HIKMA PHARMACEUTICALS PLC Merrill Lynch Middle East & North Africa (MENA) Conference 13 December r 2005
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Bassam Kanaan Chief Financial Officer 2
Group overview Multinational pharmaceutical group operating across the Middle East and North Africa (MENA), Europe and the US Broad product portfolio covering generics, branded generics and licensed patented products in both solid and injectable forms Attractive therapeutic categories with particular strength in anitinfectives, alimentary and central nervous system 3
Diversified and successful business model Generics Focus on US market 2004 sales: $108 million Branded Focus on Middle East and N. Africa (MENA) 2004 sales: $74 million Injectables Sales in US, Europe & MENA 2004 sales: $29 million 4
Segmental sales breakdown 2004 Sales Breakdown by Business Segment 2004 Sales Breakdown by Geographical Segment Injectable Pharmaceuticals Others 1.5% 13.5% Europe RoW 5.8% 0.5% Branded Pharmaceuticals 34.6% 50.4% Generic Pharmaceuticals United States 53.6% 40.1% MENA Region 5
Broad geographic coverage Multinational operations - - Manufactures in six countries(1) Sells in 34 countries Cost-effective R&D and manufacturing - Including countries with lower labour and infrastructure costs Reduced risk profile Manufacturing Plants (including JPI, 47.5% owned associate) (1) R&D Centres Includes manufacturing plant in Algeria which is under construction and JPI 6
API sourcing strength Raw material costs, including direct API costs, represented ~ 31.4% of Hikma s 2004 net sales Relationships with ~70 suppliers APIs sourced from Europe, Japan, US, India, China, Taiwan, Korea At least 2 qualified suppliers of API for all key products (except for in-licensed products, which are sourced from the licensors) 10 employees in API sourcing teams located in Jordan, US, China and India, API Sourcing Team FDA-approved API manufacturing plant in Jordan Hikma s groupwide API sourcing function allows it to minimise raw materials costs and enhance margins 7
Efficient, experienced and successful R&D team Strong R&D Team 135 professionals and scientists - 23 based in US, 9 in Italy and Portugal and 103 in Jordan where costs are lower 14 scientists at IPRC specialising in bioequivalency testing Expertise in pharmaceutical formulation, bioequivalency testing, analytical chemistry and drug delivery Historical Success Strong Pipeline of Products Since 1995, Hikma has been granted over 950 product approvals for all regions 42 new products pending approval including 36 in the United States 90 new products under development Targeting submission of 10 new products annually for each business segment for the next two years Particular expertise in technically challenging products and manufacturing processes such as injectables, complex formulations, challenging compounds and sustained release tablets and capsules API Development Capability Filed five drug master files since 2002 8
Product pipeline for future growth Pending Approvals (1) New Products Under Development (1) 60 50 40 30 20 10 0 20 13 4 7 Generic Pharmaceutical 16 12 Branded Pharmaceutical 42 25 17 Injectable Pharmaceutical 45 40 35 30 25 20 15 10 5 0 41 28 21 Generic Pharmaceutical Branded Pharmaceutical Injectable Pharmaceutical (2) (3) (2) Line Extensions New Products (1) As of 30 September 2005. To avoid duplication, the data presented does not double count when the same product is filed or is pending approval in multiple countries (2) Expected to be launched between 2007-2009 (3) Expected to be launched between 2006-2008 9
Generic pharmaceuticals Description Develops, manufactures, markets and sells 36 solid nonbranded pharmaceutical generic products in 79 dosage strengths and forms Nearly all sales made in the US Sales made under - West-ward label - Contract manufacturing (focused on technically challenging products) and private label arrangements Increasingly markets products from other Group business segments Primary focus on the CNS, cardiovascular, anti-infectives and musculoskeletal therapeutic categories 10
Branded pharmaceuticals Description 2004 Sales by Geography Develops, manufactures and/or sells - 47 solid, semi solid and liquid branded generic pharmaceutical products in 112 dosage strengths and forms Other 30.5% 38.7% Algeria 5 OTC products - 18 originator products licensed to Hikma for distribution in the MENA region Jordan 12.5% 18.3% 3 OTC products Saudi Arabia Received over 515 marketing approvals across the MENA region and Europe since 1995 Primary focus on anti-infectives, immunomodulating agents, musculoskeletal and, increasingly, cardiovascular therapeutic categories OTC products represented approximately 6.5% of the Branded Pharmaceuticals business s net sales in 2004 11
Injectable pharmaceuticals Description 2004 Sales by Geography Develops, manufactures and sells - 30 branded and non-branded finished dose injectable pharmaceutical products in 60 dosage strengths and forms US 23.4% 46.6% MENA region - 7 in-licensed products in 16 dosage strengths and forms 30.0% Historically focused on contract manufacturing and outlicensing (38.4% of segment net sales in 2004) - expected to decline as Hikma owned and marketed products increase Europe Received 329 regulatory approvals since 1995 in the US, the MENA region and Europe Primary focus on anti-infectives (especially cephalosporins) and, increasingly, musculoskeletal and cardiovascular therapeutic categories 12
Group strategy Consolidate market position in MENA region Grow injectable pharmaceutical business Pursue growth in US market 13
Key MENA Market Characteristics Branded Generic Markets Branded products dominate the pharmaceutical market Strong brands can gain significant market share - Physicians value brand reputation and company quality less price sensitivity in markets First company to launch a generic is often well placed to take and maintain a significant market share Generic pharmaceutical companies in the MENA region spend considerable resources on building brands and strengthening relationships with doctors and pharmacists Growing per Capita Income and Medical Expenditure Per capita income and average drug expenditure are growing rapidly, further driving growth 2004 per Capita Income ($) (1) 2004 Per Capita Average Health Expenditure ($) (2) Jordan 1,964 194 Saudi Arabia 10,442 389 Algeria 2,305 88 Government Price Controls The price for the first generic drug to be approved is typically set at a discount of 25%-30% to the originator price Subsequent generics are often priced at a small discount to this Expanding Healthcare Infrastructure Many people in the MENA region do not have access to modern medical treatment and pharmaceutical products due to limited healthcare infrastructure Hikma believes that improved access to medical services will strengthen demand for pharmaceutical products In MENA, growth of 8-10% (3) p.a. over the next 3 years is expected to be driven by strong economic growth, favourable demographics, and a consequent increase in awareness, diagnosis and treatment of illness (1) Source: Calculated based on population and GDP figures from Economist Intelligence Unit, August 2005 (2) Source: Euromonitor Plc, 2005 (3) Source: Management estimates 14
Leading position in key MENA region markets Algeria Saudi Arabia Jordan Market Characteristics (1) Population of ~33.4m in 2004 Population of ~24.0m in 2004 Population of ~5.6m in 2004 Pharmaceutical market of $674m in 2004 and expected to reach $1,052m in 2010 Pharmaceutical market of $1,077m in 2004 and expected to reach $1,719m in 2010 Pharmaceutical market of $120m in 2004 and expected to reach $206m in 2010 #4 pharmaceutical company #2 generics company #9 pharmaceutical company (#15, ex-jpi) #4 generics company (#4, Market Position (Rx plus OTC) (2) ex-jpi) Market share of ~5.9% Market share of ~3.1% (1.7%, ex-jpi) #2 pharmaceutical company #2 generics company Market share of ~6.1% Manufacturing Manufacturing facility certified by the Algerian Ministry of Health 1 manufacturing facility owned by associate. Facility certified by the Saudi Ministry of Health and EU GMP 3 U.S. FDA, MHRA (3) and Jordanian Ministry of Health certified manufacturing facilities in Amman, Jordan (1) Population: Economist Intelligence Unit 2005; Size of pharmaceutical market: IMS data year 2004; Projected size: management estimates (2) IMS MAT Q2 2005 sales data. Includes OTC sales. Data is for the Branded Pharmaceuticals business only (3) MHRA certification excludes API Facility 15
Strong marketing capabilities and brand recognition in the MENA region 76 sales representatives 1 sales manager 107 sales representatives Includes 4 specialised product marketing executives 15 contract sales representatives 17 sales representatives Includes 23 specialised product marketing executives One of the largest sales forces in the MENA region Attractive partner for in-licensing 25 (2) in-licensed products from 13 (3) multinational pharmaceutical companies 21 sales representatives 80 sales representatives Includes 3 specialised product marketing executives 5 sales representatives 25 sales representatives 1 sales representative (1) Includes 45 Injectables employees in MENA and excludes 15 contract sales representatives in Tunisia and JPI (2) Includes only those products marketed/sold as of 30 September 2005 (3) Includes active licenses only 16
Developing the injectable pharmaceutical business Injectable pharmaceuticals (1) Strategy 60 50 40 30 20 10 42 25 17 28 28 Focus on developing a broad portfolio of products Targeting 10 new product filings annually for approval Developing sales force and distribution infrastructure in order to expand the customer base in the US and Europe 0 Pending approvals New products under development (2) Line Extensions New Products (1) As of 30 September 2005. To avoid duplication, the data presented does not double count when the same product is filed or is pending approval in multiple countries (2) Expected to be launched between 2007-2009 17
Pursuing profitable growth in the US market Positive Factors Negative Factors Strategy Loss of patent protection Demographics Medicare Act 2003 Cost Containment Measures Very Competitive Entry of low cost producers Price Erosion Targeting 10 ANDA filings for new products annually with the FDA for the next 2 years Active monitoring and quick response to customers preferences Expand sales & marketing infrastructure Competitive product pricing Consider acquisitions Positive industry dynamics resulting in forecast growth of 16.1% (1) p.a. for next 3 years (1) Source: IMS Generics Focus, 2005 18
Consistent and profitable long-term growth Sales Gross Profit 250 200 150 100 50 ($m) 0 138 19 50 67 CAGR (02-04): 24.7% 188 22 53 214 29 74 111 108 106 15 42 48 2002 2003 2004 H1 2004 132 H1 05 vs H1 04:+24.2% 22 51 57 H1 2005 ($m) 160 140 120 100 80 60 40 20 72 8 Generics Branded Injectables Others 0 52.5% 51.0% 51.5% 51.0% 24 39 96 9 CAGR (02-04): 23.5% 26 110 10 40 60 59 54 6 24 24 2002 2003 2004 H1 2004 % Gross Profit Margin 55.4% 73 H1 05 vs H1 04:+34.8% 9 31 33 H1 2005 60% 50% 40% 30% 20% 10% 0% 19
Consistent and profitable long-term growth Operating Profit Net Income ($m) 80 29.5% 28.6% 26.3% 60 55 61 40 36 CAGR (02-04): 30.1% 31.1% 33 % Operating Profit Margin 29.4% 39 H1 05 vs H1 04:+17.6% 35% 30% 25% 20% 15% ($m) 50 40 30 12.3% 20 17 CAGR (02-04): 48.9% 17.5% 16.7% 37 31 19.4% 21 19.0% 25 H1 05 vs H1 04:+21.3% % Net Margin 20% 15% 10% 20 10% 5% 10 5% 0 2002 2003 2004 H1 2004 H1 2005 0% 0 2002 2003 2004 H1 2004 H1 2005 0% 20
Investment highlights Diversified and Successful Business Model Broad product portfolio Broad geographic coverage Regional Strengths Well-established and successful position in the US Leading position in the Algerian, Saudi Arabian and Jordanian markets Strong marketing capabilities and brand recognition in the MENA region Strong relations with licensors Multinational Infrastructure Efficient, experienced and successful R&D team Continuous emphasis on quality API sourcing strength Financial Track Record Consistent & profitable long-term growth 21