A Special Breed of Leader

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Elisabeth Pena and Taren Grom

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12 S e p t e mb e r 2003 PharmaVOICE BREEDOFLEADER I got into this business with the ultimate objective to help people. I can’t think of a better way to begin every day. The minute I get in the car and start driving to work I get excited because I know what I am doing is ultimately going to make a difference. THOMASMCLAIN BY ELISABETH PENA AND TAREN GROM THE FUNDAMENTALS OF THE SPECIALTY PHARMACEUTICAL INDUSTRY REMAIN STRONG WITH SOLID RESULTS RELATIVE TO OTHER SECTORS. These companies capitalize on opportunities through a unique competency in therapeutic expertise, knowledge of geographic markets, and physician specialties. Financialcommunity projections predict that this currently under developed segment of the pharmaceutical industry will continue to demonstrate strong growth for the foreseeable future. Nabi Biopharmaceuticals A SPECIAL 13 PharmaVOICE S e p t e mb e r 2 003 H SPECIALTY leaders Highprofile mergers regularly occur in the industry as a whole, as large pharmaceutical companies continue to consolidate to maxi mize research capacity and marketing power. According to industry sources, the 10 largest pharmaceutical firms accounted for more than 58% of total prescription drug sales in 2002. The very success of these megapharmaceu tical companies leaves attractive openings for a breed of smaller, specialty pharmaceutical com panies that target proven products that may be lacking attention from their developers. Many of these products have become available to spe cialty companies for sale and/or licensing, and more are expected to appear. Specialty pharma companies are acquiring some of these products as part of a multidimensional growth strategy. In addition, a growing number of specialty companies have internal development capabili ties. They may not go back to the molecule, but they are taking wellknown products and refor mulating them through proprietary technolo gies and reintroducing them into niche or spe cialty markets with great success. ADRIAN ADAMS.President and CEO,Kos Pharmaceuticals Inc., Miami;Kos Pharmaceuticals is a fully integrated specialty pharmaceutical company engaged in developing,commercializing, manufacturing,and marketing proprietary prescription products for the treatment of chronic diseases. For more information, visit kospharm.com. CAROLA.AMMON.CEO,chairman,and director; Endo Pharmaceuticals Inc., Chadds Ford, Pa.; Endo is a fully integrated specialty pharmaceutical company with market leadership in pain management products.For more information, visit endo.com. VICENTE ANIDO JR., PH.D.President and CEO, Ista Pharmaceuticals, Irvine, Calif.; Ista is a specialty pharmaceutical company focused on the development and commercialization of unique and uniquely improved ophthalmic products.For more information, visit istavision.com. ROBERT J. BITTERMAN.President, Dermik Laboratories Inc.,VP, Aventis Dermatologicals,Berwyn,Pa.; Dermik provides product innovations to treat a wide range of skin problems, including acne,nail fungus,precancerous lesions, dermatitis, eczema,psoriasis,and rosacea. For more information, visit dermik.com. JOHNH.BULLION.CEO,Orphan Medical Inc., Minnetonka,Minn.;Orphan Medical acquires, develops,and markets products of high medical value for patients within selected market segments.For more information, visit orphan.com. J. MELVILLE ENGLE.President and CEO, Dey LP, Napa,Calif.; Dey is a specialty latestage biopharmaceutical company committed to the development and commercialization of novel products to relieve pain and reduce the side effects of currently marketed narcotics. For more information, visit adolor.com. RICHARD F. POPS.CEO,Alkermes Inc., Cambridge,Mass.;Alkermes is an emerging pharmaceutical company developing products based on sophisticated drugdelivery technologies to enhance therapeutic outcomes.For more information, visit alkermes.com. JONAH SHACKNAI.Chairman,CEO,and founder,Medicis,Scottsdale, Ariz.; Medicis is a leading independent specialty pharmaceutical company in the United States focusing primarily on the treatment of dermatologic,pediatric, and podiatric conditions.For more information, visit medicis.com. DENNIS L.SMITH.President and CEO, INOTherapeutics Inc., Clinton,N.J.; INO Therapeutics,a division of AGA Linde Healthcare, is a global speciality care pharmaceutical company committed to developing and marketing treatments in the areas of heart and lung function. For more information,visit inotherapeutics.com. PHILIP S.TABBINER.President and CEO, aaiPharma Inc.,Wilmington,N.C.;aaiPharma is a sciencebased specialty pharmaceutical company that is focused on acquiring, improving,and marketing wellknown,branded medicines in pain management,gastroenterology,and critical care.For more information,visit aaipharma.com. pharmaceutical company focused on the development,manufacturing,and marketing of prescription drug products for the treatment of respiratory diseases and respiratory related allergies. Dey is an affiliate of EMD Inc., which is part of Merck KGaA.For more information, visit dey.com. MICHAEL FRIEDMAN.President and CEO, Purdue Pharma LP, Stamford,Conn.; Purdue Pharma and its independent U.S. associated companies are known for their pioneering research on a principal cause of human suffering: persistent pain. For more information, visit purduepharma.com. JAMES R.HOWARDTRIPP.President and CEO, Labopharm Inc., Laval, Quebec,Canada; Labopharm is an international specialty pharmaceutical company focused on the development of drugs incorporating the company’s proprietary advanced controlled release technology,Contramid.For more information, visit labopharm.com. A.J. KAZIMI.CEO,Cumberland Pharmaceuticals Inc., Nashville,Tenn.; Cumberland Pharmaceuticals is a specialty pharmaceutical company with a mission to acquire rights to branded prescription products and grow them through marketing to targeted physician segments.For more information, visit cumberlandpharma.com. THOMASH.MCLAIN.President and CEO,Nabi Biopharmaceuticals,Boca Raton,Fla.; Nabi discovers, develops,manufactures,and markets products that power the immune system to help people with serious, unmet medical needs.For more information, visit nabi.com. BRUCE A.PEACOCK. President and CEO, Adolor Corp., Exton,Pa.; Adolor is a THE MANAGEMENT TEAM 14 S e p t e mb e r 2003 PharmaVOICE SPECIALTY leaders pharmaceutical company. Possessing strong leadership skills, which can take many forms and faces, are critical to success in any impor tant position. MCLAIN. For success today, the entrepreneurial spirit is very important and it needs to be a key part of driving every organization. A successful CEO also needs to understand the financial drivers of the business to maximize the cash flow return. Increasingly, for CEOs in the pub lic market arena, it’s also very important to be aware of what investors’ needs are in terms of information. It’s also important that investors understand strategy and the direction that the company is taking. Finally, CEOs need to talk to investors about what the company is trying to accomplish and build understanding and support for the strategy going forward. BITTERMAN. For me, success is building a company that can last through good times and bad times. To keep a company growing, the most important thing is to have a balance between shortterm and longterm strategies. We’ve been able to sustain our growth, partic ularly in the past eight years, because we have planned for the future. Products have life cycles and these life cycles have to be managed. We have to anticipate where to place bets for the future given the very long lead times, and that means managing time, cost, and risk to bring new products to market. And at the same time, maintaining a focus on the dayto day operations is critical to ensure that we get the most out of our current product line to fund the future. This is clearly a balancing act. Having a vision of where the business needs to go and what is required to get there while sup porting the current franchise is challenging. The future is always filled with ambiguity. Analysis must be combined with experience and instinct to guide the process. It’s difficult to know what you don’t know; uncertainty is always around the corner. FRIEDMAN.Being a teambuilder is the No. 1 attribute of a successful CEO. Aside from that, one has to be patient and resilient. A CEO has to rely upon people who are experts in diverse fields. One has to deal with science, technolo gy, regulatory affairs, quality control and assurance, sales and marketing, as well as mar kets that are increasingly complex, involving managed care and state and government for mularies. A CEO has to break down the walls between these various departments and get them working together in one direction. I walk the talk. I highly respect people. I believe that every individual in the organization has equal value. Employees are paid different salaries because of different levels of accountability and competencies, but everybody can be equally valued. Senior management creates the environment. CAROL AMMON Specialty companies have been successful and will be successful in the future because of their focus and dedication to a few products; and specialty companies have to be careful not to lose that focus. JOHN BULLION Endo Pharmaceuticals Inc. Orphan Medical Inc. An Executive Perspective KAZIMI: Information moves much faster now than it did 10 years ago and there is certainly much more available. A key challenge for a CEO is to sort through all of the data being provided from multiple sources and to focus time and energies on the information that is most valuable to the company. POPS: The biggest difference I see in running a public company during the past 10 years is the shortterm focus of the stock market and the resulting change in the nature of the own ership of these companies. Previously our stocks were owned by institutional investors who were interested in owning the stock for long periods of time and were willing to invest alongside the company and watch it build and make good on the promises of its technologies or its business plan. Today the market is much more oriented to shortterm trading driven by nearterm mile stones in the company. It is a much more fran tic capital market environment. SHACKNAI. A strong orientation toward sales, marketing, and research and develop ment is critical to understanding the profit centers — present and future — within a 15 PharmaVOICE S e p t e mb e r 2 003 SPECIALTY leaders ADAMS. A successful CEO has to have a broad understanding of all the different func tions of the business. And in particular, he or she must have very good financial acumen, strong commercial expertise, a focused eye on innovation, and a clear view of the future. In addition, a CEO, as well as the entire leader ship team, must always concentrate on the big picture in relation to driving the business forward while focusing on the financial met rics of today. At Kos, successfully balancing these crucial factors of our business has been one of the many strategies that has led to our robust revenue growth and sustained, tremendous financial performance. We call this “changing the fan belt of the business while the engine is running.” SHACKNAI. I spend a preponderance of my time on issues involving marketing, sales man agement, and research and development. Many of the other issues that involve opera tions of the company are handled directly by other senior executives, who with me make up the company’s executive committee. I have found that concentrating my efforts on the present profit centers as well as the search for profit centers for the future is the best possible use of my time. ENGLE. CEOs need to be, above all else, eth ical, close to their customers and employees, and they must set an example by “walking the talk.” MCLAIN.What typifies my approach to busi ness is knowing what the company can do uniquely and understanding how to deliver value. Then I focus that knowledge on what can be accomplished on a multiyear basis on the strategy and big business objectives and then translate that back into what needs to be accomplished in the near term to ensure that the company can be successful on those multi year objectives. The other thing that is critical to success is not only to focus on what the com pany is setting out to accomplish but how to accomplish those goals. With a business plan, I can say with certainty that things are going to change. And a CEO can’t always achieve the goals the way the plan was originally built. A CEO needs to be able to react to challenges and take advantage of every opportunity. And that’s where organization, people, process, cul ture become absolutely essential to the success of a company. A CEO can have the greatest ideas, the greatest products, the greatest research, the greatest people working in the organization, but if the CEO hasn’t focused on the way to get everyone to work together, the company will never reach its full potential. What I hope to bring to Nabi and to its investors is not only the understanding and appreciation of the business model and the industry in which the company operates, but also the focus that I can bring to the people, the process, the culture, and the organization that are going to be essential to our success going forward. AMMON. First and foremost, as a CEO, it’s very important to have sensitivity and respect for employees. Employees are the people who make a company very successful or not so suc cessful. As a CEO, if one can have a respect for all employees and then do the right things by them, then the company will be very success ful. A CEO also needs to have a clear vision about the organization that employees can grab hold of and believe in. A CEO then needs to be able to communicate this vision to employees so they believe they are making a difference. The CEO is responsible for setting the type of environment that allows for the hir ing of good people and then letting those peo ple do what they do well. It all comes down to people — hire the right people, reward them appropriately, and create an environment that allows them to succeed. BITTERMAN.Leadership starts with creating a culture that fosters specific values that we want people to adhere to and embrace, a pur pose for existence, and a vision for the future. Sound values are incredibly important, espe cially as a company grows and new people are brought in. If the leadership is not careful, an influx of new people can dilute the original core values or beliefs, and the company 16 S e p t e mb e r 2003 PharmaVOICE SPECIALTY leaders dynamics can change before we know it, and maybe not in the direction we wish. Our lead ership team has been very deliberate at looking at these values in the people we hire. There has to be somewhat of a spiritual effect in this pro cess; it’s more than a mechanical process of hir ing people to just do a job. We have to rally people around a common purpose and a core set of values. They also have to have a vision as to what the future of the company holds for them and their customers. At the same time, we need to infuse enough diversity of thought so that there is stimulation for creativity and innovation. SMITH.I believe CEOs should be peopleori ented. This is particularly important in being able to develop and foster teamwork within an organization and providing the leadership necessary to direct the business and the team effectively. This starts with having strong, talented, competent leaders in key positions within the company and then empowering them so they understand their roles and responsibilities and are appropriately moti vated to achieve the company’s goals and to manage their areas of responsibility as autonomously as possible. A Special Passion TABBINER. I’m thrilled with the fact that we have built up a part of the organization that didn’t exist before — the commercial, sales and marketing, and the pharmaceutical man agement side of the business. We’ve hired not only great sales reps, but great managers and great leaders. For me the exciting part that has arisen from this transformation is the ideas and compelling enthusiasm that they have brought to the entire organization. And this has been more dynamic and more creative than I could have imagined. AMMON. I have more passion now than I did on day one, and I had tremendous passion then. Being able to have Endo bring new products to market is tremendously exciting. We are able to make a difference in people’s lives by the types of products we offer. Seeing the company grow and seeing employees develop and have growth opportunities within the company as we get larger is very reward ing. We have a community of employees who are excited by what they do. As the company grows it’s satisfying to see our employees grow. The good things that happen to people, whether it’s in making a difference in people’s lives or making a difference in our employees’ lives, are what excite me. MCLAIN. I got into this business with the ultimate objective to help people. And what truly excites me about Nabi is the areas in which we are focused, particularly our devel opment products for Staph bacterial infections and nicotine addition. The people who have these healthcare challenges today don’t have any good answers. When we look at the clini cal results that we have had to date, we have every confidence that these unique approaches are going to make a lifeanddeath difference for millions of people. I can’t think of a better way to begin every day. The minute I get in the car and start driving to work I get excited My philosophy is to have a peoplecentric approach — an organization that is structured with the right people who hold the right competencies. Reward, recognition, and a winning culture will cultivate teamwork, dedication, quality and, subsequently, longterm success. People are strategic, not just doers! ADRIAN ADAMS Good executives must surround themselves with very good people.Putting the right people in place who treat the business like owners and who are truly involved with everything that goes on is essential. If the right people are in place, then there is a strong likelihood of putting together a good strategy, based on sound judgment,creating a culture that strives to achieve. ROBERT BITTERMAN Kos Pharmaceuticals Inc. Dermik Laboratories Inc. 17 PharmaVOICE S e p t e mb e r 2 003 SPECIALTY leaders because I know that what I am doing is ulti mately going to make a difference. SHACKNAI. Being among the most highly esteemed companies within our market base, which is dermatologists and pediatricians, is what excites me about our business. To be the most highly regarded company we have to have the most highly valued sales organization. Our marketing efforts, of course, have to pro mote our brands, but they also have to support the specialty through increased educational opportunities for physicians. And our research program has to yield products that will be highly appreciated by physicians and their patients. BITTERMAN. My passion is to continue to create and build because of, or in spite of, mar ket forces. Our challenge is to always think about what we need to do differently to make the business continue to grow while providing a stimulating work environment. For me, fac ing that challenge and bringing together a number of people in the organization who have a common sense of purpose and similar values to get the job done is what drives me. That’s the creation process and it’s never ending; it’s only limited by imagination and energy. SMITH.I get satisfaction from seeing the orga nization achieve goals through the efforts and involvement of our employees working together. All businesses today face significant challenges and demands. By being able and willing to work through issues and problems as a team, we can achieve things way beyond what any one individual would be capable of. AModelApproach to Business AMMON. Specialty pharma is a sector that is made up of a crosssection of companies that have a number of different business models. Some specialty pharma companies are R&D focused only, some are commercial only, some are acquisition only. If I were to look at spe cialty pharma as a whole, we face a number of unique challenges. For example, many of the products are in the latestages of their life cycles so there is little to no patent life left. Therefore, a specialty pharmaceutical compa ny needs to develop proprietary products to be able to diversify its revenue base and find a way to provide sustainable growth and mini mize the dependence on generics and line extensions. A specialty company needs diver sity in the types of products in its portfolio, including some with longer patent protec tion. Also, specialty pharmaceutical compa nies need to find the right balance between internal development and acquisitions and licensing opportunities. TABBINER. Specialty pharma has long been seen as a sector that simply buys products and remarkets them. As a result, there has been some question as to whether this is a successful strategy. The unique aspects of aaiPharma are that our strategy goes beyond that usually seen within specialty pharma. Because of our sci ence base, we have the ability to acquire prod ucts and reintroduce these products, but, more importantly, we can reinvigorate these prod ucts by putting them through our R&D pro cess to either improve the molecule or the drugdelivery technology applied to that molecule. We can relaunch them into the mar ketplace as significant innovations and with significant improvements that help patients and physicians. We look for flagship brands in the therapeutic areas that we focus in. And we use that wellknown brand’s moniker to relaunch the innovation. We want to use the fact that physicians know the brand name, value the product, and trust it. SMITH. Organic growth versus growth from acquisitions starts with a company’s strategy and determining its desired or required rate of growth for sales and earnings. Of course, many variables will affect a firm’s organic growth; these factors include market size, market growth rate, promotional levels, pricing, investments, approval for new indications, in kind competition/new technologies, and a firm’s own new products all drive organic growth. If the influence factors for organic 18 S e p t e mb e r 2003 PharmaVOICE SPECIALTY leaders growth are positive and sustainable over the planning period, there may be less need to sup plement this growth with acquisitions to achieve the strategic goals. SHACKNAI. Medicis is different from other specialty companies insofar as we have an intense focus on research. We are not at all dependent on externally developed products either through acquisition or licensing to grow the business at a comfortable rate. We have more than 11 significant products in development, and we expect those to be the catalyst for even more significant growth going forward. We believe that maintaining as low an overhead structure as possible is critical to our success. This provides us with one of the highest operating margins in the pharmaceutical industry. This also gives us the flexibility to move quickly if something is going better than expected or not as well as expected. Without a large, lumbering over head, we have the ability to be far more nim ble than some of our competitors. On the other hand, we also do a significant amount of licensing of developmental projects. We do periodically acquire products. But we don’t have a dependency on these methods of growth. ent prescription pharmaceutical segment than its other areas of focus. Dermatalogicals are a relatively small segment of the overall phar maceutical business in the United States, rep resenting about 5% of the total market. Aven tis has allowed us to develop a model that not only lets us address our primary customers but gives us enough flexibility to determine how our growth is going to take place by giving us discretion in our investment activities in new product development. Dermik’s relationship with Aventis has been quite compatible com pared with many of our competitors’ relation ships with their parents. Other large pharma ceutical companies that had a dermatological franchise saw the derm segment as too small to make a difference to them. When their prod ucts neared the end of their life cycle, the par ent company abandoned the business and cus tomers. In contrast, Aventis has made a serious commitment. Aventis considers our business to be targeted and profitable, with acceptable risk and good growth prospects. Therefore, Aventis lets us do what we do best to service our customers and, in turn, satisfy the compa ny’s ROI objectives. SMITH.Being a small, singlefocused compa ny means our employees are closer to the busi The type and size of a company’s specialty focus and the research and development being done by other firms in that area are critical factors in influencing the number and type of product opportunities that will be available for acquisition. The lack of control of the pipeline is a limiting factor for the specialty company. DENNIS SMITH The focus of the large companies,especially as they consolidate, continues to be on blockbuster products. In turn, we see a growing number of smaller products that are no longer a strategic fit for those companies and may be available to specialty pharmaceutical companies. A.J. KAZIMI INO Therapeutics Cumberland Pharmaceuticals Inc. TABBINER. We have been transforming aaiPharma from a services business that did research only for other companies to a compa ny where we provide those services and have our own products in the marketplace. We are not only helping peoples’ lives by the virtue of the work we do for others, but we are influ encing peoples’ lives by the virtue of a touch by our own people in the marketplace. This gives our people a sense of an emotional attach ment to the work we are doing and gives them a stronger sense of commitment to the chal lenges of making this transformation work. HOWARDTRIPP. The specialty pharma business model is fast — we can make and exe cute decisions quickly. In big pharma there are many inefficiencies of a huge system. One has to question whether the “bigger is better” approach that big pharma has been adopting is in fact the right one. BITTERMAN. Dermik is semiautonomous. Our parent company, Aventis, has been mind ful of our business model. Unlike other large companies that try to homogenize and central ize everything, Aventis has looked at the essence of what has made Dermik tick. Aven tis recognizes that Dermik operates in a differ 20 S e p t e mb e r 2003 PharmaVOICE SPECIALTY leaders ness and can make a difference in our compa ny. We also are able to more easily have simul taneous interactive live communication with the majority of our employees around the world. Another pro is that we can remove or lessen bureaucracy and streamline our deci sionmaking processes. The primary cons include a lack of critical mass of human and financial resources. Senior managers often are spread too thin because of heavy travel require ments and multiple business responsibilities placed on them. AMMON. Endo has had a fairly unique busi ness model since its inception — selfdevelop ment of products as well as acquiring products. We have been able to build expertise on the development side, attract partners for latestage development products, as well as build com mercial expertise and credibility within a ther apeutically focused area. All of these things combined make Endo somewhat differentiated. BITTERMAN. With regard to our product development activity, we are essentially autonomous. Within Dermik Laboratories we have our own formulation and analytical labo ratories. We take responsibility for all of our own clinical development, medical activities, and regulatory actions. We make our own bets in terms of what products to develop. We live and die by our choices. Our operational rela tionship with our parent is more along the lines of a consultative connection, but I would like to stress that we are tightly aligned with the corporate commitment to quality and integrity. We strive to live by common values. ADAMS. Kos has been successful in keeping focused on the key areas of our business while carving out sustained marketshare penetration in the huge cardiovascular and diabetes markets over time. But, we are an entrepreneurial com pany and if business or product opportunities arose outside our current therapeutic areas, we would critically assess those opportunities to determine whether they fit well, both strategi cally and financially, with our current portfolio to drive future growth. Nimble, flexible think ing is an important part of entrepreneurism. KAZIMI. A particularly attractive strategy combines both acquisition and organic growth. Product portfolios can be built through a strong contin uous acquisition program, while growth and profitability can be enhanced by the development and commercialization of new products with competitive advantage. While acquired products have the advantage of brand names with established recognition, those that are internally devel oped can provide better margins and the increased value associated with innovation. BITTERMAN.Our business model is different from big pharma. We don’t discover new products. Rather we take existing compounds and make them better, wrapping them with intellectual property. We then launch a target ed and concentrated marketing and sales effort to promote those products to the specialty audiences. This is very different from the big pharma model, where companies invest bil lions of dollars in discovery and research in search of the next big blockbuster. Our approach is essentially to hit the singles and doubles and steal a couple of bases to sustain good growth. AMMON.Through products such as Percocet, which is considered a gold standard in treating acutely moderate to severe pain, we were able to leverage the brand. Physicians knew right away what Percocet was. But we had to be smart about adding products to our portfolio so that we would be credible when we said we want to be the painmanagement company. It was important that we brought forth a stream of new products and that’s what we did in the first few years. SMITH. Our initial product is a therapeutic drug in gaseous form that requires a safe and effective delivery device and is used in a hospi tal criticalcare setting. The business model had to be innovative and unique and we had to provide a highlevel of customer support. The traditional pharmaceutical customerservice and distribution models were not able to meet the needs of this dynamic and lifeimpacting drug offering. These and other factors resulted in a business model that measures the time during which our drug is used and the corre sponding charges are determined from that time multiplied by an hourly fee. ANIDO. A serial product acquisition model is an opportunistic strategy and it is one that can lend itself to fluctuations in pricing. It

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