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Building On Blockbusters


Pharmaceutical Executive

Pharmaceutical ExecutivePharmaceutical Executive-08-01-2002

Much has been said recently about how the blockbuster model can no longer sustain innovation and growth in the pharma industry. Hans-Joachim Lohrisch, CEO of German-based Altana Pharma AG, and George Cole, president of Altana Inc., its US subsidiary, beg to differ.

Much has been said recently about how the blockbuster model can no longer sustain innovation and growth in the pharma industry. Hans-Joachim Lohrisch, CEO of German-based Altana Pharma AG, and George Cole, president of Altana Inc., its US subsidiary, beg to differ.

Hans Joachim Lohrisch, left, and George Cole meet for Altana's listing on the New York Stock Exchange in May.

Building on the billion-dollar success of pantoprazole, its gastrointestinal treatment, Altana is launching itself in the United States this year and is quickly becoming the industry's company to watch.

In May, it listed on the New York Stock Exchange. In July, it changed the 125-year-old pharma unit's name from Byk Gulden to Altana Pharma. And it is in the process of staffing two new US facilities: Altana Pharma, a late-stage development and marketing unit, in Florham Park, New Jersey and Altana Research Institute, a genomics and proteomics technology unit, in Waltham, Boston. In 2001, during a year of industry-wide belt tightening and lowered expectations, the company added nearly 400 people, then posted, in the first quarter of 2002, 13 percent sales growth over the same period last year. All of that springs directly and indirectly from the success of pantoprazole.

"If a group is successful with one key product," Lohrisch says, "it gives the managers and employees of the whole company a new orientation. It's like a lighthouse effect." Which is the reason for the name change. Until July, the main pharma unit in Constance, Germany, where pantoprazole was discovered and developed, was still called Byk Gulden. "Altana is getting more and more visibility and that leads to much more media interest." Lohrisch explains. "But the original company that was dealing with the product, Byk Gulden, never showed up. Now, all the news coming out after the name change can be associated with a successful company. It's very important that our managers and staff can easily identify themselves if they read something about the performance of Altana and be able to say, 'Hey, that's me as well.'"

Altana Pharma's success has been long in the making. The original company was founded in 1873 by Dr. Heinrich Byk in Berlin, Germany. In 1907, it patented and marketed Euphyllin (theophylline), which is still one of the major active ingredients for treating bronchial conditions. It later merged with the companies of Paul Gulden and Ernst Lomberg, becoming knon as Byk Gulden. In 1941, the Quandt family took majority control of the company, and one family member, Susanne Klatten, is still the majority shareholder. In 1977, her father Herbert Quandt, along with Hans Graf von der Goltz and Eberhard von Heusinger, founded the holding company Altana AG. The pharmaceutical unit continued to do business and acquire subsidiaries under the name Byk Gulden, which is well known in Europe. In 1963, Byk Gulden bought its first company in the United States, and in 1984, it established a US subsidiary under the name Altana Inc. And this year, in an effort to unify the company, the German-based unit officially became Altana Pharma.

From a Small Seed

Dr. Hans-Joachim Lohrisch Bio info

Altana Pharma, which reports its earnings in four categories-therapeutics, in vitro diagnostics, imaging, and over-the-counter (OTC) products-generates 70 percent of the holding company's sales and has more than 30 subsidiaries throughout the world. Altana Inc. is just one of those subsidiaries. It, in turn, has three divisions of its own. Fougera, located in Melville, New York, produces topical and ophthalmic pharmaceuticals. Savage Laboratories, also in Melville, develops and markets products for dermatology, ob/gyns, and emergency medicine. And the new unit, Altana Pharma US, in Florham Park, New Jersey, will serve primarily as the US marketing arm for innovative therapeutics. (See "Layered Structure,")

Layered Structure

Pantoprazole was also a long time in the making. Byk Gulden researchers discovered the proton pump inhibitor (PPI) in 1980, then spent 14 years developing it. During that time the company gained and lost marketing partner SmithKlineBeecham, which pulled out after animal trials raised some safety concerns. Other companies had also tried to develop similar compounds and failed. Lohrisch downplays the risk: "Our management had a great belief in the opportunity and decided to continue. Then we were successful in registering it with the agencies. That's basically the story."

PPI Success

George Cole Bio info

Pantoprazole was first launched in Germany in 1994. With a competitive price and an indication that included an injectible formulation for hospital use, the PPI took off. It soon expanded into other European markets and eventually won US approval in May 2000. But it was the fourth PPI to enter the US market, behind J&J's Aciphex (rabeprazole), TAP's Prevacid (lansoprazole), and AstraZeneca's Prilosec (omeprazole), which would become the world's best selling medicine. Altana Pharma's leaders knew they didn't have the size or the clout to enter the competitive US gastrointestinal market alone. They licensed the product's US marketing rights to Wyeth, which gave it the brand name Protonix.

The compound, although similar in efficacy to its competitors, demonstrates a favorable pharmacokinetic profile: no metabolic interactions with other products, in addition to a long duration of action. So Wyeth positioned Protonix as the night-time medicine for gastrointestinal reflux disease (GERD) and priced it 28 percent below Prilosec, a strategy that earned it $140 million in sales between May and December 2000 and another $560 million in 2001.

The Munich Symphony Orchestra performs for a crowd of Altana's employees.

But its big splash in the US market is only half the picture. The PPI, sold under various European brand names-Pantozol, Pantorc, Pantop-generated around $600 million in non-US sales last year for Altana, which also has partnerships in many non-European countries. "It is not only successful in the US," Lohrisch points out. "It is still successful in Europe. Whenever I talk to analysts, I have to underline this, because everybody is looking to the United States, which is contributing, at the moment, the greatest growth in absolute dollar terms. However, in relative terms, the growth in Europe is still 30 percent."

Pantoprazole shows no signs of slowing down. Total sales-including those through all distributors-were up 44 percent in the first quarter of 2002. The product is patent protected in most markets until 2005. And in most European countries, Altana is looking to be granted a Supplementary Protection Certificate for "lost development time" that grants the company exclusivity until 2009.

There is some concern that when Prilosec goes generic, Protonix's growth will slow, especially after the exclusivity period granted to generic products is over. But the product has faced generic competition in Germany since 1999 and still continues to grow there. In fact, the PPI-marketed in more than 90 countries-generates about 40 percent of Altana Pharma AG's total revenue, a fact that the company has become a bit sensitive about. "The analysts are always saying, 'You're a one-product company, which is a negative,'" Lohrisch points out. "Other companies would dance on the table if they had such a product."

When asked about the company's other products, of which there are plenty, both executives smile, then chuckle. Because of the therapies' small sizes, they see no need to discuss them. (See "Standing Out in a Crowd,") They would much rather talk about new blockbusters in the making.

The Next Wave

Standing Out in a Crowd

The first is Alvesco (ciclesonide), an inhaled corticosteroid in development primarily for the treatment of asthma. Altana chose the name because it sounds like alveoli, which is part of the lung. The asthma market is also quite crowded, but Lohrisch believes Alvesco has competitive advantages. He describes it this way: "It is a pro-drug that is activated in the lungs by conversion to an active metabolite. That results in a lower exposure in the mouth and throat, and the rate of local side effects such as oral thrush and hoarseness may be less. This is one big advantage."

In addition to the improved safety profile, Alvesco is being developed with a unique inhaler from 3M. The design allows the active ingredient to be dissolved in the propellant in the HFA (hydrofluoroalkanes) of the device, creating a fine aerosol. According to Lohrisch, most other products use suspensions, which produce larger particles that are unable to go as deeply into the lung. So Alvesco has a higher lung deposition than most currently marketed inhaled corticosteroids.

Its complexity creates marketing challenges. George Cole, who heads the division that will be responsible for promoting it in the United States, says, "We're working very hard to position this product. The unique advantages of both the drug and device are becoming quite clear, but we are still in the midst of analyzing all of the marketing possibilities."

Altana has a Big Pharma partner for Alvesco as well. The original negotiations started with Rhone Poulenc Rorer (RPR), then were stalled during the merger that created Aventis. The deal eventually went through, and this time the partner is sharing the US development costs and responsibilities. The two companies will also be co-marketers, so Altana will have its first opportunity to test its prowess in the US market.

"About Alvesco and RPR," Cole says, "it was more than just looking for someone who had respiratory experience. We needed a partner that could help us build that competence. We also needed a company that knew devices, and RPR knew devices because they had acquired Fisons. And they had Asthmacort, an inhaled corticosteroid with a device. Also, they have a dry-powder inhaler technology that we thought might be useful if we decided to introduce that line extension in the future."

Altana expects its partner to file with FDA by the middle of 2003, and it recently filed for approval with several European countries, with the United Kingdom as the reference member state for the European community. "That was great news," Lohrisch says proudly, "because it was ahead of schedule. This is one of our values: Walk the talk. We say something, and we achieve it."

When Altana needed a partner for its next pipeline candidate, a selective PDE 4 inhibitor in development for chronic obstructive pulmonary disease (COPD) and asthma, there was no shortage of suitors. Lohrisch says he took a systematic approach: develop a business model, take it to the top people at several interested companies, and begin early negotiations. Then last August, the R&D department had a breakthrough with roflumilast-clinical trial data that clearly demonstrated the product's proof of concept in COPD. "So we held an analyst conference and presented the study, and it got us a lot of attention," Lohrisch says. After that, Altana opened the negotiations to even more companies and eventually selected Pharmacia. (At press time, Pfizer announced that it would acquire Pharmacia, which may affect the status of the partnership.)

Getting Noticed

Lohrisch explains the choice: "Pharmacia did not have a PDE 4 inhibitor in its research or development. The company showed a high level of commitment and interest in the product, and it is a very strong US marketing partner with blockbuster launch experience, an excellent primary care sales force, and a strong presence in managed care. We also like having the ability to team up with an international group on an international scale. And last but not least, the financial package was excellent."

Roflumilast, once approved, should have no difficulty establishing itself in the crowded asthma market: it's a nonsteroidal, once-a-day oral treatment-a unique and patient-friendly product. But its second indication for chronic pulmonary disease, on the other hand, is a wide open and important market.

"There are 15 million patients who suffer from COPD," Lohrisch says. 'And maybe another 15 million US patients who are undiagnosed or under diagnosed. By that, I mean there is nothing effective to treat them. So we think there's a huge opportunity there in COPD."

Other companies have worked with PDE inhibitors and had to discontinue development because of an unfavorable side-effect profile: central nervous system reactions, such as headache, nausea, and vomiting. But according to Lohrisch, in a COPD trial, roflumilast's side-effect profile was similar to the placebo.

The company hopes to file with the European agency in December this year and with FDA in late 2003 or early 2004. He believes both pipeline candidates have blockbuster potential. "We believe Alvesco can have peak sales of one billion euros," he predicts. "With roflumilast, we are a little bit more conservative for one reason: because it's a completely new therapy, and we will be the first in that market. At the moment, we foresee peak sales at the level of 800 million euros."

Coming Attractions

If things go according to plan, revenue from pantoprazole will finance the Alvesco and roflumilast launches, and the products will gain sales momentum before the first blockbuster goes off patent. (See "Coming Attractions.")

Altana's big push this year to establish a presence in the United States is part of a long-term strategy that was developed when the company realized the potential of its first blockbuster.

Timing is Everything

"Regarding the world's biggest pharma market here in the states," Lohrisch explains, "we decided to implement a three-step strategy. The first was to generate the returns by exercising a straight licensing contract with a major product, and that was the Wyeth contract in 1996 for pantoprazole.

"The second step was to set up a contract for a co-development, co-promotion agreement for Alvesco in the United States. We will have the opportunity to co-promote the product in the states with our own sales force, so that gives us the exposure in the innovative pharma sector.

"And the third step was a contract we signed in April with Pharmacia for the next product, roflumilast. We will have our own sales people co-promoting it with the name Altana, giving us the visibility we need." When asked if the goal was to eventually be able to market products in the United States without a partner, Lohrisch says, "Yes, of course," then immediately adds, "It is state of the art in marketing to look for partners here." Cole also offers his thoughts on the subject: "There's always the potential that you'll need a partner because of the share-of-voice issues when you're up against the major companies in the United States."

Altana AG's NYSE listing, which is blessed with the stock symbol, AAA, should provide even more visibility. Despite the unfavorable timing of declining stock values and recent US corporate scandals, AAA listed at about 54 euros-which is nearly equivalent in dollars-and is holding steady.

Analyst's Insight

But the timing could also be a boon. Many investors have lost confidence in the integrity of US corporations, and therefore, foreign companies with irrefutable revenue may have an opportunity to acquire cautious investors. (See "Analyst's Insight,")

Altana is not alone in its push into the US market. Other European-based companies such as Schering AG and Novartis are expanding their US facilities and presence, and Sanofi-Synthelabo also just listed on the NYSE. The reason for those moves appears twofold: 60 percent of all prescription pharmaceuticals are sold in the United States, and government price controls are squeezing the profitability of European markets. Altana recently joined 38 other companies in making a unique offer to the German government: In exchange for a $189 million donation to the German health system, Chancellor Gerhard Schroeder agreed to stop the health ministry from imposing a 4 percent price cut on prescriptions. In support of that move, Lohrisch says, "All cost-containment measures will work for the first few years. The PBM and MCO systems here worked quite well early in the '90s. Then they exhausted their opportunity for additional savings. The same thing happened in Europe. It starts with reference prices, then fixed prices, price comparison between countries, and in some markets, like France, you not only have to get medical registration but also a price approval."

A Place in Society

In addition to helping prop up the home country's healthcare system, Altana is investing its pantoprazole cash in the future. "Year to year, we now invest 20 percent of therapeutic sales in research," Lohrisch says. "If you look at our spread sheet for 2001, you will see that our top line growth was 26 percent, that we made a 30 percent increase in R&D investments, that we increased our capital expenditures by 25 percent, and that we still have good growth in our profit margin."

Long-Term Thinkers

Some of that capital has been spent on new facilities, such as production plants in Mumbai, India and Jaguarluna, Brazil as well as production plants and research labs in Germany. Another long-term investment is its six-year-old partnership with GPC Biotech, a German-based genomics and proteomics company. The latest agreement calls for the two companies to establish a genomics research center in Boston, Massachusetts, Altana's first research facility outside Germany.

Known as the Altana Research Institute (ARI), the collaboration with GPC Biotech will seek to discover anti-tumor molecules and other oncology-related products as well as to help establish a third therapeutic franchise. "There's high medical need, still, in the area," Lohrisch says, "so it's important for a pharmaceutical company to look at these targets. And we believe that we may be in a position to develop some possibilities in oncology."

The company hopes to shorten the franchise development process by acquiring candidates or even small companies with promising pipelines or co-marketing deals for oncology products. In a similar vein, Altana may divest one of its smaller non-therapeutic units- in vitro diagnostic-which comprises only 3 percent of Altana Pharma AG's sales. And the imaging product unit (6 percent) will probably be reassessed. "Regarding imaging, it's a different situation. Our partner Bracco is in Italy, and we are in discussions with them now about growth opportunities, which is key for continued activity in this franchise." Despite the desire to move quickly into oncology, Lohrisch claims, "We are all long-term thinkers. And that is backed up by our majority shareholder-to have the patience to exercise long-term strategies.

Growth is rarely painless, and Altana Pharma has experienced a few disappointments. It has failed so far to have pantoprazole approved in Japan, which, with its high rates of H pylori bacteria, is a lucrative gastrointestinal market.

Cultural Shift

Lohrisch attributes the failure to a former partner in Japan, which he prefers not to name. But he hasn't abandoned the possibility: "We are running a project to analyze the Japanese situation and to decide whether it makes sense to try to make a late entry or whether we should definitely go away." Another disappointment is Venticute, a lung surfactant factor based on genetic technology targeted for acute respiratory distress that did not meet the goals of its Phase III studies.

But for the most part, both executives agree that the company's growth has been good for its culture. "In terms of more person-to-person interaction," Lohrisch explains, "it is not just a German company like it was ten years ago. It includes more international elements. We are in China. We have built a factory in India. We are in the Latin American markets."

Cole concurs: "I've been with the company for nine years, and when I first came on board, it was very much a German-centered company-maybe Euro-centric at best-but there's been a dynamic change in the last several years. The group has become more global in the way that we look at, and think about, things. We recognize the importance of other markets. And it's starting to be reflected in the faces of the people who I interact with now. Our head of corporate marketing is British. On his staff, I know one person who's Canadian. Another gentleman who just joined the group is from the Netherlands. So we're starting to see a more international flavor inside."

There will be even more opportunity for creating an international culture as the company adds between 1,000 and 2,000 employees over the next few years.

"We're focusing on getting the right people," Cole concludes. "We recognize that they will be our future, and we are creating an company that attracts great talent and gives them a reason to stay. We plan to use the culture of the company as a means of differentiation, so we are spending significant time and effort up front to define it. Specifically, we plan to give people the opportunity to get in on the ground floor of a dynamic, young company that encourages the free exchange of ideas."

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