Middle Eastern drug company Hikma Pharmaceuticals PLC (HIK.LN) Thursday said protectionism in Algeria and a September Ramadan and Eid held back third-quarter sales, and added it expects to enter a joint venture with a Western peer within months.

Chief Executive Said Darwazah told Dow Jones Newswires Hikma anticipates formalizing a joint venture with a Western partner in the next six months.

The company already sells Western and Japanese drug makers' medicines in the Middle East and North Africa under license, but Darwazah said Jordan-based Hikma is in talks about broader alliances.

A rising prevalence of Western-style illnesses like diabetes offers rich pickings for multinational pharmaceutical companies struggling with patent expiries and bare pipelines in their home markets. Generic versions of off-patent medicines also offer big sales prospects.

Emerging markets play a key role in several Western drug makers' strategies. France's Sanofi-Aventis SA bought drug businesses in Brazil, Mexico and Eastern Europe, while the U.K.'s GlaxoSmithKline PLC bought units of Bristol-Myers Squibb Co. in Pakistan and Egypt, and a stake in South Africa's Aspen Pharmacare Holdings Ltd.

Darwazah didn't say which companies Hikma is talking to.

Hikma said Thursday it expects full-year sales to be 10% higher on year, or about 13% ahead stripping out the effect of exchange rates. It previously said it expected constant currency sales growth of 15%.

Darwazah said drug sales in the third quarter slowed in its key Middle Eastern and North African markets, hurt by Ramadan and Eid holidays in September and lower sales in Algeria, where the government slapped restrictions on imports.

That didn't affect Hikma as badly as some competitors since it has some production in Algeria, said Darwazah. Hikma's drug sales in the Middle East and North Africa grew 12.3% during the nine months to Sep. 30, outpacing a market growth rate of 6.8%.

Hikma said it agreed a licensing deal with Japan's Astellas Pharma Inc. (4503.TO) to sell its immunosuppressant Advagraf in the region. Advagraf is a newer version of a drug called Prograf. Noble analyst Stefan Hamill said in a research note the licensing deal is significant because he estimates Prograf sales account for about 5% of Hikma's branded drug unit's revenue.

"This agreement removes any uncertainty related to the expiry of the Prograf licensing agreement," Hamill said. He has a "positive" rating on the stock.

Hikma said sales at its U.S. unit, which sells cheaper generic versions of off-patent drugs, improved during the second half of the year, continuing a first-half trend, although it didn't give figures.

Sales there suffered last year because of cutthroat competition, but cost cuts and a Food and Drug Administration crackdown on shoddy manufacturing by overseas suppliers helped turn the unit around. Some of Hikma's competitors were barred from selling drugs in the U.S. but Hikma wasn't. "We capitalized on our exemplary manufacturing track record," said Darwazah.

He told Dow Jones Newswires Hikma is eyeing expansion in its core markets in the Middle East and North Africa. It wants to expand its manufacturing capacity by buying smaller competitors in Algeria, Morocco, Tunisia and Syria, said Darwazah. The company has cut its debts and boosted cashflow, which will help it pay for any deal.

Hikma is also eyeing a return to Iraq, where it operated decades ago, he said. Hikma is considering spending about $50 million over three years to set up a small operation there, said Darwazah.

At 1239 GMT, shares in Hikma were up 0.4 pence, or 0.1%, at 482 pence, underperforming a 0.4% higher FTSE 250 index.

Company Web site: www.hikma.com

-By Rachael Gormley, Dow Jones Newswires; 44-20-7842-9308; rachael.gormley@dowjones.com
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