Hikma pharmaceuticals


The pharmaceutical area is a crucial player in impacting on health, household and government spending, irrespective of its effect on the total economy of the country. The Pharmaceutical industry has always been accountable to many compulsions from the government regulations to the changes in technology to economical an political growth

Hikma pharmaceuticals is a London based multinational pharmaceutical firm that targets on the Manufacturing, marketing and Development of their products. It was constituted in 1978 by Samih Darwazah at Jordan” (1). It is in the business of making generic and in-licensed pharmaceuitical products with a sound existence in the United States, Europe and Middle East and North Africa region. Hikma Pharmaceutical's production center are located in USA, Italy, Egypt, Germany, Algeria, Portugal, Jordan and Saudi Arabia. “They currently sell 369 pharmaceutical products in 767 dosage strengths and forms in 49 countries” (2). Hikma was the first Arabic firm to get FDA reccomendation by 1996. Its research & development (R&D) takes place in the United States,Jordan, Saudi Arabia and Portugal while its operations exist in around fifty countries.

Hikma Has Three Main Business lines:

Generic Pharmaceuticals : This segment manufactures non-branded generic products which are sold with West-ward label in the United States market. Hikma's core target is on cardiovascular, CNS, musculoskeletal therapeutic and antiinfective areas. Its cheif products are Cefaclor, Amoxicillin, Lithium Carbonate, Doxycycline and Lisinopril.

Branded Pharmaceuticals : Hikma's primary target market is MENA region for branded pharmaceutical line, with Jordan, Algeria, Saudi Arabia, Sudan and very recently the Egypt market, exhibiting Hikma's biggest market for this kind of business, although there are sales in Europe also.

Injectables : Injectables is specialised sub-segment of the generic pharmaceuticals. Hikma's latest line of business, Injectables is aiming at markets in the United States, Europe and the MENA region. Hikma is aggressively arising in this line of business through improvement of its oncology business, its new product categories and investments in capacity.

Other Business

Hikma's other business line constitutes of Arab Medical Containers, which Deals in special plastic packaging and the International Pharmaceuticals Research Centre ,which conducts bio-equivalency studies.


This ratio indicates the short term financial position of the firm. The current ratio of 1.81 is satisfactory and shows that the business is able to pay its liabilities as and when they fall due. But, the ratio of Concateno company is quite low which states that the company may or may not be able to pay its liabilities as and when they fall due.


This ratio is also known as liquid ratio. The ratio 1.14:1 is very close to the standard ratio of 1:1.It shows that the firm is liquid and has the ability to meet its current or liquid liabilities in time. The quick ratio of Concateno is low as compared to ideal ratio; thereby the company will have difficulty in meeting its liquid liabilities in time.


The ideal debt equity ratio is 2:1. Any ratio less than 1:1 will mean very conservative approach and the company is not having any benefit of leverage in its capital structure. This low ratio is considered as favorable from the long-term creditors' point of view because a high proportion of owners' funds provide a larger margin of safety for them. The firm has to improve its debt-equity ratio, so that it should utilize its low-cost outsiders' funds to magnify its earnings. The debt-equity ratio is quite favorable because the company is effectively using its outsider's funds, so as to improve its earnings.


Lower the ratio of total liabilities to total assets, more satisfactory or stable is the long-term solvency position of a firm. So, the debt-asset ratio of the hikma is quite satisfactory as compared to Concateno.


Gross Profit Margin reveals the earning capacity of the business with reference to its sale. Higher gross profit ratio of 44% is in the interest of the business as it will mean reduction in cost of production. The gross profit margin of Concateno is higher which reflects that the company is efficiently producing its products.


This ratio helps in knowing the operational efficiency of the business. It indicates the extent of managerial efficiency and performance.

By analysing the operating ratio, hikma is operating well in terms of its efficiency as compared to Concateno.

Valuation Of Business:

Business Valuation helps in determining the economic value of the business. It is a powerful process and is often used by financial market participants to determine the price they are willing to pay to consummate a sale of business.

Comparing The Eps

Earnings Per Share is a part of a company's profit which is allocated to an individual outstanding share of common stock. As viewed by the investor, it is the rate of earnings which are returned on the original investment made. As clearly the table shows that EPS has declined considerably in period of one year. The earnings and price of the share are very important factors in analyzing the financial performance. As declining EPS can lead to lose in investor base.

Income Statement Analysis:

For the year the company earned revenues of $580.7 million and total revenue growth of 29.4%. The impact of the difficulties in our US Generics business in the first half of 2008 resulted in a lower gross margin for the Group of 44.2%, compared with 49.4% in 2007, and a decline of 12.7% in the operating profit to $80.7 million. However, earnings before interest, tax, depreciation and amortization (EBITDA) declined by only 1.7% to $113.8 million and on an adjusted basis operating profit decreased by 1%. Profit attributable to shareholders for the period declined by 8.7% to $57.1 million, but on an Adjusted basis increased by 4.5%. Diluted earnings per share declined by 16.4% to 29.6 cents per share. The company's operating cash flow reached $75.0 million, an increase of 40.7%, through a strong focus on working capital management.

The main points which need to be highlighted for Hikma are:

1.EBITDA Declined.

2.Operating Profit Decreased.

3.Diluted Earnings Per Share Declined.

Where as in the case of Concateno :

1.EBITDA increased

2.Operating profit increased

Diluted Earnings Per Share Increased

According To The Financial Performance Of HIKMA :-

Finance income and costs Net financing cost for the year was $16.7 million compared with $8.8 million during 2007. The increase is due to higher average debt levels during 2008 compared to 2007.

Profit before tax Profit before taxes for the Group decreased by $19.8 million, or 23.6%, to $64.0 million, compared with $83.8 million in 2007.

Tax The Group had a tax expense of $6.9 million in 2008. The effective tax rate was 10.8%, a year-on-year decrease of 12.7 percentage points. This improvement reflects the absence of profits in the USA and a further increase in the proportion of sales and profits generated in the MENA region.

Minority interest Hikma's minority interest was nil in 2008, compared with $1.6 million in 2007. This was primarily due to a decline in the profitability of Hikma's 51% owned subsidiary in Sudan.

Profit for the year The Group's profit for the year attributable to equity holders of the parent decreased by 8.7% to $57.1 million for the year ended 31 December 2008, compared with $62.6 million in 2007.

Adjusted profit for the year Excluding the amortization of intangible assets (other than software) and exceptional items, which include integration costs and revisions to estimates for charge-backs, rebates and returns, the Group's adjusted profit for the year attributable to equity holders of the parent increased by 4.5% to $67.4 million for the year ended 31 December 2008, compared with $64.5 million in 2007.

Earnings per share Diluted earnings per share for the year to 31 December 2008 were 29.6 cents, down by 16.4% from 35.4 cents in 2007.


From the report it could be easily made out that the Company has been focusing most on the MENA region that is, Middle east and North Africa. Hikma is a leading regional pharmaceutical manufacturer. 60% of the company's sales have generated from this region and is expected to grow in the future also.

While the Financial performance of Concateno says :-

Finance income and costs- Net financing cost for the year was £16.52 million compared with £ 3.2 million during 2006. This increase has happened due to higher average debt levels.

Profit before tax- Profit before taxes for the Group was (760) in 2006 which shows the negative performance, but in 2007 it increased to 323 million. Tax The Company had a tax expense of 342 million in 2007. The effective tax rate was 30%. This expense has increased because the company was growing and diversifying in different segments. Profit for the year The Group's profit for the year attributable to equity holders of the parent increased by .74% to £665 million for the year ended 31 December 2007, compared with £(670) million in 2006. Earnings per share Diluted earnings per share for the year to 31 December 2007 were 1.04 p, from (6.99) p in 2006.


From the report it could be easily made out that the Company has well established itself in the European market. Since 2007, the company is in the acquisition process and is involved in drug testing; it will take a lots and lots of time for the company to increase its revenues in the other continents of the world.

Balance Sheet Of Hikma Says :-

In 2008 the company raised gross proceeds of £81.6 million (approximately $160 million) through the placing of 17 million ordinary shares to fund the 2007 acquisition of Arab Pharmaceutical Manufacturing Co. Ltd (“APM”). The company had a net debt of $170.9 million at the 2008 end, compared with $306.8 million at the end of 2007, reflecting not only the equity issue but also higher operating cash flow from improved management of working capital.

The funds have been invested in projects which are generating incomes and as a result of these investments and continuous cash flows balance sheet is strong, with over $63 million in cash at the year-end and un-utilized loan facilities of $121 million across multiple geographies.

The main points which are to be noted in the current balance sheet, if compared to balance sheet 2007 are:

1. The investment in financial and other non-current assets has increased considerably.

2. Amount invested in current assets has increased by $49,000,000. This shows the increased capacity to repay short term liabilities as the amount of current liabilities has reduced.

3. Long term financial debt has increased considerably, the reason might be the payment of the acquired organizations.

While The Balance Sheet Of Concateno Shows :-

In 2007, the group had increased its debt from £8206 to £33651 which means that the company is heavily dependent on outsider's fund instead of depending on internal sources of fund. The company is generating positive cash flow from operating activities which in turn is improving the condition of working capital management i.e. the cash or cash equivalents will be available with the company in the coming years.

The main points which are to be noted in the current balance sheet, if compared to balance sheet 2006 are:

1. The investment in financial and other non-current assets has increased considerably.

2. Long term financial debt has increased considerably; the reason might be the more and more acquisition is done by the company.

3. Total shareholder's equity has increased considerably, may be more and more number of people had shown their interest in the company.

Cash Flow Statement:

The cash inflows for the company are being generated by operating activities of the business and financing activities. It is an essential tool of financial analysis for short-term planning. A comparison of the historical and projected cash flow statements can be made so as to find the variations and deficiency or otherwise in the performance so as to enable the firm to take immediate and effective action.

The Investing activities of the business are not generating any cash flows rather using the cash for purchase of plant and equipment, purchase on intangible assets and other investments in financial instruments. These are the avenues in which the money is being invested and which will definitely give benefits in the coming future. With the help of this, a firm will be able to plan and coordinate its financial operations properly.

Porter'S Five Forces Model For Hikma:

Buying power of supplier: Hikma has lesser bargaining power as the competition is high and there is a need to capture the market by increasing its market share considerably.

Buying power of buyer: The buying power of buyers is very high as there are a lot of players in the market offering similar medicines

Threat of substitutes: High because there are many players and all of them come up with new products after research and development.

Threat Of New Entrants:

Competitive Rivalry: The competition is very high as there are many players in the market. These are some companies which are giving high competition to Hikma Sanofi-Aventis ,Glaxosmithkline ,Novartis ,Pfizer ,Spimaco, Bayer ,Astrazeneca ,Johnson & Johnson ,Pharco.

Rivalry Among Other Firms:

As more and more companies are in existence or entering this sector, the competition among the firms will increase which will in turn give a cut-throat competition to the pharmaceutical industries.

SWOT Analysis of Hikma:

Strength : Hikma has a wide range of product with huge geographical coverage and they also have a strong brand positioning in the MENA region.

A “One-Stop Shop” For Injectables.

Weakness: To lay more emphasis on increasing the market share.

Opportunities: Hikma has possibility of generating huge revenues in developing countries.

Threats : From the other pharmaceuticals industries which are going to enter and give a cut-throat competition.


Glaxo smithkline is world's second largest British pharmaceutical, biological and healthcare company. This company has presence in more than 40 countries of the world. After analyzing the financial statements of Hikma, it is clear that if Glaxo wants to expand its operations in Middle East then it will have to acquire the most powerful regional manufacturer. This will not only help them to expand their operations but add to their financial strength as Hikma is having a good financial position and this company had themselves acquired Arab pharmaceutical manufacturing Co. Ltd in Dec 2007 . In total they acquired 4 companies to meet their objectives of diversification and expansion.

As GSK company is operating efficiently, to acquire Concateno at this stage will not be favorable, as this group is still in its developing stage and is well established in the European market only, where GSK has already a better brand image, as GSK wants to gets into the unexplored areas so it has to acquire the group which is prevalent in other continents, hence, GSK should acquire Hikma.

Hikma'S Key Performance Indicators

These key performance indicators reveal, the complete financial position of the organization for two years. If studied individually that the performance has fell over the period of one year. The Gross profit margin which was near 50% has reduced to 44.2%. The increase in this Gross profit can be because of an increase cost which might arise due to managerial inefficiency also. The Revenue growth of 41.6% fell to 29.4% , which is a real sharp decline in one year's period. Also the diluted earnings per share for the owners has declined.

Glaxo smithkline is ranked number 2 in the MENA region, if the earlier would acquire Hikma it would open new doors and pharmaceutical scenario in the region would entirely change as Glaxo is a big name and with it would come the expertise and new technology which would offer a competitive edge and acquiring Hikma will help in facing the severe competition in this region . The other benefits which the company can get is the accelerated revenue growth, improve coordination of global manufacturing to maximize productivity, capture manufacturing, purchasing and distribution synergies.


(1) http://www.hikma.com/aboutus/history/

(2) http://www.hikma.com/aboutus/

(3) http://www.hikma.com/files/financialreport/3505/hikma_report_2006.pdf

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