Schering AG: Size Doesn't Matter

Pharmaceutical Executive

Pharmaceutical Executive, Pharmaceutical Executive-11-01-2002,

Don't expect us to launch products in the magnitude of a billion dollars in sales. For us, a product is very interesting at $200 or $300 million."

Don't expect us to launch products in the magnitude of a billion dollars in sales. For us, a product is very interesting at $200 or $300 million."

But that doesn't mean that Schering AG isn't ambitious. Last year, it launched five therapies in the United States through its subsidiary Berlex Labs and, based largely on their growth, plans to double its US sales by 2005.

It has the track record to support those goals. "Over the past six years, sales of our global business grew 12 percent," Erlen says. "And bottom line growth was 18 percent." In the first three months of 2002, Schering AG's US sales were up 29 percent. The company's steady growthcan also be seen in individual products, such as Diane, a fertility treatment, and Magnevists, an imaging agent, which continue to show sales increases after ten years on the market.

Much of its recent success began with Schering's decision in the early '90s to become a pure pharma player, shedding both its chemical and agricultural units-50 percent of the top line. Erlen's responsibility as an executive board member at that time included not only the North America region but also its supply chain and human resources worldwide. He reports that "the divestments went well, because all employees affected rolled out smoothly without job losses, transferred to other companies where people had a brighter future." No newspaper headlines decried the downsizing, either. (See "A Personal Note,")

Staying out of the negative media spotlight seems to be a Schering AG specialty. The company is free of accounting scandals, FDA fines, and SEC probes. Erlen attributes that to the longevity of its managers and employees, many of which have-like Erlen himself -held several different positions within the company and know it well. He also says that ongoing state-of-the-art management development is a product of the company's culture. "We don't look for the advantage of the day. We look for sustainability. And that is the way we have managed the company for generations. People feel this, experience this, grow up in this culture, and then practice it. It is also why we were always forerunners in good corporate governance practices."

Schering AG's culture goes back 150 years to its founding in 1851 in Berlin, Germany, by pharmacist Ernst Schering. During World War II, all of its subsidiaries and patents outside of Germany were expropriated, including its subsidiary, Schering Corporation, which was seized by the US government. In 1952, the US subsidiary was sold to an investment group, and in 1971, it merged with another company to become known as Schering-Plough.

By Any Other Name

Schering AG and Schering-Plough, independent businesses since then, share the Schering name through an agreement in which the German company may not use it for commercial purposes relating to its healthcare business in the United States or Canada. In those markets, Schering AG operates its pharmaceutical business under the Berlex trade name. The "Scherings" share a website (www.schering.com) that differentiates them and links visitors to the separate companies.

A Personal Note

Unwilling to give up its long history and brand recognition in Europe, the company prefers to live with the dual personality rather than pick a new unifying moniker. "Our key audiences know us well," Erlen says. "and they know that Berlex is our organization in the United States and Canada and the worldwide organization is Schering AG."

To help unify the company, it recently created a new logo with a common message-making medicine work-that is used throughout Schering's worldwide organization. Erlen says, "This new image will allow both our external partners and the public in general to recognize us instantly and distinguish us from our competitors."

Like other European and Japanese companies, Schering AG is pushing to build up its presence in the lucrative US market. The company gave itself a jump-start in 2001 by launching five products. Four of those have been major successes.

Launch Party

Yasmin. Of the five, this oral contraceptive has the most potential to differentiate itself in the market. In addition to its birth control function, the compound drospirenone has anti-mineralocorticoid activity and anti-androgenic effects. In lay terms, it prevents estrogen-related water retention, and it also prevents the skin from becoming oily. Those characteristics, although not part of its indication, are spelled out in the pharmacology section of the label.

Schering has no plans to position Yasmin as an anti-acne product-most likely because Johnson & Johnson has claimed that spot with OrthoTri-cyclen-but the company is communicating its potential benefits to doctors, who are responding favorably. Jane Kramer, a company spokesperson, says, "We actually had doctors calling us asking to be detailed on the product." Patients are responding favorably as well. In early October, the Wall Street Journal published a story about Yasmin's word-of-mouth buzz and growing popularity.

In its first 26 weeks, Yasmin garnered a 4.5 percent market share and is currently the fastest growing oral contraceptive in the United States. Erlen says, "We are well on our way to our targeted 8-9 percent market share." Its uptake in Europe, where it was first launched in Germany in November 2000, has been equally successful. In Norway, it has already captured a third of the market. The European Union launch is expected to be completed by the first quarter, 2003.

In development is a second version of Yasmin at a lower dose and with possibile additional indications. Erlen was cautious not to discuss the marketing plans in too much detail, but he did estimate the potential peak sales for the family of products in the range of 750 million euros. Yasmin's unique and feminine brand name, which will be used all over the world, should contribute to its success.

Mirena (levonorgestrel). Also a contraceptive, this product has little or no competition in its market. It's an intrauterine device-the company prefers to call it a system-that delivers a continuous stream of low-dose hormones through a T-shaped polymer. With a five-to-seven-year effectiveness duration, Schering has positioned it as "birth control for mothers" who are not ready for a tubal ligation.

Because US consumers and doctors have a distrust of traditional, copper-based IUDs, the company expects uptake to be a little slow and is taking time to educate and train physicians and midwives about its use. The reassuring news for consumers is that the product has been on the market in the United Kingdom for more than a decade and is considered both safe and effective.

"We found the basic technology in a Finnish company called Leiras Oy," Erlen reports. "And we acquired the company and developed it together. But they already had more than ten years of clinical experience with the technology. Therefore, we know it very well." So far, sales are about $100 million annually and could reach $200 million.

Campath (alemtuzumab). This monoclonal antibody, marketed in Europe as MabCampath and indicated for chronic lymphocytic leukemia (CLL), was originally developed by Millennium Pharmaceuticals with support from Ilex and Berlex. Schering AG-through Berlex-is co-marketing it with Ilex, and sales through the first half of 2002 were $24 million.

Campath complements the company's rapidly expanding oncology portfolio. "Doctors need more than one weapon against cancer, because after a certain period of time, many treatments fail," Erlen notes. The company also works closely with the Leukemia Lymphoma Society and individual patients' advocates.

Finevin (azelaic cream). Schering entered the US dermatology market for the first time with this topical ance treatment. In Europe, the company has been marketing products for acne, eczema, skin fungi, and psoriasis for years, but it is just breaking ground in the United States.

"This was just the first step, to establish an organization and launch a product portfolio here," says Erlen. "So we do not overestimate what this means in the next two to three years. We must have a continuous uptake in that field."

Levulan (aminolevulinic acid). The US market apparently was not ready for this photodynamic therapy intended to treat precancerous skin cells. The technology involves a topical cream that is applied to the skin, then activated by light therapy. Schering believes it is superior to nitrogen treatments-which freeze the affected skin-but US dermatologists thought otherwise. "That was the only disappointment we had last year," Erlen comments. Although the company still regards it as "a highly interesting technology," it returned Levulan's rights to developer Dusa Pharmaceuticals.

Schering's disappointments this year came in the form of two non-approvalable letters from FDA just before PE's press time. Waiting to hear from the regulators is always an anxious period for companies, but it was particularly true for Schering this time.

The Many Faces of HRT

Its candidates, Angeliq and Climara Pro, are both hormone replacement therapies, and the entire treatment category is now the focus of intense scrutiny after the National Institutes of Health discontinued its HRT clinical trials following its determination that Wyeth's Prempro (conjugated estrogens/medroxyprogesterone) might do more harm than good.

But not all HRTs are created equal. Climara Pro contains estradiol, and Angeliq contains drospirenone, the active ingredient found in Yasmin, plus estradiol. Erlen emphasizes that Angeliq is different from Prempro in several ways. "The molecule in Prempro is dated," he says, "and Angeliq is a modern approach to treating menopausal symptoms with a new compound. It is indicated specifically for the temporary treatment of the signs and symptoms of estrogen deficiency in postmenopausal women, not for long-term use."

Schering regards the communication from FDA as "part of an ongoing process" and will continue to pursue approval for both products. "If there will be an impact of the Women's Health Initiative study on our business, it will be minimal," he adds. "Only 8 percent of our sales currently come from HRTs."

Delivering the Pipeline

Not only are hormones and women's healthcare one of Schering AG's strongest franchises, the company stands to benefit greatly from its products in development. (See "In Development," and "Delivering the Pipeline," below.) Mirena MLS, a variation of its intrauterine birth control, is in Phase III trials for the treatment of endometriosis. That painful condition often causes sterility, affects millions of women, and lacks effective treatments.

Promising Pipeline

Schering AG is also developing endometrion, which is in Phase III trials in the United States and already filed in Europe, and mesoprogestins, in Phase II, as endometriosis treatments. The market for such therapies is wide open. Currently, surgery is the only alternative.

For aging women, Schering AG is testing a new delivery method for the incontinence compound, oxybutynin. Encased in a vaginal ring, the product is delivered directly to the targeted area, therefore avoiding many of the side effects-such as dry mouth-that are associated with an oral dose that circulates throughout the body.

In Development

But Schering has not forgotten about the other gender. In early Phase II development is an androgen/progestin combination HRT for men. It is also working on a Phase I androgen replacement patch called MENT (7 alpha-methyl-19-nortestosterone).

"Men have, not menopause, but andropause." Erlen explains. "They have similar symptoms like women-effects on bones, cognitive brain functions, the vascular system, sexual function, and the bladder. The reason doctors are so hesitant to appropriately treat it is the prostate. An aging man can have sleeping cancer cells in the prostate. If you add too much testosterone, you make those cancer cells grow and develop into prostate cancer.

"So our first product under development is testosterone undecanoate, a modified version that controls the blood levels of testosterone and avoids peaks, and, therefore, has advantages over existing pure testosterone-replacement products."

Another significant medical breakthrough is the company's research into a vaccine for human papillomavirus (HPV). The virus, which is spread sexually and has no symptoms, causes cervical cancer in women. According to the National Cancer Institute, cervical cancer, although increasingly less common in the United States because of prevalent early detection and treatment of precancerous lesions, remains a major global health concern, particularly in the developing world. And many, if not all, of those lives could be saved by an HPV vaccine.

Schering's efforts to beef up its specialized therapeutics/oncology franchise include acquisitions and in-house development as well as relocating the management of the business unit to the United States. It purchased all but the US rights to Zevalin (ibritumomab tiuxetan), a radioimmunotherapy developed by Idec for the treatment of non-Hodgkin's lymphoma (NHL). FDA has already approved Zevalin for Idec in the United States, and Schering is awaiting approval for it from the European Medicines Evaluation Agency (EMEA).

Specialized Therapeutics

Amgen's recent purchase of Immunex forced the merged company to sell Leukine (sargramostim), and Schering AG scooped it up. The company was ready with a global team of acquisition experts and moved very quickly to beat its competitors. The product is a white-blood-cell boosting adjunct therapy for leukemia and lymphoma patients, whose immune systems are compromised by chemotherapy treatments. "We're creating a portfolio of products that makes us a partner to the oncologist and hematologist," Erlen says. Leukine is now the company's biggest oncology product, and its R&D department continues to develop the compound. It is now in Phase II trials for Crohn's disease, which could be an even larger market.

Along with Leukine, Schering AG also acquired some of Immunex's Leukine sales force, boosting the number of oncology reps to more than 100. The company also continues to develop Fludara (fludarbine), a treatment for CLL approved in Europe in 2001. At present, Fludara is a second-line oral treatment, but its effectiveness and mild side effects make it a good candidate for a first-line therapy. Schering is also investigating its use in allogenous stem cell transplants.

The company's boldest and most recent move for its specialized unit was to purchase Collateral Therapeutics, a San Diego-based biotech specializing in gene therapy. Together, the researchers have developed what may be one of the most advanced gene therapy projects to date. Human angiogenic growth factor genes are delivered directly to the heart muscle through a catheter to stimulate new cell growth. Researchers believe that the product candidate may be another treatment option for coronary artery disease, apart from angioplasty, stenting, and bypass surgery. The therapy is already in early Phase III trials, and results are expected by 2004.

Here, Schering's strategy of specialized markets and long-term relationships with physicians is evident again. When the therapy is approved, the company will be educating and selling to the cardiologists it already targets with products such as Betapace (sotalol) for treatment of ventricular arrhythmia and Refludan (lepirudin), used in the treatment of heparin-induced thrombocytopenia.

Balanced Revenue

Schering AG's therapeutic franchises are divided into three main business groups: fertility control/hormone therapy, dermatology, and specialized therapeutics, which includes cardiology, central nervous system, and oncology products. (See "Balanced Revenue,") The company's fourth franchise accounts for three of four of its best sellers: Iopamiron, Magnevist, and Ultravist. (See "Top-Tier Products.") In fact, its diagnostic/radiopharmaceuticals unit generates 30 percent of the company's revenue and grew 20 percent from 2000 to 2001. But the line between diagnostic imaging agents and therapeutics grows fuzzier every day. Zevalin, for example, is a radioimmunotherapy that finds the cancer and delivers the therapy directly to it.

Diagnostic Imaging Agents

In 1999, Schering purchased a Boston-area biotech called Diatide that develops other such "pathfinders." Pathfinders bind to a cancer tumor's unique receptors, allowing researchers to differentiate tumor cells from normal cells. By adding a gamma ray and nuclear molecule to the pathfinder, scientists can look at it with a gamma camera. If there is radiation in a certain area, they know that it is the target of the pathfinder looking for the tumor cell.

Top-Tier Products

Changing the radiation source to the same as the pathfinder's allows researchers to fight the tumor cells with radiation. Schering is developing both peptide and monoclonal antibody pathfinders. "We are developing products that use these targeting mechanisms to bring local radiation to the tumor cell." Erlen says. "And later on, they can be used to continuously monitor whether the treatment was successful."

Although Erlen is the company chairman, he is adamant that a particular strength of Schering is its leadership group. He explains how Schering's management works:

The Team Approach

"Our executive board is like a team, and on this team we have five people. I'm the chairman, with specific responsibility for strategy, communication, and leading team processes. The other board members are responsible for global research and development, marketing, finance. and human resources of our strategic business units and regions. So each team member has his responsibilities, and we closely interact as a team."

To integrate the company, Schering AG stations its corporate leaders in both Berlin and the United States. For example, the specialized therapeutics unit is headquartered in the Berlex facility in Montville, New Jersey, and the head of fertility control/hormone therapy is located in Berlin.

The company applies that cross-functional approach to information sharing, too. Erlen says, "If you work in our northern California lab, you share the same data pools and computer systems with people in Berlin or Osaka, Japan. It's all integrated."

In today's competitive environment, the company's strategy for accelerating drug development is straightforward: "We have intensified cooperation across borders to involve all parts of our organization as early as possible." Erlen reports. "We run our projects with international teams, pulling together the most capable people as early as possible. We share the workload in the different parts of the organization, talk to all the authorities as early as possible to integrate their views and their needs, then roll out the products in parallel in the different markets."

Best Seller: Betaseron

Despite the consolidation in the pharma industry that has produced mega-companies, Erlen believes there will always be room for specialists: "I expect in the future there will be three types of successful companies. There will be the huge companies oriented toward the mass markets that deliver huge products, there will be the specialists, and there will be biotech companies. Specialized companies focus on target groups of doctors, who need special types of drugs. Those doctors know that their priorities are also at the top of specialized companies' list. That creates a stable relationship and fruitful interaction."