Mid-Sized Purdue Fills Out

Recent deals by mid-sized, privately owned Purdue fit a strategy carefully crafted to reduce the firm's dependence on a single big-selling drug..

When sales of Purdue Frederick Co./Purdue Pharma LP's painkiller OxyContinbegan skyrocketing a few years ago, the managers of this mid-sized, privately held firm realized they needed a new plan for growth. US sales of the drug reached $146 million in 1997, then climbed to $305 million in 1998, and could add up to $500 million this year. With that much money pouring in, driving the company's growth at triple the US industry average of 13%, Purdue executives concluded that their formerly opportunistic approach to product acquisition was no longer tenable. The success of this single drug had dramatically increased the risk that revenues could suddenly plummet, and growth falter, when the painkiller lost patent protection—which could happen as soon as 2008.

Purdue's executives decided they needed to begin filling out the company immediately, so that it wouldn't be so dependent on this one drug. They determined to use the cash rolling in from OxyContinto aggressively pursue in-licensing opportunities and to build the firm's own research capacity. (See "Purdue Flexes Mid-Sized Muscle," IN VIVO, January 1999.) Happy as they were to have the revenues to invest, free from the quarterly earnings pressures that plague public companies, Purdue's managers realized they were at risk of being overwhelmed with options.

What to do with all that money? The managers of the Norwalk, CT-based firm determined not to waste their big opportunity by buying up a hodge-podge of technologies, products or small firms. They figured the most rational plan entailed building on the firm's core competencies: expanding Purdue's presence in the pain market and leveraging its relationship with the oncologists the firm had taught to treat cancer pain with OxyContin. The company began seeking products to in-license in these areas, extending pain per seto anesthesia, and focusing on biological approaches to cancer treatment.

Purdue also committed to spending whatever was necessary to establish or expand infrastructure, from facilities to personnel. The managers figured revenues were also robust enough to allow the firm to stretch beyond pain and cancer, and begin exploring three other research areas where it might gain longer-term competitive advantage: neurology, infectious diseases and metabolism. The company hoped that its cash and infrastructure, including affiliations with an international network of companies owned by the same family, would attract biotech firms seeking help with product development and marketing.

Purdue's revised growth strategy is proceeding nicely according to plan, as several recent deals illustrate. In May, Purdue announced it had received from AltaRex Corp. an option to an exclusive worldwide license to develop and commercialize two monoclonal antibodies to treat cancer [See Deal]. Purdue agreed to purchase $3.4 million worth of stock in the firm, whose shares trade on the Toronto exchange but whose offices have recently moved to Waltham, Massachusetts. If all goes well, Purdue says it is prepared to spend up to $100 million over the next three years on R&D and milestones. It took an option to the antibodies rather than a standard license, however, because AltaRex was being sued by Biomira Inc. , of Canada, and this arrangement allowed the company to evaluate all the issues surrounding the products. The matter was settled as IN VIVO went to press in early September.

Purdue is enthusiastic about the AltaRex option, which could bring it a late-phase cancer treatment. The biotech firm's OvaRexfor ovarian cancer is currently in a Phase IIb trial. If the data is good enough, that trial could be considered a pivotal one, and Purdue could conceivably launch the product within a few years. Meanwhile, the firm will continue working in-house to develop a platform technology that activates otherwise passive monoclonal antibodies so they can kill cells, rather than merely bind to them. Purdue bought a biological manufacturing facility from Cytogen Corp. in January 1999 to support this early-stage effort [See Deal]. OvaRex could help Purdue establish itself sooner as a cancer player.

Purdue will concentrate on antibody therapies, deliberately avoiding research on the kinds of chemotherapies that Big Pharma companies pursue. "We're not going to compete where we know we can't," explains Chris Ehrlich, assistant director of Purdue's licensing and business development efforts. Antibodies can complement conventional drug therapies, rather than compete with them, because they can stimulate a patient's own immune system—which means mid-sized Purdue could market them without going head-to-head with larger, more powerful companies, Ehrlich points out. In fact, a successful antibody might even be able to hitch a ride on Big Pharma's marketing investments. Bristol-Myers Squibb Co. recently filed for permission to use its chemotherapeutic Taxol in combination with Genentech Inc. 's Herceptin antibody, Ehrlich states. "Immunotherapies are becoming more accepted," he declares, adding, "Doctors are telling us: ‘If you make it, we will prescribe it.'"

A month after obtaining the cancer-products option from AltaRex, Purdue did a deal to flesh out its pain business [See Deal].

Purdue has created a separate business unit to launch and develop Chirocainein the US, and is now in the process of hiring about 100 people to do just that. The company intends to make the drug "a branded, highly differentiated product," notes Jim Dolan, VP, licensing and business development. The product will allow Purdue to make the strategic move it planned, to move beyond its office-based pain management business into the hospital anesthetic business, for which it is already developing a controlled-release product. Currently, Purdue's own painkiller OxyContin is sold in hospitals by Abbott Laboratories Inc. [See Deal].

Abbott would like to get rights to Chirocainein the US, Dolan notes, but would probably have been prohibited from doing so for the same kinds of anti-trust reasons that made Zeneca forsake the drug. Abbott already has a strong presence in the US anesthetic market, Dolan notes, adding, "If they couldn't have it, they're glad that we got it." Relations are friendly enough that Purdue, Abbott, Celltech Chiroscience and Maruishi Pharmaceutical Co. Ltd. , which received Japanese distribution rights [See Deal], recently met to discuss worldwide strategy for the drug. The firms are likely to coordinate Phase IV trials and new clinical trials intended to win marketing approvals for further indications.

Purdue's strategic dealmaking continued in early August, as the private company announced it would acquire the publicly traded California-based CoCensys Inc. for just $9.5 million [See Deal]. Originally, Purdue was interested only in the company's sodium-channel blocker for pain management, Jim Dolan notes, explaining, "It's something a lot of people wanted because it's been recognized as effective and it's already at the IND phase of development in the US." But one thing led to another (CoCensys's migraine drug failed and its cash had nearly dwindled away) and as Purdue looked deeper into the company "we found many research programs complementary to some of the work we've been doing in our own facilities on the East Coast."

"This was a great opportunity for us to acquire not only the pain management drug but people, labs and neuroscience research programs, including some compounds that have already advanced into animals," Dolan says. "The aspects that made the deal attractive to us as a mid-sized player were exactly the ones that made it unappealing to Big Pharmas. The big guys don't need more people or facilities.

"These deals are really logical for us," Dolan asserts, and Purdue has even more afoot in its target areas. "People are calling us up all the time, to offer us things that might fit in with our strategy," he says. To him, the flow is an affirmation that Purdue's plan for growth makes sense. "If you get the structure right, it's self-fulfilling," Dolan declares.