Upjohn Offers Prescription for Future Growth : Pharmaceuticals: But analysts say the drug maker is in serious trouble as patents on four of its most profitable products are due to expire.
Back at work after being diagnosed with cancer, Upjohn Co. Chairman Theodore Cooper says the prognosis is good for both himself and his company.
“All of you writers have written us off,” Cooper said in a recent interview at the pharmaceutical company’s headquarters here. “But our business plan is going along well and the future looks pretty good.”
Industry analysts aren’t nearly as optimistic.
Like other drug makers, they note, Upjohn’s horizon has been clouded by Clinton Administration hints of price regulations. At the same time, the company faces the threat of competition from low-price generics as four of its most profitable drugs lose their U.S. patents in the next 13 months.
“Upjohn is in serious trouble,” said David Saks, who follows the company for Gruntal & Co. in New York. “They are going to need more than one mega-product to offset what is almost their entire line that’s going to be threatened by generics.”
The patent on the anti-inflammatory agent Ansaid expired in February. The tranquilizer Xanax and controversial sleep aid Halcion lose patent protection in October, while the anti-diabetes agent Micronase comes off patent in May, 1994. U.S. sales for those drugs had reached nearly $1 billion in 1992--about 30% of the company’s total sales.
Upjohn maintains, however, that more mega-products are in the works.
Jerry Mitchell, Upjohn vice chairman and president of Upjohn Laboratories, says he’s optimistic about the steroid-based Freedox, a treatment for head and spinal cord injury and stroke. He also places high hopes on a potent anti-AIDS drug, U-90,152, which the National Institutes of Health says has blocked the replication and spread of the HIV virus in laboratory studies.
Upjohn plans to file for Food and Drug Administration approval for both drugs later this year.
In addition, the company is working on cancer drugs, a blood substitute and treatments for Alzheimer’s disease and diabetes-- “products that meet major unmet medical needs,” according to Mitchell.
“One of these would keep the Upjohn Co. probably at the level it’s been in the last decade,” he said. “If we get two (approved), we will rise relative to the rest of the industry in size. If we get three or more, we would become a first-tier company.”
In 1992, the FDA approved eight Upjohn drugs, including the contraceptive Depo-Provera and the antibiotic Vantin. Seven more are awaiting FDA approval. The most promising are a treatment for male impotency and an extended-release version of Xanax, Mitchell said.
So far, Upjohn’s gains in drug development haven’t been reflected in its earnings.
Last year’s profits fell to $324 million, or $1.74 per share, from $537 million, or $2.87 a share. The decline largely reflected new accounting standards and a 45% drop in sales for Halcion, which faced allegations that it caused violent behavior among some users.
Wall Street has also taken a dim view of the company. Upjohn stock lately has been trading around $28 a share on the New York Stock Exchange, near its 52-week low of $26 reached in mid-February.
Other drug stocks came under pressure earlier this year following criticism from President Clinton of rising drug prices and a proposal to provide free vaccines for children.
In a letter to employees last month, Cooper acknowledged that “the years 1993 and 1994 will be difficult,” but said the long-term outlook for Upjohn was good.
It has already been a tough year for the 64-year-old Cooper. In January, he was diagnosed with bone marrow cancer and was hospitalized for nearly six weeks. He returned to work in early March; doctors said his prognosis looked good.
Cooper, a physician, says he kept up on business from his hospital bed and has resumed his 11-hour workdays. “My illness is in no way hampering what I need to do for Upjohn,” he said.
Cooper said part of Upjohn’s strength is an ongoing restructuring plan that includes cost controls and early retirements. Other large pharmaceutical companies are just now trimming their work forces. Upjohn has about 19,000 employees worldwide.
Upjohn has also entered into agreements with other companies to market generic versions of the drugs coming off patent as well as its ibuprofen-based pain reliever, Motrin IB. And the company plans to expand sales abroad and to eventually sell Rogaine, its hair-growth treatment, without a prescription.
The wild card for Upjohn, though, is health care reform.
Upjohn officials bristle at allegations by the Clinton Administration of price gouging by drug makers and say price controls would be a disaster. A congressional study found the industry makes at least $36 million more than development costs on each new drug.
Upjohn’s new contraceptive injection, Depo-Provera, for example, recently came under attack by women’s health advocates who said that since the FDA approved it as a birth control method last fall, the cost of a shot of the three-month contraceptive rose from $12 to $34. Upjohn maintains the price is in line with the cost of birth control pills.
“Everyone wants to point fingers at the pharmaceutical industry. . . . We’re an easy target,” Mitchell said. “But this industry invests at a rate that’s three times greater than the average of the rest of American industry. So you’ve got to get a return that’s greater than the rest.”
Mitchell said one of the greatest factors in the high price of drugs is that most of the 17-year life of a patent is eaten away by development and approval time. Once a drug hits the shelves, there may be only five or six years for a company to recoup costs before generic versions are available at far lower prices.
The average cost of a drug’s development is $270 million, up from $55 million in 1980.
Upjohn and the rest of the pharmaceutical industry are urging the Administration to include coverage for prescription drugs in any basic benefits package.
For Cooper’s part, discovering he has cancer has only strengthened his convictions about health reform.
“I hope in all the debate we don’t lose the idea of the purpose of the system. If all the rhetoric is on saving money, it would be wrong,” he said. “The focus ought to be on saving lives.”
