UK health stocks Hikma Pharmaceuticals (LSE: HIK) and Alliance Pharma (LSE: APH) both issued news today. Hikma’s update on a drug application was poorly received by the market. Meanwhile, Alliance’s half-year results produced little interest in early trading.
Despite the underwhelming market response, I’d be happy to buy a slice of these two businesses. Here’s why I think they’re attractive investment propositions at their current prices.
Flying UK health stocks
Healthcare has been one of the better performing sectors in this year’s stock market crash. Indeed, the shares of some UK health stocks have been flying.
This is no big surprise. Not only is the healthcare sector traditionally seen as a relatively safe haven in uncertain times, but also this particular crash has been brought on by a global health crisis, courtesy of Covid-19.
A delay and revenue downgrade
The shares of Hikma Pharmaceuticals, the £5.6bn-cap FTSE 100 generics giant, were up over 30% for the year to date. However, that was before today’s news. They fell as much as 6.5% in this morning’s trading.
This followed an announcement by Hikma regarding its generic version of GlaxoSmithKline‘s Advair Diskus asthma treatment. Hikma said it had received a minor complete response letter (CRL) from the US Food and Drug Administration (FDA) in relation to its application for the generic treatment.
It said it’s “working closely with the FDA to quickly address the small number of questions raised in the CRL.” However, having previously anticipated launching its generic version in the second half of the current year, it now expects to receive approval in early 2021.
Management had previously assumed revenue of $20m-$40m from generic Advair Diskus between launch and the end of 2020. On this basis, it had guided on revenue in a range of $700m-$750m from its generics division in calendar 2020. Today, it revised that down to $710m-$730m.
Opportunity to dip-buy
Hikma said it remains “committed” to bringing its product to the US market and is “confident in the submission” to the FDA. I think today’s news is a setback, and that the fall in the share price provides investors with the opportunity to dip-buy the shares of a strong, long-term growth business.
AIM-listed health stock
I don’t think investors should be put off by Alliance Pharma’s listing on London’s junior AIM market. While the market is home to many tiny loss-making biotechs, £388m-cap Alliance is a well-established and profitable business.
Its product portfolio of consumer healthcare brands and prescription medicines generates plenty of free cash flow. And management has a record of expanding the portfolio with shrewd product acquisitions. It told us in today’s results: “We continue to actively review acquisition opportunities.”
The company said it delivered a “robust” operational and financial performance in the first half of 2020, despite the challenges posed by Covid-19. These challenges included delays in routine treatments that hit prescription medicine revenues by 15%.
Nevertheless, the group reported a 7% increase in underlying pre-tax profit. It also remained profitable at the statutory level, after non-cash impairment and amortisation charges.
It’s another UK health stock I’d buy
Alliance’s shares are down 13% since the start of the year. Given its robust performance and management’s canny ability to make earnings-enhancing product acquisitions, I think this is another opportunity to buy shares in a strong, long-term growth business.
