IUD Maker Wary About Its Monopoly
The timing couldn’t have been worse when Alza Corp. introduced its Progestasert intrauterine birth control device a decade ago.
It arrived just after A. H. Robins Co. pulled its Dalkon Shield IUD off the market amid allegations that it caused sterility and even death. And Alza’s $18 device was twice as expensive as other makes. What’s more, women had to replace Alza’s IUD annually. Competitors’ products lasted three times longer.
Suddenly, however, fortunes have changed for Alza, which posted sales of $45 million last year.
The competition--Robins, G. D. Searle & Co. and two smaller IUD makers--has abandoned the $100-million-a-year market, citing insurance problems and product liability suits from women who claim to have been injured by their IUDs.
Since the last remaining IUD maker departed Jan. 31, Alza’s stock has jumped more than $10 a share, closing at $42.75 on Friday.
In the wake of the rosy developments, directors of Alza--which so far has paid less than $125,000 in settlement claims in the 10 years that Progestasert has been on the market--will huddle with company lawyers, scientists and insurance experts this week to decide how to proceed.
May Attract Lawsuits
A lot is riding on their decision. Alza’s Progestasert--which currently sells about 50,000 units annually, about 10% of the IUD market--could triple the company’s sales to more than $145 million by capturing 100% of the market. But it could attract lawsuits and financially jeopardize the entire company, which also has promising products in the still fledgling market for controlled release drug delivery systems.
“It may either be a gold mine or fool’s gold,” Richard L. Casey, president of Alza’s pharmaceuticals division, said of Progestasert. The board is scheduled to announce its decision next month.
For his part, Alza Chairman and founder Alejandro Zaffaroni said he wants “to keep the product (Progestasert) in the marketplace.” Yet anxious Wall Street analysts, mindful of Robins’ and Searle’s problems, aren’t sure that is wise.
“Selling an IUD in this kind of market is a mixed blessing,” said Adele Haley, a pharmaceutical analyst for Smith Barney, Harris Upham & Co. in New York.
“The IUD is the only option for some women. But from an investment perspective, (Alza’s IUD) is a detriment . . . despite the fact that the product has proven safe. The risk of product liability looms large.”
Filed for Protection
Robins, plagued by a continuing flood of such lawsuits, last August filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. Legal costs stemming from a decade of Dalkon Shield cases exceed $100 million, and Robins and its insurer have paid awards and settlements totaling $378.3 million, company officials have said.
Searle--maker of the Tatum-T and the Copper-7, the most often prescribed IUD--bowed out of the market in January after saying it was unable to get enough insurance to protect itself from personal injury lawsuits.
Searle’s products, on the market for 12 years, were the target of 775 lawsuits. The company has not disclosed how much it has paid to settle or defend itself against the claims.
The Progestasert, a small, plastic, T-shaped intrauterine birth control device, differs from both the Dalkon Shield and the Searle products.
Instead of relying on its size or shape to prevent pregnancy, it works by slowly dispensing the hormone progesterone directly into a woman’s uterus. It prevents conception in much the same way as birth control pills.
But to avoid having to defend themselves against legal claims, Alza’s board is looking at three options: selling Progestasert to another company, finding a marketing partner to share the risk or insulating itself from any liability by creating a separate company to sell the product.
“We have become apprehensive after seeing the developments surrounding the Dalkon Shield,” Zaffaroni said. “Product liability is a significant problem. It will be difficult for a company such as ours to move in any field if we have to maintain the (high) level of liability insurance payments.”
Casey said Alza has received a few inquiries from buyers interested in acquiring Progestasert. However, none has offered anything close to the $4-million to $6-million price that Alza would consider reasonable.
The debate over Progestasert has obscured the unique technology that Alza has pioneered to administer drugs directly through the skin and other membranes in order to make the administration of medicines safer, easier and more effective.
Alza’s process uses the body’s absorbing qualities to dispense medicine rather than an invasive method such as injection.
Eight products currently use Alza’s technology, including an adhesive skin patch containing scopolamine to prevent motion sickness and Acutrim, an over-the-counter appetite suppressant that delivers its active ingredient in capsule form.
Makes Unusual Tablet
Alza also makes an unusual tablet that resembles an ordinary pill but dispenses medicine through a tiny laser-drilled hole rather than through the dissolving action of the stomach’s acids.
Alza does not directly market most of its products but, instead, licenses its technology to pharmaceutical companies such as Ciba-Geigy Corp., the American subsidiary of Ciba-Geigy Ltd. of Switzerland, and Baxter Travenol Laboratories Inc. of Deerfield, Ill.
Royalty income from just four of Alza’s products--scopolamine, medications for angina and high blood pressure and an intravenous unit to alleviate pain--reached $9 million in 1985, compared to $6.4 million in the previous year.
Alza is not alone in the field, however: Key Pharmaceutical Inc. and Searle have developed skin patches. And Elan Pharmaceutical Research Corp. of Gainsville, Ga.--a subsidiary of Elan Corp. of Ireland--has developed oral absorption products.
But Zaffaroni insists that Alza’s scientists are far out in front of other researchers.
“It’s not like microelectronics where you can come up with a better idea in a matter of months,” Zaffaroni said. “You have to go through a hell of a lot of testing in laboratories and humans before you know you’ve got a good product. We’ve been at this 18 years. We know what we’re doing.”
Indeed, analysts forecast that Alza’s sales will grow 40% a year through the end of the decade, and they haven’t been disappointed thus far. Alza’s revenue skyrocketed 49% to $45.5 million in 1985 from $30.5 million in 1984. Net income for 1985 increased to $9.7 million from $5.9 million in 1984.
Tremendous Potential
“The potential for Alza is tremendous,” said Harold N. Chefitz, managing director of the investment house Swergold Chefitz in New York.
Chefitz said that as thousands of drug product patents expire over the next few years, many pharmaceutical companies will seek extended protection for their medicines by reformulating them to take advantage of Alza’s new technology.
Thus, while the chemical composition of the unpatented drug may remain unchanged, it will nevertheless be protected by Alza’s process patent because the drug will be delivered in a new manner.
“Billions of dollars worth of patents are expiring between now and 1990,” Chefitz said, “and more and more companies will go to Alza to protect their trade.”
Alza has about 30 new products that are expected to gain approval from the Food and Drug Administration by the end of the decade.
But, in forging ahead with their new medicinal technology, Alza has all but forgotten the product that helped launch the company: Progestasert.
“Sales are insignificant,” Casey said. “Progestasert is not the future of this company. We regard it as the technology of the past.”
Alza doesn’t even discuss the decade-old product in its 1985 annual report. It has cut its $1-million marketing budget for Progestasert to a few thousand dollars and has let go the 50-person sales force that marketed the product from Maine to California.
Won’t Boost Production
What’s more, despite a flood of inquiries from physicians, former users of the Copper-7 IUD and even Planned Parenthood officials, Alza refuses to boost production for Progestasert and is only filling orders for current outlets.
Since 1973, use of IUDs by American women between the ages of 15 and 44 has declined from 10.2% to 4% in 1982, according to the National Center for Health Statistics. By contrast, 15.6% of American women in that age range take the contraceptive pill, and use of the diaphragm has also increased markedly to nearly 5%.
Today, IUDs face increasingly stiffer competition from newer types of birth control.
The maker of the Today sponge, VLI Corp. in Irvine, doubled its advertising budget last year in an effort to boost sales. And a new birth control implant system, which remains effective for five years, is now being used in Europe and may be approved soon in the United States.
Still, the IUD market remains significant.
Searle said it sold between 300,000 and 400,000 IUDs a year, generating annual revenue of $11 million. If all 2.5 million IUD users were to switch to Progestasert--which is more costly and needs to be replaced yearly--Casey acknowledges that it’s possible that Progestasert’s annual sales could soar to $100 million from the present $1 million.
Lawyer Advises Caution
But Bradley Post, a Wichita, Kan., lawyer who has represented about 90 IUD plaintiffs and was the first lawyer to win a jury case against Robins more than a decade ago, advises Alza to be wary of the IUD business.
“Defective products are what make product liability suits--not lawyers,” Bradley said.
“I don’t know much about the Progestasert, (but) I would advise them to take a very hard look at it because I think all IUDs carry a risk higher than the benefit they convey. They (IUDs) can cause all kinds of problems, like pelvic inflammatory disease. And the problems may not show up until it’s very late.”
