Cholesterol How Kos Beat Big Pharma to HDL
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The Other Cholesterol How Kos Beat Big Pharma to HDL www.pharmexec.com | ANADVANSTAR★ PUBLICATION Kos CEO Adrian Adams PHARMACEUTICAL EXECUTIVE Contents OCTOBER 2004 www.pharmexec.com Cover Story Under Construction Patrick Clinton Editor-in-Chief How Kos Pharmaceuticals turned a 50-year-old drug for raising HDL cholesterol into a brand-new, burgeoning business. Mulling the Future Kos CEO Adrian Adams, seated, maps strategy with key executives: (from left) Ralf Rosskamp, Christopher Kiritsy, Richard King, and Mark McGovern “We didn’t start with the idea of being a $200 million company. Growing as fast as possible: That was our goal from the get-go.” Kos Pharmaceuticals was first to market with a product to raise HDL cholesterol, and it wants to join pharma’s billion-dollar club by 2007. Big plan. Under Here’s how it’s going. Construction t’s hard to imagine that many pharma companies experienced more plain old good news this summer than Kos Pharmaceuticals. First, there were the second-quarter financials. Revenues for the quarter were $120.3 million, almost double last year’s figure. Net income for the quarter grew 245 percent to $38.5 million. The company raised its guidance for the year, predicting that full-year sales would be $480 million, 60 percent over last year— and CEO Adrian Adams boasted that Kos was the fastest-growing specialty pharma company in the United States. A few weeks later came encouraging results from a Phase II trial of IKos’ new inhalable insulin product for diabetes, and recruitment began for pivotal trials of a new combination product to consolidate Kos’ position in the burgeoning cholesterol market. Kos’ flagship product, Niaspan, is an extended-release formulation of niacin, used to raise high-density lipoproteins (HDL)—“good” cholesterol. A second product, Advicor, combines Niaspan with the statin lovastatin. The one under development extends the concept, combining Niaspan with simvastatin, the active ingre- dient of Zocor, the second-highest selling statin worldwide. Another few weeks later, the company’s new headquarters in Cranbury, New Jersey—a wasteland of boxes and boards in August—was finished and occupied by the company’s commercial and business personnel, and the respiratory research and devel- opment team. » BY PATRICK CLINTON, EDITOR-IN-CHIEF | PHOTOGRAPHY BY JOHN HALPERN Billion-dollar Vision Kos CEO Adrian Adams (seated) and his executive team (from left) Ralf Rosskamp, EVP- R&D; Mark McGovern, EVP and chief medical officer; Christopher Kiritsy, EVP and CFO; and Richard King, EVP-commercial operations; have ambitious goals for their company. bankrupt,” says Jaharis. “We did a million and a half in business, and we were losing some incredible amount like $700,000.” Jaharis set about salvaging the company. “Mike’s pri- mary skills were sales and marketing and product selec- tion—he’s got a great knowledge of the products in the industry and what’s wrong with them,” says Kos Chairman Daniel Bell, a former auto executive Jaharis originally recruited as Key’s COO. “It came from his days of carrying the bag.” Eventually an idea turned up. “I had heard from some people at the University of Florida that we should perfect our theophylline product,” Jaharis says. (The caffeine derivative was a preferred treatment for asthma before the introduction of inhaled corticosteroids.) “I asked how much it would cost. They said—I can’t imagine—$25,000 or $50,000. I couldn’t do it. They said, ‘We really think you should.’ So we took a bet and put some money into it.” The product became Theo-Dur, the first sustained- release theophylline. Jaharis developed a sales force of 15 Learning the lessons Kos Chairman Daniel Bell (left) and founder and chairman to promote the product to the allergists and immunologists emeritus Michael Jaharis worked together to turn around Key Pharmaceuticals in the 1980s. Their strategy of reformulation and focused marketing became the who dominated asthma prescribing. “We taught them how core of Kos. to use it, gave them measures,” says Jaharis. “There were 17 different theophyllines in sustained-action form, but no Behind it all is the story of a company to watch: one else really explained the science to doctors.” » By pursuing a low-to-the-ground reformulation strategy, and A second product followed: Nitro-Dur, a transdermal nitro- seizing on a neglected molecule whose benefits have been known glycerin delivery system. By 1986 Key was selling $200 million a for half a century, a tiny startup was able to beat Big Pharma to year and it was bought by Schering-Plough for $836 million. the soon-to-be-major HDL market. Today, tiny no more, Kos is Jaharis had learned valuable lessons: that familiar products riding the expansion of the overall cholesterol market—and could be revived by reformulation and sophisticated delivery; that preparing the ground for a wave of HDL products expected to specialists drove substantial prescription volume; and that sci- emerge from other companies. ence-based selling could single out a product in a crowded mar- » This is a sequel of a sort. Kos is the second effort at company ketplace. He was eager to put them into practice again. building by the same team who turned an almost bankrupt Key Pharmaceuticals into a surprise success in the 1980s—and this Why Don’t We Do It Again? time around they’re aiming even higher. “The Schering-Plough transaction took place in June 1986, and I » And Kos is a kind of clinical trial for an important pharma stayed on for a month to help with the transition,” Bell says. “I business model. At a time when many smaller companies are took a month off, and in September came back to a new office experimenting with outsourcing and new business models, Kos is they had set up for me and Mike. The very first day, Mike said, unabashedly devoted to the traditional fully integrated model. ‘Sitting on your desk is a proposal to buy a division of Rohr. Why Designed for growth, Kos aims to become a billion-dollar don’t we see if it would make sense to buy that thing?’” Rohr ulti- company by 2007. The latest numbers show the company mately decided not to sell, so Jaharis and Bell spent the next two halfway to the mark, but there’s still plenty to do: new years looking for a company to buy. products to develop (Kos currently has only three on the mar- It wasn’t easy. Says Bell, “During that time frame—1986, ’87— ket); deals to make; perhaps a merger or acquisition to accel- there was a stock market crash. The Democrats started talking about erate growth. But if the leaders of the fastest-growing special- not allowing the interest expense on leveraged buyouts to be tax ty pharma company pause to savor their success, who’s to say deductible. It became difficult to buy anything, and once it eased up, they’re wrong? prices got out of sight. I remember Mike and I saying, ‘This doesn’t “Everything,” says Adams, “is moving in the right direction.” make any sense. Why don’t we just do it again ourselves?’” In the summer of 1988, Jaharis, Bell, and another Key vet, Turnaround at Key Dave Bova, launched Kos Pharmaceuticals. Perhaps in tribute to As Michael Jaharis, Kos’ founder and chairman emeritus, tells the Jaharis’ Greek heritage, it was named for the Greek island where story, he got into pharma because his last name begins with a J. Hippocrates founded the science of medicine. From the start, it “The army called me in the Korean War in 1950,” he says. was built on the lessons Jaharis had learned at Key. “Following basic training, everyone from A to J in our company “We wanted to do proprietary drugs, not generics, because went into the medical corps and the rest into the trucking corps. I proprietary drugs have much higher gross margins,” says Bell. decided I wanted to be a doctor, but I realized that by the time I “We decided to do reformulations of existing products, exactly got through picking up chemistry and those things, I’d be 31, and the same formula we used at Key. It’s difficult to develop distinct, that was too old.” patentable proprietary advantage when you’re working with Jaharis took a job as a sales rep for Miles Laboratories and drugs that are off patent—but that risk is still less than starting at attended law school at night. He rose in the company, eventually the basic bench-science level. serving as vice president of the ethical drug division. By the early “And we wanted to develop our own drugs, manufacture 1970s, tired of corporate bureaucracy, he partnered with dermatol- them, and have our own sales force. In short, we wanted to be a JOHN HALPERN ogist Phillip Frost to take over Key Pharmaceuticals, a Miami-based fully integrated specialty pharmaceutical company.” manufacturer of cough and cold remedies. “We were essentially At the time, most of the companies that had been Key’s peers, “The only way to treat cholesterol was diet, exercise, and niacin. I couldn’t understand why no one had formulated something that would take away some of the problems of niacin.” including Alza and Marion Laboratories, pursued less integrated tion through the development and acquisition of numerous strategies and either worked on formulation and delivery (like patents. What we’ve done is crack the code on niacin.” Alza) or marketed products that had been developed by others (like Marion). In going with a bolder business model, Kos had Layers of the Onion two big advantages: The management team was experienced in Niaspan launched in 1997, the only such product approved by development, delivery, and sales and marketing.