Breakthrough product touted: time-release drugs
Published: February 6, 2006
PharmaFab thinks it has the inside track on the next big thing in medications: liquids that deliver time-release drugs.
The Grand Prairie-based company is in what president and CEO Darlene Ryan calls the “development phase” of making that happen, including filing patents and preparing to seek federal Food and Drug Adminstration for approval of its innovative technique.
It’s also looking over licensing proposals from Big Pharma companies that want first dibs on using the process for specific prescription drugs and various over-the-counter drug categories — if PharmaFab’s technique works as planned.
If and when it receives FDA approval, the company will first license its technology in the OTC markets. Then it will convert drugs in the prescription market to the liquid format, with PharmaFab itself serving as the manufacturer.
In all cases, “someone has to pay us for that exclusivity,” Ryan says.
For the last 11 years, PharmaFab has focused on contract manufacturing of prescription cough and cold drugs for big pharmaceutical firms. Bill Ashbaugh, senior vice president at Dallas’ Capital Southwest Corp., sees PharmaFab’s two “businesses” as complementary, with each able to help the other.
“We hope we will have opportunities to use our manufacturing capacity to partner with pharmaceutical companies to manufacture time-release liquids,” says Ashbaugh, whose firm has invested a total of $8.5 million in PharmaFab since 2003.
It will likely be two to three years before the first PharmaFab products hit the market, Ryan predicts. However, she says, the big drug makers with whom PharmaFab is in licensing talks have already reviewed its laboratory tests on the process.
“We have to go through some human testing, but it’s low-risk,” she says. That’s because the ingredients in PharmaFab’s process all are currently used in other products already on the market.
Over the next five years, Ryan estimates the technology could bring the company a total of about $40 million. Based on pending deals, licensing could account for $30 million of that, with payments for development efforts accounting for the rest.
The $30 million would essentially become profit, because “there are no costs to get to,” Ryan says.
The longer-term impact is less clear. But royalties PharmaFab receives on the sale of each over-the-counter bottle of medication using its time-release liquid technology “will be several million dollars a year,” Ryan says.
The company hasn’t yet hashed out its long-term plans for generating revenue from prescription drugs.
Listening for a pin
Ryan, an accountant by trade who took control of PharmaFab by buying out her brother Bruce Montgomery’s half-interest in the company in early 2000, says she didn’t realize the technology’s potential until she visited a pharmaceutical conference on outsourcing about a year ago.
Asked by a Big Pharma official what PharmaFab was working on, Ryan replied matter-of-factly that the company was about to seek patents on its time-release liquid technology.
That was followed by a silence, Ryan says. “You could have heard a pin drop.”
Turns out that big drug makers have spent years and lots of money trying to crack the code for doing that, she says.
Since the conference, the big guys have sent teams of people to visit PharmaFab about the pending technology, and Ryan claims her company has been told it’s way ahead of other efforts to do the same thing.
Though the basic idea may seem mundane, Big Pharma is said to see liquid time-release as a better means of getting patients to take their medicines. Elderly people, for instance, often have trouble swallowing pills and capsules as they age. Putting their meds in liquid form not only helps the medicine go down, but also eases the job of nurses and doctors to ensure the right amount of drugs are taken at the right time.
In addition, Ryan says, the active ingredient in PharmaFab’s concoction has no taste — meaning the medicine doesn’t, either. Instead of masking an awful taste, Ryan says PharmaFab’s approach allows any flavor to be put in the liquid, be it chocolate syrup for children or liver for dogs.
Pediatrics and veterinary care, not surprisingly, are two big targets of the budding technology.
Medical motivations aside, giving older medications time-release features also helps pharmaceutical companies extend their patents on certain drugs. Tom D’Amore, pharmaceutical analyst at the Chicago stock-research firm Morningstar, Inc., says that when patents expire, their holders lose the exclusivity on their drugs, leaving them vulnerable to cheaper generic copycats.
Though patent protection on the old version of the medication is gone at that point, a patented, time-release liquid provides “some new market exclusivity,” D’Amore says.
“A lot of it is the ability of the (pharma company’s) sales force to make a case that the new time-release version is superior,” he adds.
PharmaFab’s move into time-release liquids a few years back stemmed from a revisiting of its 1995 business plan, which called for the company to move into new, more complex drugs requiring higher levels of FDA approval.
At one point, chief technology officer Mark Tengler told a customer that it needed a time-release liquid in a certain product line. PharmaFab set about proving Tengler right, Ryan says, not realizing how difficult that would be.
Indeed, the company’s revenue dipped from $28.3 million in 2004 to about $25 million last year. That was partly due to two straight years of unusually mild cold-and-cough seasons, and partly because the company was spending more on the time-release initiative.
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