Stealth Pharmas - Pharmaceutical Executive

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Stealth Pharmas


Pharmaceutical Executive



Sales per Employee
"Smart" Sales This new metric measures the percentage of sales driven by intellectual property or innovation. Once again, Endo and Barr are near the top, showing that these companies are strong on the ability to drive earnings from intellectual property and innovative ways of doing business. And note: Intellectual property does not refer simply to patents and pipelines, but to innovations of all kinds, including new technology, new systems, and new processes. (The sales-from-intellectual-property-assets metric relies on the methodology of Professor Lev Baruch, an accounting professor at Baruch University in New York. For a description of his approach to valuing intellectual property and innovation, see "Industry Audit," Pharmaceutical Executive, September 2006.)

HEAD TO HEAD ON PROFITS

How can companies like Teva, Barr, Watson, and other "generics," with their reliance on low pricing, ever turn a profit? That question once was voiced frequently. But a glance at the comparison chart, "Brands vs. Biotechs vs. Generics" (below), reveals that yes, Virginia, the generics are in the same league as Big Pharma when it comes to making money.


Brands vs. Biotechs vs. Generics
The companies that produce knockoffs are, on average, only 4 percentage points lower on profit to sales than their branded proprietary "betters." Two reasons: less expense on R&D (duh!) and lower operating expenses, particularly, in marketing and sales. That situation is likely to change as the Stealths move into branded drugs and increasingly need to market directly to physicians.

Just how profitable the Stealths can be is illustrated by Barr's six months' exclusivity on generic Prozac in 2003. As Gardiner Harris and Joanna Slater reported in a Wall Street Journal piece, the generics maker had sales of about $350 million—and, given a 20 percent profit margin, raked in some $70 million on the antidepressant. Its only major cost was the money spent on lawyers to break Lilly's Prozac patent—not a bad return on investment.

Another example is Andrx's launch of Cartia XT, or generic Cardizem CD. According to In Vivo's Wendy Diller, for six months, Andrx had no competition, making profits of $64 million on sales of $200 million, a 30 percent profit margin—which ranks with any of the Big Pharmas in terms of profit to sales.

NO ONE-SIZE-FITS-ALL MODEL

The Stealths are not, of course, applying the blockbuster model. Their basic expertise is not in R&D but in S&D: "search and develop." They find underappreciated drugs and put marketing muscle behind them. They are good at improving efficacy, convenience and side effect profiles. They get to market faster with less investment. They can focus on smaller target markets: buyers of drugs for pharmacies and managed care organizations.

As for the superstar Stealths, they are certainly deploying the strategy of market segmentation artfully. Do the numbers: Allergan, which competes in markets like dermatology, aesthetics, and ophthalmology, is growing at 25 percent a year or more. That's a bottom line sure to make Wall Street nostalgic for Big Pharma's good old days, before its current sales growth slumped into the single digits.

Bill Trombetta is professor of pharmaceutical marketing and strategy at the Erivan K. Haub School of Business at St. Joseph's University in Philadelphia. He can be reached at


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