Even as the FTSE 100 reaches new all-time highs, there remains plenty of explosive growth opportunities to capitalise on. And Hikma Pharmaceuticals (LSE:HIK) could be one of them. Despite the healthcare stock delivering flat performance over the last 12 months, the firm’s seemingly perfectly positioned to thrive over the next five years. In fact, there’s a $236bn growth opportunity about to land on its doorstep!
Massive growth potential
Pharmaceutical and biotech companies are constantly having to invest in R&D to discover new medicines and therapies. That’s because drugs eventually lose their patent protection, allowing generic manufacturers like Hikma to swoop in with a cheaper, more widely available alternative, stealing massive portions of the market.
For reference, revenue from simple chemical-based drugs typically collapses by 90% once a generic enters the market. And even for more complex biotech solutions, the fall can range anywhere between 30% and 70% within the first year. And that’s a massive problem, because between 2025 and 2030, an estimated $236bn of blockbuster drug revenue is coming off patent.
This is the largest patent cliff seen since 2005, making the pharmaceutical sector a risky industry to invest in today. But for Hikma, it’s created a massive multi-billion-dollar growth opportunity.
Impressive innovation
Most generic companies don’t have any pricing power. After all, their whole selling point is to offer life-saving medicines as cheaply as possible. Yet, Hikma’s putting that to the test. Rather than focus on easy-to-replicate drugs, management’s instead focused its efforts on creating complex biosimilars and injectables.
These products are notoriously more difficult to design and produce, deterring competition from other generic drug manufacturers, resulting in higher margins.
This strategy is how Hikma became the first to produce a GLP-1 generic for Novo Nordisk‘s Victoza. And the firm’s now getting ready to launch a generic for Semaglutide – the active ingredient for Ozempic and Wegovy when these drugs start losing their regional patents for Canada, China, India and Brazil in 2026.
Risk versus reward
As Hikma makes its moves to capitalise on new drug opportunities, both revenue and earnings could be set to surge in the coming years. In fact, management’s recently announced a $5bn revenue target by 2030 – 60% higher than 2024 levels.
If successful, today’s reasonably cheap valuation could make for a lucrative investment. However, even the most promising opportunities have their risks. Hikma’s not the only generics business pursuing this opportunity, with fierce competition from the likes of Pfizer and Teva Pharmaceuticals.
Management’s announced plans to ramp up its R&D budget to try and stay ahead. But higher research spending doesn’t guarantee success. And any delays or failures within its development pipeline could allow the competition to beat Hikma to market and reap most of the reward.
Nevertheless, with an impressive track record of beating expectations and a management team delivering envious profit margins, this is a risk worth taking, in my opinion. That’s why I’m considering Hikma as a potential addition to my personal portfolio.
