Overview

In our first full year as a listed company, Hikma has delivered strong financial results, benefiting from the strength and diversity of our business model. In accordance with our strategy, we have achieved excellent performances in both the Branded and Injectable businesses, which have more than compensated for the challenging market conditions in our Generic business in the United States.

We are already well on our way to achieving the main objectives set out at the time of our IPO. Since then, we have repaid $50 million in outstanding debt. We have increased capacity, having completed and commenced production at our Algerian plant, completed the construction of our new dedicated cephalosporin plant in Portugal and invested in improvements at our Jordanian, Italian and US manufacturing facilities. We have also begun to execute our acquisition strategy, through two significant acquisitions.

Financial results

The Group performed well in 2006, achieving revenue of $317.0 million, up 20.9% from 2005. Gross margin for the Group was 50.0%, down from 51.8% in 2005, but still very strong when compared to our industry peers. Operating profit grew by 8.7% to $75.2 million, while operating margins decreased to 23.7%, compared to 26.4% in 2005, primarily as a result of increased overheads related to our new Algerian plant, the continued price erosion in the Generic business and an increase in the Group’s general and administrative expenses. The Group’s profit attributable to shareholders increased by 24.3% to $54.5 million and diluted earnings per share increased by 9.5% to 31.0 cents.

Business highlights

We ended 2006 with a total of 176 products in our portfolio in 397 dosage strengths and forms, including the 23 products launched during the year and 26 under-licence products. During 2006, we were granted 191 regulatory approvals across all geographies. In addition, we submitted a total of 88 regulatory filings, including 54 new product applications. As of 31 December 2006, we had a total of 117 pending approvals in Jordan, the United States and Europe alone, and 105 products under development. In addition, at JPI we have 125 products pending approval.

In our Branded business, we were able to leverage the investment made in sales and marketing in 2005 to drive significant growth across both existing and newer markets. Through these efforts we achieved market share gains in each of our three largest markets – Algeria, Saudi Arabia and Jordan. These results were achieved despite disruption in the Algerian market caused by the implementation of a new reference pricing regime. In Algeria, we have delivered double-digit growth compared to 2005 as a result of the introduction of new products and the commencement of production at our new manufacturing facility.

We have continued to consolidate our strong position in the MENA region through the acquisition of the remaining 52.5% shareholding in JPI. The benefits of the excellent platform we have created for accessing the GCC market are already being seen. JPI contributed $11.7 million in sales for the four months ended 31 December 2006. For the first eight months of the year, and in previous years, JPI was treated as an associate.

In our Injectable business, we delivered strong sales growth as we continued to develop our sales and marketing infrastructure across all three regions. We now have a strong platform from which to drive future sales in each region. Sales were particularly strong in the MENA region, especially in Saudi Arabia and Sudan, where we established new customer relationships and distribution channels. Sales growth was also strong in Europe, and especially in Germany, where our distribution agreements with Hospira are enhancing our product offering and facilitating the penetration of our products in the European market. In the United States, we set up a specialised distribution company, Hikma Pharmaceuticals (USA) Inc., with a dedicated sales force for injectables.

In our Generic business, sales declined by 1.3% compared to 2005 as a result of continued price erosion and a limited contribution from new product launches. However, we were successful in renewing for the fourth option year our sales contract with the Department of Veterans Affairs, an agency of the government of the United States, for the supply of Lisinopril.

Overall, we enhanced our manufacturing facilities across the Group during the year, significantly increasing our manufacturing capacity in order to meet the growing demand across our core businesses. Early in 2006, we opened a new manufacturing plant in Algeria and we announced FDA approval of the facilities of JPI for the manufacture of oral cephalosporin products for sale in the US market. The construction of our new injectable cephalosporin plant in Portugal was completed by the year end and continues to be on track to begin commercial production in the first half of 2007.

Board appointments

In December 2006, Dr. Ronald Goode was appointed to the Board. Dr. Goode serves as an independent non-executive Director and as a member of both the Audit and Remuneration Committees. He has spent over 30 years in the international pharmaceutical industry, including having held senior positions with Pfizer and Searle, and is currently a director of Genitope Corporation, a NASDAQ-listed company. Dr. Goode was formerly President and Chief Executive Officer of Unimed Pharmaceuticals, Inc. and eXegenics Inc., and a director of several other companies, including Hokuriku Seiyaku and Vitro Diagnostics.

Dividend

The Board has recommended a final dividend for the year to 31 December 2006 of 4.0 cents per share (approximately 2.1 pence per share), which makes a total of 7.0 cents per share for the year. The proposed final dividend will be paid on 18 June 2007 to shareholders on the register on 18 May 2007, subject to approval at the Annual General Meeting.

Developments in 2007

In January 2007, we announced the acquisition of Ribosepharm GmbH, an oncology company specialising in the marketing and distribution of injectable oncology products both to private practices and hospitals in Germany. This acquisition enhances our injectable product portfolio, develops our sales and marketing capabilities and provides us with an excellent platform from which to enter the large and fast-growing oncology market.

Our product portfolio and product pipeline have continued to develop in 2007. In the first two months of the year we received a total of 14 regulatory approvals, submitted 9 regulatory filings and launched 4 new products.

Looking forward

We expect both our Branded and Injectable businesses to deliver strong sales growth in 2007, through a focus on key products, the launch of new products and expansion into new markets. We expect the pricing environment in the United States to remain competitive. However, we will work diligently to minimise the effects of this pricing pressure on our Generic business by introducing new products and retaining our strategic focus on reducing raw material costs.

The integration of JPI has been successfully completed and the integration of Ribosepharm is proceeding in line with expectations. Further development of our injectable product portfolio and our injectable sales, marketing and manufacturing capabilities is essential to our growth strategy for this business and we will continue to work to achieve this both through organic growth and acquisitions. At the same time, we remain focused on our aim to consolidate our strong position in the MENA region and we continue to evaluate acquisition opportunities in our target markets – Egypt, Morocco and Turkey. We are confident that the strength and diversity of our business will enable us to continue our track record of delivering strong growth within the Group.

Samih Darwazah

Chairman