Melanie Stern is section editor of Families in Business.
Mazen Darwazah, of Hikma Pharmaceuticals, tells Melanie Stern about being the first company from Jordan to achieve a full listing on the London Stock Exchange, and looks back at the family's three decades of hard work and transition
Mazen Darwazah talks so effortlessly about the progression of Hikma Pharmaceuticals, the generics manufacturer that caught Europe's eye when it floated on the London Stock Exchange late last year, one could easily conclude its rise to the international stage came without breaking a sweat.
But then, the best professionals are those who make a tough job look easy.
Call it post-deal confidence. After debuting at £2.90 on 1 November, Hikma stock sharply outperformed its FTSE250 index to hit over £4.00 by mid-January. The 30-year old company is the first from Jordan to achieve a full listing on the LSE's main market – though one of the last to go public. And the task of going to market was quite a learning curve for the family, which Mazen is candid about. "We were in fifth gear all year," the vice chairman explains to Families In Business. "[Becoming a listed company] has really changed the way I work. Understanding all the rules of listing, from compliance to takeover codes, has been a real learning experience for both my father and myself," he concedes. "We have undergone a huge transformation from a family business to a publicly-accountable entity, and though we had a very good team of advisors working with us on the deal, it was an eye-opener for me personally."
In fact, the listing is a culmination of ten years' hard work to professionalise the company, invigorating it with the standard of technical operations, specialist staff, strong management, adherence to industry regulations and accounting standards expected of all credible listed entities. Being domiciled in a country of just 5.7 million people that has been caught for almost a century in the most volatile of political cross-fires – backing onto the disputed territories of Palestine and Israel to the West, Saudi Arabia to the East, and Iraq to the North-East – it was never going to be an easy dream.
But today Hikma boasts a market capitalisation touching £700 million, and a global reputation for innovation and reliability behind sales of $214 million in 2004. Led by its generic pharmaceutical arm, which accounts for more than 50% of annual sales with most of its business in the US, Hikma is part of a market that looks set to remain on an upward trajectory. The spiralling cost of patented brand drugs in the US remains a key issue, and demand for cheap generics is increasing among developing countries too – making shares in companies like Hikma a strong buy for investors.
This year, Mazen and his father, chairman and CEO Samih, plan to create swift growth at Hikma by consolidating the company's position as one of the top five operators in the Middle Eastern and North African (MENA) market for generic pharmaceuticals. They also want to boost their long-established injectibles business in the US through their subsidiary WestWard, and set up wider distribution networks across Europe. This all means one thing: alliances and acquisitions. The pair are already pouring over the vitals of a handful of possible targets.
Hikma's non-MENA sales account for 50% of Jordan's total annual exports, exceeding the contributions of around 20 strong, large local rivals who broadly cover the same international generics market. These include Arab Pharmaceutical Manufacturing Company, with a market capitalisation on the Amman Stock Exchange of about $200 million and a 6% share of the market, and Dar Al Dawa who are also listed on the Amman Stock Exchange. Differentiation has always been an issue for these companies. Hikma more than met this challenge by securing approval of its Amman, Portugal and New Jersey factories from the US' Food and Drug Administration (FDA), none of which came without a protracted fight; the first, for its Amman plant in 1995, took an astonishing 15 years. Said, Mazen's brother, was instrumental in leading this effort, having been appointed early on in his career with the family business to head up a newly-acquired company. Said upgraded the standards of that company and Hikma's processes overall to meet FDA requirements inside six years. This opened the door to apply for generics patents in the US, of which the company now has 950 (40 FDA approved), and is currently awaiting approval of 78 more, with a further 90 products in development. "We set ourselves apart by producing products that carry a high barrier of entry – those that are technically hard to produce, such as sterile products," Mazen adds. "We are the only company in Jordan to have FDA-approved facilities to do this – that's our niche."
Contrary to conventional family business wisdom, the Darwazah family saw early on that being a family company was not the best way for Hikma to reach these objectives. But at that time, few family businesses in the Middle East had thought about making such a transition, and there were not many credible examples on the global markets to encourage potential shareholders to take a punt on them.
"When we decided we couldn't continue as a family business, we focused on getting international exposure and involved some major financial institutions such as Citigroup. Citigroup demanded much more professionalism from us, taking the company to a level that made it ready for a public offering," explains Mazen. "The reason for choosing to go public was to get exactly this sort of exposure, so that we could confidently try to attain affiliations with, or acquisitions of, other companies in our market throughout the world."
The task now is to live up to the expectations of the hard-to-please public markets and these institutional investors, and produce stellar financial results while building both size and output. It is a challenge, but in the context of Hikma's past – as is absorbingly detailed in Samih's autobiography, Building a Global Success – not its greatest yet. However, it could prove to be Mazen's touchstone.
The key to Hikma's successes thus far has been a willingness to take calculated risks. Mazen's father Samih, Hikma's founder, had four young children and a wife to consider when he decided in 1976 to leave a 12-year career with US pharma giant Eli Lilly, which had taken the family from Jordan to Beirut, to Indianapolis and Rome, and return home to start his own company from scratch. This was a stroke of commercial savvy and forethought rather than one of original genius. A six-month feasibility study in antibiotics, in which demand outstripped supply in the region, showed most pharmaceutical companies were focused on one particular strain, cephalosporins. With $1.5 million in funds and the proceeds of a small pharmacy his brother Zahi ran for him while he worked overseas, Samih spent two years building a factory and started producing generic copies of Cefazolin, then the world's top-selling injectible cephalosporin, and Amoxicillin.
Mazen, like so many successors, had an upbringing heavily infused with the family business and the sheer drive his father seemed to have, in his life-long quest to establish a leading pharmaceuticals company. Even though he admits it wasn't his intention to join the family company, Mazen was certainly well placed to take it on. Samih had been open about his wish to see his children take over the business one day and had involved both his sons in the company; Said was invited to Amman on his summer break from studying at Purdue University in 1979 to spend time with his dad, only to be put to work on his first day helping contractors fit skylights to the roof of Hikma's first factory. Despite being the intended successors, the pair were given no free rides into executive management, and both worked their way through humble production jobs, into field sales and junior management for several years. Both also completed two years' military service for Jordan, and worked in other corporate pharmaceutical companies before progressing to leadership roles with Hikma. "We had to work our way up and were not given any privileges because we were the children of the founder," says Mazen. " In fact, we had to work so much harder because of it. There were no golden parachutes for any of us." At the time Mazen joined the company, his elder brother Said was CEO. Samih remained close to the company as an advisor, but had taken semi-retirement and moved to Portugal, before being selected as Minister for Energy by the Jordanian government. Said had begun revamping the company to take to market and Mazen joined as vice president, moving to become general manager and later chairman. At this point Said was asked to join the Government as Minister for Health so, being half way into investigating an IPO, the brothers brought Samih back as CEO to lead the way, while Mazen set about building a non-family management.
Does the vice chairman intend to succeed his septuagenarian dad now their task has been accomplished? He doesn't sound sure. "We are looking into how we can structure a succession," he says. "But for the time being, he'll remain."
While the political and business climate in the Middle East remains uncertain – as it has for generations – companies there are becoming ever more resourceful, entrepreneurial, and dynamic. They are providing their countries with much needed economic stability, inward investment, and international export clout. Hikma is no different; Samih fought against the manifold challenges of being a political refugee in the early half of his life, and was relentless in his goal to create his company. The family decided it should let go of control and take it to the international markets if it was to realise its potential – and now it is ranked one of the world's top 15 pharmaceutical organisations. There has not been a problem that the Darwazah family have not found a solution to with sheer determination and grit. Mazen is infused with this knowledge and fully intends to leave his own legacy. "We have major plans," he concludes. "We're looking forward to becoming a major global player in the next decade."