Hikma Pharmaceuticals PLC (HIK) Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to the Hikma Pharmaceuticals R&D Spotlight Series, Respiratory, Nasal, Semi-Solids and Liquid Session. [Operator Instructions] I would like to remind all participants that this call is being recorded. [Operator Instructions] I will now hand over to Susan Ringdal, to start the presentation.

Good morning and good afternoon, everyone, and welcome to the first of our series of spotlight events that have been designed to help the capital markets understand our R&D capabilities, our vision and how we will deliver it. We'll cover why now is the time for Hikma to increase our R&D spend and how this investment will deliver growth and value over the medium to long term. Today, we are joined by Hafrun Fridriksdottir, who is our Global Head of R&D, and she'll give a group-level overview of how our R&D organization is set up. And that will be followed by a deep dive into our respiratory nasal semi-solids and liquids platform with Chris Edlin who heads up that platform. There are some supplementary slides that we will have available on screen and also on our website. Before we start, I'd like to remind you that any forward-looking statements or projections made by Hikma 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 our latest annual report. And with that, let's dive into our first conversation with Hafrun. So Hafrun, welcome. Thank you so much for joining us today. It would be great if we could just kick off with you giving a brief introduction about your background and maybe going right up to why you decided to join Hikma.

Yes. Thank you, Susan. As Susan mentioned, my name is Hafrun Fridriksdottir, and I have more than 30 years of experience in the pharma business. I am a pharmacist by training, and I have a PhD in Physical Pharmacy. Most of my career, I have spent in R&D. I worked across multiple pharma companies, both small and large one. probably my biggest R&D organization was around 5,000 to 6,000 people. And I have been leading teams, which have been developing all kinds of products, including included branded product as small molecule and also large molecule, meaning biologic, also late, which have been developing biosimilars. And of course, last but not least, generics and I'll probably spend most of my time in leading teams, which have been developing generic formulations and that includes all kinds of formulations, both covering what we are covering today, I mean, semi-solid, liquids, nasal inhalation injectables, both simple injectables and also long-acting injectables. And last but not least, also solid orals, both the immediate release and excellent release, delayed release. So I have quite a broad experience in R&D and very happy to take over the R&D organization for Hikma a year ago.

Fantastic. That's -- thanks for that, Hafrun. I think clearly, you can -- we can all understand why having joined us as President of Himax Rx, we reasonably quickly put you in charge of our global R&D function. Can you just talk about what changes you've made since you took over the R&D function?

Yes, of course, happy to do that. So as I mentioned, I took over this organization around a year ago, slightly less than a year ago. And before I took this organization over, it was basically located within the different divisions. Rx their own R&D, [indiscernible] has their own R&D and the injectables at their own R&D. But with this idea when I took over this organization that we would like to establish a global R&D organization, which is more specialized, focused on more specialized tasks and that's why we set it up, as you can see on the screen here. And so we have 3 different main platforms and the platform, which we are going to talk about today is the respiratory semi-solid and liquid platform, which is led by Chris Edlin and you will hear from him as well later in the call. Majority of his team is located in Columbus, Ohio. Then we have the solid oral platform, which is led by Jaber Qasem. And majority of his team is in Jordan. Then we have the injectable platform, which is led by Strato -- and a big portion of her team is in Croacia, but she also has a team in Portugal, in Cherry Hill and in Jordan as well and then smaller teams and other MENA countries. So to support those 3 platforms, we have the cross-functional R&D operation team and also regulatory team. So it -- so far, it has been working quite well. And we have been focused on since we start up this organization, we have been focused on selecting more of a global project, and so it's in every market is involved in when we are selecting product, which has been quite important for us, of course, I mean, if there are interesting opportunities for individual markets, then we still, of course, develop product for those markets, but we are more focused on global product than we were in the past.

Clearly, there's been a big change in how we've been structuring the team, but we've also talked a lot about a material change in the amount that in R&D. Maybe you could just quickly talk about why now is the right time for Hikma to be making this material change in the amount that we're investing in R&D.

Yes. As I mentioned earlier, I mean, there is a lot of opportunities out there. There's a lot of opportunities within those product or platforms, which I mentioned earlier, and we have been identifying opportunity -- exciting opportunities in all 3 platforms. And Chris will, of course, talk more about the semisolid liquid and inhalation and nasals. But for example, for the solid orals, we are more focused on first to file, first to market opportunities than maybe Hikma was in the past. And you will hear more about this later on also from also from Jaber when we present the sensolidoral. So there's a lot of opportunities, which we are going after now.

Yes. It's obviously very encouraging to hear that there are so many good opportunities to go after. Perhaps you can talk a bit about how you think about returns on the spend? And therefore, how do you select the products that we will actually put into the pipeline.

Yes. I mean, of course, return on investment is, of course, very important for Hikma and for any other pharma company. And that's, of course, a big -- I mean I think when we are selecting our product, we have quite a sophisticated product selection process, dedicated portfolio and product selection team. And this team, they work very, very closely with the commercial team with legal, we finance, et cetera. And of course, with the R&D team as well. And we have NPV model, which we take it's on every product which we select new products, which is select for development through. And we decide, of course, to go after product based on their value based on the return on investment. And it's not only -- and then we take them through product selection meetings and the [indiscernible] team is part of those meetings. So it is quite a thorough process, which we go through when we are selecting products. In addition to that, as part of how the product is progressing after it has been selected. We have quite a sophisticated gate system meaning that when the product comes to, for example, the next phase of development, we take it back through this NPV and IRR calculation, just to make sure but the value is still there. And if the value is not there anymore because, for example, that there is a new competitor on the market, then we don't hesitate to, of course, to cancel the product because that's a very important part of this process is to make sure that we are focused on the most valuable product, and we take those forward, but we don't hesitate to cancel if that's that's what's needed.

Yes. That makes a lot of sense. I guess, obviously, there's a lot there's a lot of work that's going into the product selection and as we talked about, a lot of investment. But ultimately, we have to have some confidence that we can be successful with these projects. could you talk a little bit about what gives you confidence in our ability to succeed, especially since we're working across a number of different pillars.

Yes. Maybe I can start with -- I mean, talking about the strength of the organization. I strongly believe that this sector makes sure that people are more focused on than maybe the team were in the past. So this is absolutely the right sector for the organization because the teams are more specialized. They are more focused on individual tasks and we have a very, very strong team and we have been strengthening that team over the last 2 years or so. We brought in people with a strong background and strong knowledge. Chris, for example, he joined from other respiratory organization around a year ago or so. And then -- and as I mentioned earlier, you will hear from him later on this. Then [indiscernible] leading that injectable teams he took over her role just recently. But we basically took over quite a strong team with acquisition around a year ago as well, but that team was specialized in developing ready-to-use injectable formulations but we have also been adding more talent to that team over the last few months. So that's going quite well. So I strongly believe that we have the right team. In addition to that, I don't really need to talk about the solid orals because that team has really been -- has a proven track record both for the MENA market for the U.S. market and they have been doing very well. We have also seen, I mean, of course, improvement in submissions, but that's not necessarily. It's not about submissions in the end of the day. It's about approvals and being able to launch products. So we have already seen a lot of progress, and I'm very happy with the team, and I have a full confidence in that they will be able to take this organization forward.

Fantastic. Maybe just to wrap up in your section. We obviously have 3 of these events planned today is the first one. What would you like the key takeaway to be from these sessions?

I mean when I came up with this idea, I was very, very happy to see that because I think it is very important that investors, they know more about what R&D team in Hikma is doing. And so that's very important for every pharma company to show that R&D organization is working very well because that, of course, at the end of the day, the bet and the better for the organization, and that's, of course, to support the future growth of the company. So we are not trying to tell -- I mean, investors what numbers they should be putting into their financial models. But of course, with those sections, I hope that investors will see that we have a strong team, and we are making good progress, and we are really focused on developing the right products for the markets, which we are operating in.

Fantastic. That's very clear. Thank you very much. So now let's move over to Guy, and I will let Guy introduce Chris. Thank you, Hafrun.

Thank you, Susan, and thanks, Hafrun. Before we introduce Chris, we're just going to run a very short video, which was shot at our Columbus site, where Chris and his team are based. So if the operator can you please run that now. [Presentation]

Okay. So Chris, thank you so much for joining us today. It would be great as Hafrun did. If you could start off just by introducing yourself, giving us a bit of detail on your background? And then also what drew you to join Hikma?

Sure. Thanks, Guy. So like Hafrun, I've got roughly 25 years' experience in the industry. I started life as a chemist. I have a degree and a PhD in Synthetic Organic Chemistry from the University of Durham. I picked up an NBA along the way to I worked for several large multinational pharma companies in discovery with a big chunk of that in respiratory discovery. They also run a startup company in South Africa for about 5 years. I was elected as a fellow of the Royal Society of Chemistry, plus I've got more than 40 peer-reviewed publications and patterns to my name, too. Prior to joining Hikma about 2 years ago to the day, actually, I ran a respiratory CMC discovery side for another large generic organization in Ireland. What drew me to Hikma, a couple of things, primarily, firstly, their commitment to fund complex combination products. They take a long time. So having that commitment to take those through selection R&D through to commercial, it takes our commitment, and I was really impressed by that during the recruitment phase. And secondly and most importantly, I think colocation of the R&D teams would be a site of manufacture. It's really important. Combination products are called out for a good reason. We need to develop them in combination, not only with the R&D team, but the operations team that are going to deliver them to patients ultimately.

Brilliant. Thanks, Chris. And we'll talk more about some of those large complex combination products in a bit. But before that, maybe for those less familiar, with it. Can you just explain what sits within the RN SSL platform? There are 4 categories in it? So how does that work? And how is your team set up?

Yes, sure. So respiratory covers orally inhaled products like dry powder inhalers, pressurized metered dose inhalers, soft mist inhalers, nebulized products. In general, they're the largest markets with the highest barriers to entry. They're the ones that we're committed to developing products for nasal products cover both multi and single dose sprays. And we're moving those forward using a number of regulatory pathways and I'll talk about those a little bit later, too. So the ANDA and the branded 505(b)(2) route 2. Semi-solid screams anointment, those programs are mainly prosecuted in sites in our MENA region, and then finally, liquids. This covers both oral solutions and suspensions. And that includes controlled substances that we execute in Columbus. Overall, the team is organized around 3 functional areas. So we have a strong analytical group formulation and process development group and a clinical group, and they're supported locally by device engineers, human factors, scientists and regulatory affairs that are all co-located in Columbus.

Great. And then -- and then coming to Hikma more generally in terms of what makes Hikma stand out in this field and what capabilities do we have to justify this as a platform in its own right and make it a defensible one.

I think we've got a demonstrable track record in developing and commercializing a number of complex combination products. So you can look to our generic Advair success story and fluticasone propionate multidose nasal spray that are sustained in the market. Developing these combination products is -- it requires a unique combination of skills across all of the functional areas in R&D. So analytical formulation and clinical development. We need to make sure that we understand not only the drug product, but how about drug product interacts with the device too. And I think we've built a team that's capable of delivering that.

Amazing. And so before we dive into a few of those assets, maybe at a high level, and I know Hafrun and Susan touched on this as well, but maybe you can talk from your platform perspective as to how you go about product selection and shaping the broader pipeline?

Yes. So I think Hafrun outlined how we look at that holistically as an organization, and that trickles down into my organization, too. So we routinely use NPV return on investment and IRR as a way to prioritize how we allocate resource to projects. And that's a routine part of how we operate, so we do that through frequent and regular stage gates but not only look at the business case, but also at the probability of technical and regulatory success, too. It's a dynamic process. It's kind of embedded in the way that we think and talk about programs at the leadership level in the site here.

Great. So on to some products. So -- and maybe some of the larger opportunities, one that we've spoken about recent and had some recent news on around filing is our intranasal epinephrine. So could you just talk a bit about that product itself where it's an interesting opportunity. And then after that, we can get a bit into the 505(b)(2) pathway that we used on that product.

Yes, sure. So we communicated externally that intranasal epinephrine has been filed and accepted for review in the U.S. the same story in the EU, where we filed by the decentralized procedure. At the end of last year, we filed in the U.K. to the MHRA. We've also filed in Canada, Jordan and Saudi Arabia. We're really excited about this product. We believe it has clear advantages. Unfortunately, I'm sure you'll understand this. We can't share the actual data right now whilst it's under regulatory review. We expect feedback from the FDA in the first half of 2027, but unfortunately, we can't guide on exact launch dates at this time.

Thanks, Chris. Yes. So I mean, we -- obviously, look forward to communicating more on that product down the line. But maybe I've mentioned the 505(b)(2) pathway there as did you. We have a generalist audience as well as pharma [indiscernible] on the line, but maybe for the more gamers could you help explain what that partly is it's a U.S. specific one, but how we've how we've gone about developing the nasal and [indiscernible] spray and yes, and mainly focused on the importance of that 505(b)(2) route?

Yes, sure. I'll do my best. So I think the traditional way of branded companies developing new chemical entities, NCEs, is to follow the NDA pathway where companies would generate all of the safety and efficacy data through the discovery, preclinical and then Phase 1 through 3 stages. And then the other extreme of the process is the ANDA, the abbreviated NDA process, where we -- as a generics organization demonstrate equivalent to a brand, and then we rely on the safety and efficacy data that save the FDA hold on file, and we were using the product specific guidance that the FDA publishes 505(b)(2) sits between those 2. It's companies often repurpose routes of administration and they leverage the established safety and efficacy of the molecule. Epinephrine is a great example of that. It's been around for more than 100 years. The safety efficacy has been proven and well used, and we've found a way to reformat that into a dosage form that's going to be more convenient for patients.

And can we leverage that 505(b)(2) pathway for other potential products in the pipeline in the future?

Absolutely. So we have a number of activities going on in-house, where we are looking to synergize with franchises that we're going to build around the epinephrine asset and also looking for adjacencies to that. But also looking to leverage the internal manufacturing capability, too. So we have a strong track record in commercial contract manufacturing for nasal products, and we're looking to utilize our expertise to develop new programs where, for example, the nasal route offers unique advantages in terms of onset of action.

Brilliant. Makes a lot of sense. Maybe we can now move to respiratory. So we've messaged that we're looking at Ellipta, which is the sort of next generation of inhalers, generic Advair has been a great success for Hikma. People will be familiar with that from us for a long time now. It took a long time to develop, but it's been a good product for us. To that end, can you talk a little bit about Ellipta and our other respiratory projects and what's going on in that field.

So yes, absolutely. So we've made great progress with the [indiscernible] program. We've selected a device partner, and that relationship is working extremely well. We have formed a great team around moving that forward. We generated not only in vitro but human in vivo data that gives us huge confidence that it was the right choice. And we're moving forward with establishing commercial manufacturing capability in Columbus. There's a lot of synergy with the generic Advair program, too. So for example, the first step in the process is we'll use the same equipment that we use commercially for the Advair program. For later steps, we use slightly different equipment, but the same vendors. So we have established relationships with those 2. So we'll leverage that. In terms of the other dosage forms that we're looking at, we've selected external partners to work with where we don't have that capability in-house to manufacture or where it's a niche or specialized device engineering requirements.

Great. And so you touched on a little bit there, but it's obviously clear that partnership is an important element of some of these projects. How do you decide between developing in-house, licensing a device or partnering?

Yes. I think we've taken a very common sense approach to that. Where we've got capability in-house, we've leveraged and amplified that where we don't have that capability, we've sought established partners in the areas and build co-development programs with those people. So it's a bit of a spectrum of activities really. So with a generic Advair. It's predominantly in-house with some device expertise externally, whereas the pressurized metered dose inhalers is predominantly external through codevelopment activities.

Okay. Great. And going back to again, a topic that was raised a little bit on returns. I mean if you take a project like [indiscernible] this is a long-term product project. How do you think about return on investment when you're making decisions today for something that will come a long way down the line? And how can we be confident in future success there?

So it's a very similar answer to before. We monitor the market. We have a robust governance procedure where we routinely check the business case. We routinely check that the NPB the program is aligned with our expectations, and we stage-gate investments so that we derisk that for the company going forward.

Yes. Great. And I guess that's stage gating is a key part of everything.

Yes.

Artificial intelligence, maybe just quickly touch on that is obviously a big topic and it would be great to understand how you and your teams are using AI in your day to day.

Yes. So we've deployed it widely through R&D in Hikma we see it primarily as a productivity tool. It's really freed up scientists' time to do science rather than more administrative tasks. So we found ways to automate report generation, data aggregation and analysis. It doesn't take away the QC step of scientists domains and looking at the data, but it really has freed up our time. So over time, I think we'll be able to move more projects forward with the same amount of resource, process more data, that kind of thing.

Brilliant. And I know that's the case across much of the Hikma Group in terms of how we're deploying AI. So finally, we're going to -- we'll go to some Q&A from the audience in a moment. But before that, Chris would be great to hear what you feel investors and [indiscernible] should take away about your pillar from these events.

So mainly focused on projects and people. I think we've built a balanced portfolio of high-value, complex products that will take a longer time to deliver and offset with some near-term wins around, I guess, the less complicated dosage forms. So that's one thing. The second thing is the people. I think it's essential that we build a team and a culture that is unable to deliver, and we've spent a long time in the last couple of years really building that team and I truly believe that we've got the technical expertise to deliver these programs to patients.