, the slight downgrade that we did in injectables, we're still on top of our... on the top of the chart when it comes to margins and growth in revenue. So we think we have good business. We think the future of the business is fantastic. And whatever we're doing today, we'll be doing it better tomorrow. Thank you very much. Thank you.

That concludes the HICMA interim results. Thank you for your participation. You may now disconnect your line.