Sicor Sticks to Niche as Watson Boosts Branded
By VITA REED
Irvine-based Sicor Inc. and Watson Pharmaceuticals Inc. just over the county line in Corona have been stalwarts in the generic drug industry. But these days the two are taking different turns.
Sicor, the smaller of the two with a market value of $2 billion at recent check, has seen its shares climb in recent weeks.
Among other things, Sicor received approval for an injectable drug to fight calcification and struck a deal to take back marketing and distribution rights for its oncology products from Abbott Laboratories Inc.
Watson, on the other hand, shocked investors in November when it lowered earnings projections for the fourth quarter and 2002 and said it planned to focus on name-brand products vs. fiercely competitive generics.
The company said it plans to spend around $100 million developing higher-profit branded drugs, including its Oxytrol skin patch for overactive bladder. But Oxytrol hit a snag two weeks ago when Watson said it received a “not approvable” letter from regulators. The company plans to submit additional patient testing data and believes it ultimately could win approval for Oxytrol.
While Watson’s shares have dropped since November and fell further on the Oxytrol news, the company still counted a hefty $2.7 billion market value as of last week.
The difference between the two companies: Sicor is sticking to its generic injectable niche and pursuing a new one,generic biotechnology drugs,while Watson is broadening from the cutthroat oral generics market.
“Sicor is going after an enormous (market) in injectable protein therapies. That’s the golden egg in the generic drug industry,” said Michael Kress, an analyst with Pershing Investment Research Services in Jersey City, N.J., who follows Sicor and tracked Watson until about a month ago.
Sicor, which focuses on generic versions of injectable solutions for cancer and other maladies, has taken big steps to position itself for the expected opening of the generic biotech market later this decade. It has built a plant in Mexico for generic biotechs that eventually is expected to meet U.S. Food and Drug Administration standards.
While Sicor hasn’t announced any moves as big as Watson’s push, it does make some branded products and plans to consider new ones, a spokeswoman said.
“We’re going to do a little bit of both,” said Sicor’s Laurie Little. “(But) the generic platform is definitely our bread and butter,we’re not moving away from doing generics whatsoever.”
Watson, meanwhile, calls its move into more branded drugs a natural evolution.
“In the mid ’90s, Watson made a strategic decision to begin and embark on a brand pharmaceutical strategy, which we initiated in the 1996 time frame,” said Michael Boxer, Watson’s chief financial officer. “So, this is not a new strategy. This is really a continued growth of the strategy that’s been in place for what is now five years.”
At the time Watson made the Oxytrol announcement, Morgan Stanley Dean Witter & Co. analyst Marc Goodman said he believed “management is moving the company in the right direction.”
Goodman also said in published reports he considered Watson’s spending on the branded side to be justified.
Watson’s branded business has focused on general products as well as drugs for women’s health and nephrology, which deals with the kidneys, Boxer said.
“We’ve built a branded business from zero to well in excess of $600 million in five years,” he said.
Branded drugs bring better profits and fewer competitive issues than generics, Boxer said.
Watson, in a recent Securities and Exchange Commission filing, said it was going to spend around $95 million on research and development this year in order to come up with more branded drugs.
According to the filing, Watson spent some $63.5 million on research and development last year. In its filing, Watson said it expected branded drug sales to climb this year because of higher sales for its women’s health products, including oral contraceptives and a product to treat women’s genital warts.
The company said generics accounted for about 52% of Watson’s $1.2 billion in 2001 sales and are expected to account for some 47% of its net product sales this year.
In contrast, generics made up 65% of Sicor’s $370 million in sales last year and are expected to stay at that level this year, the company’s Little said.
But Watson isn’t abandoning generics, Boxer stressed.
“The generic business has always been the underlying base foundation to our whole organization,” he said.
Watson ranked third in generic prescriptions written last year with 170 million, according to market tracker IMS Health Inc. Pittsburgh-based Mylan Laboratories Inc. was tops with 180 million, followed by Teva Pharmaceuticals Ltd. of Israel with 177 million.
Overall, Watson ranked No. 6 among all drug makers in both generic and branded prescriptions written last year.
Watson’s stock fell 12% in late March after regulators iced both Oxytrol and a skin-patch treatment for depression produced by Somerset Pharmaceuticals, a joint venture of Watson and Mylan.
“Since November, Wall Street doesn’t like change,they don’t like bad news,” Boxer said. “Clearly, the announcements are not ideal news. But I think that does not in any way change our commitment to the product, to our brand business.”
Watson got some positive news last week when it reached a settlement with Bristol-Myers Squibb Co. regarding buspirone, a generic form of Bristol-Myers’ BuSpar anti-anxiety medication. Watson said it was receiving $32 million and a non-exclusive license to sell buspirone under Bristol-Myers’ patent.
But in its filing Watson said the loss of exclusivity on buspirone, along with “the lack of significant new product introductions” in 2002 were reasons why it expected to see generic sales decline.
According to Sicor’s Little, generic drug makers may be interested in adding more brands to the mix in a bid to add stability to revenue and earnings. She noted that generic drug makers that focus on oral dosages tend to be more vulnerable to cyclical factors than injectable drug makers, which are characterized by smaller markets and fewer rivals because of barriers to entry. Those include hefty capital spending required and stringent regulatory requirements.
As for Sicor’s recent generic drug activity, the company received final approval on an abbreviated new drug application for pamidronate disodium injection. Pamidronate disodium is set to be used for moderate or severe hypercalcemia associated with cancer and moderate to severe Paget’s disease, a bone disorder.
Sicor also said it restructured a pact it had had since 1999 with Abbott to co-market and distribute subsidiary Gensia Sicor’s oncology drugs. The revised deal gives Gensia Sicor marketing rights to all its oncology products in 2003. Abbott currently markets and distributes Gensia Sicor oncology products.
“The relationship went well, but I think we would like to get back to having a little bit more control over the process,” Little said.
Sicor entered the deal at a time, she said, when it was working toward profitability and wanted the credibility associated with a well-known name such as Abbott.
