Gulf Pharmaceutical Industries (Julphar) is the first drug company in the UAE to become a truly multinational company with facilities in seven countries and exports to 47 more. The Ras al Khaimah-based medicine manufacturing company has ambitious growth plans including a new biotechnology project to develop crystal insulin for diabetic patients. Abdul Razaq Yousuf, Julphar's CEO, sat down with Emirates Business to talk about the company's expansion, its new products and the challenges facing the UAE pharmaceutical industry in the free trade era and in light of new intellectual property rules.
Julphar is the first pharmaceutical company to be based in the UAE. How has its performance been over the past two decades?
Julphar was established in 1980, commercial production started in 1984 and after 23 years, Julphar has become a true Arab multinational organisation. Currently, we have seven plants and are planning to double this to 14 within the next three years. Julphar has been profitable for the last 15 years.
Last year was yet another good year for Julphar because the pharmaceutical market has been growing and the company has followed an aggressive growth strategy. While 80 per cent of the UAE pharmaceutical market is still met with imported drugs from global multinationals, Julphar is exporting 90 per cent of its production to overseas markets.
Last year, we saw impressive sales of Dh660 million. According to the preliminary report submitted to the Abu Dhabi Financial Market, the firm's total sales revenue for 2007 increased by 14.1 per cent to Dh661m - Dh541m from Julphar and Dh120m from subsidiaries - and profit of Dh207m on an equity of Dh560m.
Julphar has been building many plants in the UAE. What is their status?
We have several plants in Ras Al Khaimah and seven new plants are under construction and will be completed in the next three years. With the completion of these projects, Julphar will have 14 plants in the UAE. We are also planning another seven outside the UAE. These plants are located in the MENA and Asia region - Afghanistan, India, Morocco, Sudan, Lebanon, Yemen and Iran.
Now our local agents in each country have become business partners in these projects. The total investment for these projects is Dh2bn. We will transfer the technology and invest Dh1.2bn and our local partners will invest Dh800 million. The company is also studying market potential in Turkey, the Philippines, Malaysia and Indonesia.
The global pharmaceutical industry is dominated by giant multinationals. World Trade Organisation (WTO) agreements and new intellectual property laws have imposed many restrictions on pharmaceutical companies. What is Julphar's strategy to face this tough international market scenario?
Our focus is not on the European or American markets. We have been looking at countries in the Mena region and Asia. The UAE signed a WTO agreement in 2000 and we are ready to face competition from big multinational companies.
About 90 per cent of our production is exported to 47 countries in the MENA region, US, Europe, Africa, Eastern Europe, Russia and Iran. However, we are dependent on imported raw materials. Due to the exchange rate fluctuation and the strengthening Euro, the cost of raw materials has been going up. Now we have tied up with an Indian company, SMS, to manufacture raw materials required for Julphar plants. Our new plants are coming up in countries, which do not have strong pharmaceutical industries, except for India which has a strong industry.
Are you happy with the new international free trade regime for the pharmaceutical industry?
Free Trade is good for industries except the pharmaceutical sector. Due to technical barriers and special quality requirements from the local authorities, foreign companies need to register with the local authorities. However, there is no mutual respect and recognition.
Western countries are asking for a one-way road on free trade. Such policies are affecting our exports to the US and European markets.
We have the approval of the Food and Drug Administration (FDA) and the European Authorities to market our products, however, our focus is not on these markets.
What is happening in the local pharmaceutical market?
The UAE is an open market and all global companies are present here. Multinationals dominate the market. Imported medicines are 25 to 30 per cent more expensive than Julphar products, but we are not competing on price. The UAE is a rich country and consumers here are quality conscious and not price conscious. We are trying to compete on the quality front by providing the best-quality medicines in local and export markets.
Consumers in foreign countries you are expanding into are cost conscious. Will this strategy work in poor countries like Yemen, Sudan or even India?
We follow different strategies in different markets. Price is a major concern in these countries. Our plant in Afghanistan will start production in 2008. The total investment is Dh75m - 10 per cent from Julphar and the remaining from the local partner.
The plants in Sudan and Morocco will be ready by 2009 and the projects in Yemen, Iran and Lebanon will be ready by 2010. From Afghanistan, we can serve the Pakistan market too. Iran has a strong pharmaceutical industry and our plant in Ishfan, in central Iran, will help us explore the Iranian market. India has a strong pharmaceutical market and we have tied up with an Indian company to obtain raw materials required for our plants in Ras al Khaimah.
Biotechnology is revolutionising the pharma industry. What are you doing on the biotechnology front?
The UAE and MENA region has a high level of diabetics. We are trying to use biotechnology to develop crystal insulin using a special bacteria that will drastically change the treatment for diabetes. We will produce crystal insulin that can reduce the regular medicine course for diabetic patients by 50 per cent.
Your company is doing very well and expanding at rapid pace. What is the benefit to the shareholders?
We are planning to expand our capital base to Dh1bn within three years and it will be a bonus to our existing shareholders. By 2010 our target sales figure is Dh2.2bn - an annual growth rate of 50 per cent in 2008, 2009 and 2010. Our two new plants will start production in April 2008 and one in April 2009. Two additional plants will start production in 2009 and two in 2010.
The shareholders include Ras Al Khaimah Government (24 per cent), UAE nationals (44 per cent), Islamic Development Bank (seven per cent) and Arab Company for Drugs Industries and Medical Accessories (15 per cent). The bonus share issue at face value will be in three installments.
Big multinationals have started setting up distribution networks in the GCC/Mena region. What are you doing to face the global competition?
Companies such as Boots are setting up chains of pharmacies. We have recently formed Planet Pharma, a joint venture with Gulf Investment House, to establish a chain of 2,000 pharmacies in our core markets with an investment of Dh3bn.
Each will provide everything in the healthcare market under one roof - medicines, cosmetics and even natural herbal products. In the UAE within 2008 we will have 150 pharmacies, up from 65 pharmacies now. We are also creating an Academy to train staff. We will buy some existing pharmacies in the region and the growth will be a mix of organic and inorganic.
Abdul Razaq Yousuf
Yousuf has been with the company for the past 20 years and witnessed its growth since the beginning. Unlike other CEOs in the pharmaceutical industry, Yousuf was trained as a civil mechanical engineer in the United States, rather than as a doctor or medical professional.
Multinational Julphar has ambitious plans