Two drug makers lead the pack in race to grow generics sales

Drug Store News,  Nov 3, 2003  by Michael Johnsen

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Spurred by cost-cutting pressures and branded-drug patent expirations, the rising tide of generic substitutions is lifting all boats on the generic drug waterfront, and most generic suppliers are witnessing a solid sales upswing. But two mid-tier generic companies are fast outpacing much of their competition with healthy double-digit growth on annual sales exceeding $50 million.

According to IMS Health sales data for the 12 months ended in June, Mallinckrodt Pharmaceuticals has delivered a scorching 46 percent growth rate, reaching $55.5 million in generic drug sales. During the same period, Par Pharmaceuticals has grown by 40 percent to reach sales of $51.2 million.

Neither company follows the traditional path in realizing its explosive generic growth--that is, through Ad patent challenges and first-to-market abbreviated new drug application filings. Rather, each has developed a distinctive business model in a long-term strategy to continue to build sales.

Mallinckrodt re-branded its corporate image earlier this year, highlighting the company s expertise in controlled substances and its commitment to developing new product offerings.

Not only does Mallinckrodt control its own product supply, but the company also provides much of the raw ingredients that are used to create medicinal narcotics for other suppliers. "We control the whole process--from the poppy fields, to the production of the active ingredients, to the manufacture of the tablets, to the distribution," said Michael Gunning. Gunning is senior director of sales and marketing for the Hazelwood, Mo.-based drug maker, which was founded in St. Louis in 1867 as G. Mallinckrodt & Co., a maker of photographic chemicals.

"We've been able to grow our business by roughly 35 percent to 40 percent on a yearly basis for the last eight years," Gunning said. It's no coincidence, then, that eight years ago Mallinckrodt began developing four vertically integrated business units: generics, addiction treatment, outsourcing and contract manufacturing and branded pharmaceuticals. "Within the eight years, we've developed four businesses within Mallinckrodt, and generics right now is really leading the charge," Gunning said.

Going forward, Mallinckrodt hopes to parlay its expertise as a pharmaceutical wholesaler into developing new retail product offerings, whether that is through different forms of active pharmaceutical ingredients or through developing new delivery systems. For example, Mallinckrodt recently introduced morphine extended-release and dextroamphetamine ER. "The dextroamphetamine ER is for the treatment of [attention deficit hyperactivity disorder]. We have a full line of ADHD, products," Gunning said. Within the next six months, we're going to be complementing the line on ADHD with generic Adderall."

In addition, Mallinckrodt is working to bring to market a generic equivalent of Oxycontin, which technically does not come off patent until 2006, but currently is being challenged in court by another generic company, Gunning said. The company also is developing a generic version of the fentanyl patch, a controlled-substance pain reliever from Janssen Pharmaceutica Products whose brand name is Duragesic.

Driving business through licensing

For Par Pharmaceuticals, the future lies in savvy alliances with drug makers beyond U.S. borders.

Roughly five years ago, Ken Sawyer, recently retired from his post as Par's president, chairman and chief executive officer, recognized that Par's investment into its research-and-development pipeline was not conducive to the future health of the company. "[But] we had a first-class sales and marketing organization, a large manufacturing plant, and we had good distribution capabilities," noted Scott Tarriff, Par's current president and chief executive officer.

"We found companies around the globe that had the opposite problem to us, Tariff said--meaning companies with a bursting pipeline but no U.S. outlet. "Now, the basis of our growth strategy has been partnering with companies around the world, bringing products into the U.S. market" through licensing agreements.

Along those lines, Par struck an agreement in September with Bristol-Myers Squibb to license the Megace trade name for a potential new product Par is developing. The new medicine would be positioned as a line extension of Par's megestrol oral suspension business, the generic version of Megace O/S, which Par launched in July 2001. In 2002, Par's megestrol oral suspension formulation achieved sales of $83 million.

Also in September, Par began shipping its immediate-release paroxetine tablets, substitutable for GlaxoSmithKline's immediate-release Paxil product. Par forged a licensing agreement to distribute generic paroxetine with GSK in April and expects to generate as much as $180 million through the end of 2003.

In all, more than two-thirds of Par's product offerings in the past three years have come out of licensing opportunities, Tarriff said. Par also distributes some 63 generic drugs that aren't part of its licensed pharmaceutical mix.