Recent market volatility has shaken share prices across the FTSE 100. While President Trump’s tariff regime certainly carries some risk and uncertainty for businesses, I think it could also create opportunities for UK firms that already have a big footprint in the US.
One company I’ve recently added to my holdings is generic medicine specialist Hikma Pharmaceuticals (LSE: HIK). This £4bn FTSE firm gets much less press than its larger peers AstraZeneca and GSK. But I think there are some good reasons to choose Hikma instead right now, as I’ll explain.
How is Hikma different?
Unlike its peers, Hikma doesn’t focus on developing all-new medicines. Instead, the company develops generic versions of popular medicines that can be sold when their initial patent protection expires.
Generics are typically sold at much lower prices than the branded products they replace. But they can often generate high volumes of sales for many years, as they become the accepted treatment for common health issues.
One exciting opportunity Hikma’s pursuing at the moment is to create generic alternatives to popular weight-loss drugs Wegovy and Ozempic. Patent protection for these branded products begins to expire next year in some countries.
The popularity of these medicines has skyrocketed. I think it’s safe to assume many more people might use them if the price comes down. In my view, this could become an important growth market for Hikma over the coming years.
US manufacturing: a potential advantage?
North America’s already Hikma’s biggest market, generating more than 60% of sales. Luckily, the company also has a big manufacturing footprint in the US. If tariffs are applied to pharmaceuticals – which isn’t yet certain – then I’d guess that US-made products could gain a price advantage. This could help Hikma increase its market share.
In its latest results, Hikma said it invested nearly $50m in upgrading its US manufacturing facilities last year. There were also upgrades in North Africa and Europe, suggesting to me that the company’s focused on meeting demand locally where it’s able to do so. If the deglobalisation trend continues, this could become more of an advantage.
However, I think it would be foolish for me to be too sure about any potential US advantage. The tariff situation remains unpredictable.
Hikma’s growth ambitions haven’t always gone to plan, either. The company reported an operating loss of £770m in 2017 due to problems with a big acquisition. More recently, profits from generic medicines also fell sharply in 2022, as the company struggled with a “challenging competitive environment in the US”.
Why I think Hikma’s cheap
Hikma’s 2024 results showed sales rising by 9% to $3.1bn, with an underlying net profit of $495m. An operating profit margin of 19.6% showed that it’s possible to generate attractive levels of profit, even in more competitive generic markets.
Broker forecasts suggest modest earnings growth in 2025, before a stronger year in 2026. The shares currently trade on a forecast price-to-earnings ratio of 11, with a useful 3.3% dividend yield.
Hikma stock’s traded significantly higher in recent months, and I don’t see any reason why the shares should not recover to previous levels. I think the shares look attractive at the moment and are worth considering as a possible buy.
