Changes in Strategy, Marketplace Help Syncor Rebound : Drugs: New management pulls the supplier of radioactive compounds out of a late-’80s slump.

For years, Syncor International Corp. in Chatsworth has been the world’s largest commercial operator of special pharmacies that supply hospitals and physicians with radioactive drugs for diagnosing diseases. But in the late 1980s, Syncor’s profits nose-dived because a bevy of problems caught the veteran company off guard.

The problems included a price war sparked by the entry of smaller competitors into the market, and new technologies such as magnetic resonance imaging and computerized tomography that do not need the kind of drugs supplied by Syncor.

Then there were a number of internal obstacles, such as Syncor’s ill-fated effort to get into the at-home drug infusion business--through which patients can receive everything from antibiotics to chemotherapy infusions. And the company’s management also had to deal with its largest shareholder--a French group called Compagnie Oris Industrie--over how the company should be run.

“This was the first time that the company faced a serious threat, and the company didn’t know how to deal with it,” said Syncor Chairman Monty Fu, who in 1975 founded a company called Pharmatopes Inc., which merged with Syncor in 1982.

But now Syncor is on the rebound thanks both to its own changes in strategy and some changes in the marketplace that helped the company.

One plus was that the bruising price wars of the late ‘80s led to an industrywide shakeout that caused one competitor, Summa Medical Corp. of New Mexico, to leave the industry. Another, Medi-Physics, was bought by Amersham International of Great Britain, which abandoned Medi-Physics’ low-price strategy.

Another plus was that nuclear medicine has come back into vogue, thanks to an influx of new and proposed drugs that use radioactivity, including monoclonal antibody-based products that target and diagnose specific types of cancer.

At the same time, Syncor has embarked on a thorough housecleaning.

Early in 1989, Syncor hired Gene R. McGrevin, a former manager at Johnson & Johnson and Kimberly-Clark Corp., as president and chief executive because Fu believed that only a professional manager could help the company out of its slump. McGrevin assembled a new team of managers that raised prices and scaled back Syncor’s unprofitable home-infusion business.

“What was needed in the company at that time was a broad business experience outside the pharmacy field,” McGrevin said.

Syncor acts as a middleman between drug manufacturers and medical care providers and employs 325 specially trained pharmacists in 90 pharmacies. A fleet of vans and 700 customer service representatives stand at the ready to deliver the perishable drugs to hospitals on an hour’s notice. Doctors then inject the drugs into patients and, using a special gamma camera that picks up radiation like a big Geiger counter, can see particular organ systems on a video monitor.

McGrevin and his new team went to work securing exclusive distribution rights for a trio of promising new radioactive drugs used to help diagnose heart disease. Since they were introduced in March, the drugs have already been selling at the rate of $15 million a year, or about 10% of Syncor’s sales.

McGrevin said Syncor’s well-established customer base helped it get the distribution rights to these heart drugs. The drugs’ manufacturers--DuPont Merck and Bristol-Myers Squibb--chose Syncor because it still has the largest network of nuclear pharmacies in the United States and has a proven track record, according to McGrevin and industry analysts.

Syncor’s problems with Oris also subsided when Henri-Michel Bouillet resigned as Syncor president and chief operating officer in November, 1987, under an agreement to bring new management on board that led to McGrevin’s hiring. Two years later, Syncor bought back Oris’ 15% stake in Syncor.

McGrevin, 48, also locked in higher prices by signing 400 hospitals to three-year service contracts for computerized systems that help speed up delivery of Syncor’s products and, at the same time, reduce the number of hospital personnel needed to process all the paperwork.

“What we did was to change the company from focusing on growth to focusing on profitable growth,” McGrevin said.

Indeed, after McGrevin came on board, Syncor’s profits shot back in fiscal 1990 to $3.6 million, an eightfold increase from the year before, and in the fiscal year that ended May 31, profits jumped another 32% to $4.8 million. In its latest quarter, Syncor earned $1.6 million, a 50% increase from year-earlier profits, on a 31% rise in sales to $47.3 million.

Syncor’s stock, meanwhile, has surged to about $23 a share from a low of less than $4 in 1989.

And with a 65% stake in the $200-million-a-year U. S. nuclear pharmacy industry, Syncor is in a good position to profit from an expected resurgence in radiopharmaceutical products in the next few years.

As many as 50 new compounds are in various stages of development by drug companies; if Syncor is signed as a distributor of some of them, they could add $40 million to the company’s sales by 1993, according to Neal C. Bradsher, an analyst with Alex, Brown & Sons Inc.

“Monty Fu and other entrepreneurs had created a very successful enterprise, but they needed a transfer to a professional manager that could transform the company into a rapidly growing company,” Bradsher said. “So far, that’s what McGrevin has been able to do.”

For all of the improvements, Syncor’s management still has things to worry about. Syncor’s growth could slacken if some of the new drugs do not receive rapid approval from the federal Food and Drug Administration. And there’s still the threat of another price war, although Syncor would be better protected than before because of its three-year contracts that lock in prices, Bradsher said.

Meanwhile Syncor continues to face formidable competition despite the shakeout of the past three years. Mallinckrodt Medical, which both manufactures radiopharmaceuticals and operates 30 pharmacies, has a 20% share of the radiopharmacy market. Another sizable competitor is Amersham, which has a 10% share of the radiopharmacy business. But for the time being, Bradsher said, Syncor, Mallinckrodt and Amersham have kept prices high enough to ensure wide profit margins in contrast to the earlier price wars that hurt the entire industry.

“The industry consolidated into stronger hands that weren’t willing to eat those losses indefinitely,” Bradsher said.