Global Insight Perspective | |
Significance | Four new markets have been identified to help increase Hikma's presence in MENA; namely, Sudan in North Africa and Yemen, Iraq and U.A.E in the Middle East. There are also plans to expand operations in Eastern Europe, Tunisia and Egypt. |
Implications | Streamlining company operations, particularly in the Saudi Arabian and Algerian markets, is expected to provide an added fillip, complementing planned initiatives of the region’s contribution to overall revenues |
Outlook | With this move, the generic firm looks set to face the pressures of the US market, currently Hikma’s largest market. In the next two years, MENA sales are likely to overtake the U.S. contribution to overall revenues. |
Regional Focus Shift?
Hikma Pharmaceuticals is pursuing the Middle East and North Africa (MENA) with new forays and expansions, leading to a gradual shift in its regional focus. Samih Darwazah , Chief Executive of Hikma Pharma told Reuters that plans are afoot to introduce its products in Sudan, Yemen, U.A.E. and even Iraq, with consistent political activity. To date, this year has seen the company achieve 16 regulatory approvals in the region with five new products. Hikma’s ambitions in the region do not end there; expansions are also planned in Egypt, Morocco and Turkey, where the company will seek inorganic growth. According to Reuters, an approximate sum of US$ 250 million has been budgeted for potential acquisitions in the region for year 2006.
Within the Middle East, the Gulf region - particularly the GCC (Gulf Cooperative Council) members - will be an area of interest for Hikma, as the medical insurance market opens up with mandatory insurance for expatriates being implemented in Bahrain and UAE (see Bahrain: 9 March 2004: Cabinet Gives Final Nod to Compulsory Health Insurance for Expatriates in Bahrain; and UAE: 12 September 2005: Employer Health Insurance Coverage Becomes Compulsory for All Non-Nationals in Abu Dhabi).
In the regional break down of Hikma's revenues, MENA accounts for about 40.1% of total sales while the U.S. market is about 53%. According to Bassam Kanaan, Hikma's chief financial officer, the business is expected to witness more than a 20% jump, a figure attributed to the region’s current organic growth, particularly if the company is able to pursue its acquisition plans successfully. In April this year, Hikma bought out its joint venture partner in Saudi Arabia, making the country a potential supply source for its U.S. operations ( see Middle East Regional: 19 April 2006:Jordan s Hikma Buys Out Partner in Saudi Arabia JV). Hikma is likely to persist with its branded-pharmaceutical product basket for the region and will also extend to its Eastern Europe operations.
But the company's U.S..operations are not completely on the back burner, Hikma has established a dedicated sales force for injectables and secured 18 product approvals in the segment. In its generics business, Hikma won FDA approvals for five ANDA (Abbreviated New Drug Applications) since January this year.
Outlook and Implications:
These expansion plans reflect Hikma’s urgency need to attain critical mass in the MENA region, where traditionally it has impressed mainly upon three markets; namely, Saudi Arabia, Jordan and Algeria. In fact, the Algerian and Saudi Arabian pursuits are recent developments, in which the company invested in capacity building in Saudi Arabia through its erstwhile joint-venture firm while in Algeria; added impetus was achieved with the Jordanian and Algeriain governments pushing for pharma collaborations (see Middle East Regional: 14 February 2005: Pharmaceutical JV Partnerships to Be Facilitated Between Jordan and Algeria ). It also highlights the firm’s confidence in venturing into high-risk markets, such as Sudan and Iraq, especially the latter, where Hikma’s operations were abruptly discontinued due to heightened conflict.
Apart from widening its geographical presence, Hikma also needed to offset the apparent pressures from the generic market in the U.S. The company’s US revenue is expected to come under strain, following the surge in competition within the generics market and the exacting impact of price erosion. Although the U.S. still dominates the Jordanian firm’s overall revenues, in the short term its ranking is likely to be taken over by sales from MENA. About 90% of its unbranded generics revenues come from the U.S. market, where the business segment accounts for half of its sales. The company’s growing injectables business will continue to be concentrated on the U.S. market. Hikma's prospects will be enhanced considerably in the region, but this is also likely to put pressure on margins as the company embarks on the acquisition trail.
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