00:00:01 Hello and Happy New Year to all of our employees.

00:00:10 The purpose of this taping is fairly evident.

00:00:14 Both Jim and I would like to communicate with all our employees worldwide on a regular basis

00:00:20 with regard to our progress against the 30-month call to action plan.

00:00:26 Today I'm here with Bob Roe who will speak to some of the products in our pipeline

00:00:32 and the happy movement of those products toward fruition.

00:00:36 We also have Vic Ackerman who is representing our international group

00:00:41 with regard to questions that many of you have had on your minds.

00:00:45 Let me start by asking you to look at the first slide,

00:00:50 which really is a slide that depicts the 50th anniversary of Syntex.

00:00:54 This is a very important year for Syntex.

00:00:57 We've spent our first 50 in relatively good shape.

00:01:02 We're coming through a difficult period of time now.

00:01:05 We want to show what we can do to make the years ahead of us good, happy, and strong ones.

00:01:11 Let me get right into the content of this discussion.

00:01:16 The next slide really is a grading, an American system grading I might say,

00:01:21 of the three basic elements that we are addressing in the 30-month call to action.

00:01:27 A is outstanding, D would be a failure, and B and C are somewhere in between.

00:01:34 When it comes to the reduction of costs, I must say that in the first quarter of fiscal 94,

00:01:40 the cost cutting was magnificent.

00:01:43 We met all of our goals. We exceeded some of those.

00:01:46 So I think we deserve an A.

00:01:48 As far as maximizing sales goes, this at the moment is a weak spot in Syntex Corporation.

00:01:55 While we did not fail, I say giving this particular area a C grade is probably a fair rating.

00:02:04 And last but certainly not least is the advancement of the pipeline

00:02:09 where virtually every single milestone that's been established for the products and development were met.

00:02:16 So we give this an A.

00:02:18 So the real problem that we face is how do we maximize our sales.

00:02:22 Now let me get behind some of these issues.

00:02:26 The next slide shows what we've done and how we've fared with regard to cost reduction.

00:02:33 We set as a goal establishing a gross margin, that is sales less the cost of those sales,

00:02:40 that's gross margin, in the high 70% range.

00:02:45 And we've succeeded in that.

00:02:47 In fact, in the first quarter of the year, our margin was at 78.4%.

00:02:53 I think it's important as you look through this slide though at the various bars

00:02:58 that you note that in the past, our gross margin percent was in the 80s.

00:03:04 We don't expect to see those sorts of numbers under the new healthcare system

00:03:08 taking place in the United States

00:03:11 as well as changes in healthcare that are taking place around the world.

00:03:16 Our next slide deals with SG&A.

00:03:19 That's the Selling General and Administrative Costs.

00:03:23 We said that we wanted to keep those costs under 35% of our total sales.

00:03:30 Our next slide deals with maximizing sales.

00:03:34 And here you can see where we're sliding into some problems.

00:03:37 There are three sets of bars that face you

00:03:40 with dollars on the left-hand axis and quarters on the bottom.

00:03:45 The bottom-most row of bars represents our international sales level,

00:03:50 and you can see that's relatively flat.

00:03:53 The middle line represents Syntex Laboratories, the U.S. company,

00:03:57 and here you can see a peak in the third quarter of 1993,

00:04:02 but a clear fall-off since then.

00:04:04 And the impact of labs is so great that the third set of bars

00:04:08 represents the entire corporate sales picture,

00:04:11 and there we see a decline over the period of three quarters.

00:04:15 Why the decline?

00:04:17 Let me show you the next slide,

00:04:20 which deals with the worldwide Keter Rolax sales.

00:04:24 Here we're seeing a clear decline in the fourth quarter of 1993

00:04:29 and the first quarter of 1994.

00:04:32 We all know why, and those of you who are on the international side

00:04:35 probably know it better than the U.S. people.

00:04:38 The fact is that the suspension of the product in Germany and now France,

00:04:44 the analysis of our clinical results and our safety results

00:04:53 by European authorities have caused a tightening of the label,

00:04:58 a variety of warnings that have gone out to many countries in the world,

00:05:03 and here in the United States a dear doctor letter

00:05:06 explaining to a great degree what changes need to be made in the label.

00:05:11 All this has caused the product to hit a brick wall in many ways,

00:05:16 particularly on the oral side,

00:05:18 and it's our task as marketeers to punch that wall down and to move ahead.

00:05:24 The next slide depicts the worldwide naproxen sales,

00:05:28 and again you can see a peaking toward the end,

00:05:32 but it's starting to come down,

00:05:34 and this will accelerate tremendously since the naproxen patent

00:05:38 went off in the United States on December 21, 1993.

00:05:43 That's not reflected in the first quarter of 1994.

00:05:48 Our next slide deals with the status of our,

00:05:51 really our U.S. naproxen post-patent strategy,

00:05:54 but because it's so important to the company,

00:05:57 I want all of you to understand it.

00:06:00 There are four basic pillars to this strategy.

00:06:03 One is to promote branded sales, naproxen.

00:06:07 Many of you outside of the U.S. are selling an enteric-coated product

00:06:11 or a once-a-day product.

00:06:14 That has not come into the United States yet.

00:06:17 It's our intent to push those products continually, very, very vigorously.

00:06:23 Generic sales and bulk sales are situations

00:06:27 that I will get into in a moment or two,

00:06:30 and the OTC status, the sales of our product

00:06:33 and the joint venture with Procter & Gamble,

00:06:36 have not yet reached the marketplace at the moment of this filming.

00:06:40 However, I would hope that by the time you receive this tape,

00:06:44 the product will indeed have been approved for the United States.

00:06:47 That's a very important long-term strategy for us.

00:06:50 On the next slide, we get into the generic side of things,

00:06:54 and I think this should be real interesting to all of you,

00:06:58 particularly those of you who have seen generic naproxen

00:07:01 rear its head outside of the U.S.

00:07:04 This chart depicts on the left side

00:07:07 a percentage number ranging from 0 to 60%.

00:07:13 What it represents is the total number of prescriptions

00:07:17 that have been switched from brand-name naproxen, naproxen,

00:07:22 to generic naproxen.

00:07:25 On the bottom are the weeks that this has occurred.

00:07:29 The weeks start on the 22nd of October,

00:07:32 and they run through the 24th of December,

00:07:35 so we're only three days into the actual patent expiry.

00:07:38 But in the U.S., we launched a generic product in October

00:07:42 through a new company called Hamilton Pharmaceuticals,

00:07:46 and most of the business that we're going to show you here is Hamilton's.

00:07:50 Hamilton is a 100% owned Syntex subsidiary.

00:07:53 The top line that you see

00:07:56 is the rate of prescription switch to generic naproxen.

00:08:00 The second boxed line is a switch from naproxen sodium,

00:08:05 or anaprox, to the generic compound.

00:08:08 It's quite shocking to see that in a matter of only nine weeks,

00:08:12 about 40% to 45% of all the prescriptions written

00:08:16 had been switched to the generic brand.

00:08:19 That's unprecedented in this market.

00:08:22 Further to that, as many generic companies come onto the market

00:08:27 in the last week of December,

00:08:29 we will see a continued erosion of that number.

00:08:32 So this is a very, very important number to keep an eye on.

00:08:36 The art for Syntex is to keep as much of the business as possible

00:08:41 into the Hamilton brand rather than competing generic brands.

00:08:45 The next slide deals with the rate of the Hamilton generic sales.

00:08:49 The really good news is that we've been able to stock the product

00:08:52 in 85% of the pharmacies in the United States

00:08:55 in the first month and a half.

00:08:57 I mean, that's quite phenomenal.

00:08:59 That's a tremendous rate. I'm very pleased with that.

00:09:02 But I think since the patent expiry, and that was on 12-21,

00:09:07 we've seen an erosion of price brought about

00:09:10 by some of the generic companies in the United States,

00:09:14 some as low as 19% to their key customers.

00:09:19 Now, our response to this is to be as competitive as we can be

00:09:23 to those same key customers.

00:09:25 We're still trying to maintain the price at as high a level

00:09:29 as we possibly can, but we must deal with the real-world situation.

00:09:33 Our next slide just deals with bulk sales,

00:09:36 and that is the bulk chemical sales to the generic companies

00:09:40 who we compete with.

00:09:42 With that, I'm going to turn over to one of the most important elements

00:09:46 of the report card, and that is how we're faring with our pipeline.

00:09:51 I've asked Bob Rowe to take this chore on

00:09:54 and to share with you exactly where we are and where we're going.

00:09:57 So, Bob?

00:09:58 Thanks very much, Paul.

00:10:00 And before I begin the presentation on the pipeline,

00:10:04 I'd like to add my wishes to those of Paul

00:10:06 for a happy, productive, and successful new year.

00:10:11 The first slide that you will see is a slide which will list

00:10:15 each of the products in the development pipeline.

00:10:18 These are products already in an advanced stage of development,

00:10:22 and they're products which we are moving through clinical evaluation

00:10:26 and to registration.

00:10:29 The first two drugs, microphenolate and ganciclovir,

00:10:32 are two that will reach the registration stage

00:10:35 during the current calendar year.

00:10:38 Subsequent drugs will reach registration throughout the rest of the decade,

00:10:44 the majority of them in mid-decade, 96 and 97,

00:10:47 and the last in calendar 99.

00:10:52 The next slide is an opportunity to share with you our performance

00:10:57 in terms of development of these drugs

00:11:00 with respect to the 30-month call-to-action goals.

00:11:04 What we have done is set a whole series of milestones for each drug,

00:11:08 milestones that allow us to track performance

00:11:11 against the overall 30-month call-to-action goals.

00:11:15 The date shown for each milestone on this slide

00:11:18 is the date that we achieved it,

00:11:21 and the important point to be made is that, with one exception,

00:11:26 we have achieved all of these milestones on time,

00:11:29 or in some cases, early.

00:11:32 The first listed is the go-no-go decision

00:11:35 for the ketorolac transdermal patch.

00:11:37 That was a pharmaceutical go-no-go decision,

00:11:40 and we do now have a patch that meets the performance characteristics set.

00:11:44 And are prepared to complete a commercial evaluation

00:11:48 before going to POMAC for the ultimate authorization

00:11:51 to move into full development.

00:11:54 The ketorolac gel filing represents the filing in Spain,

00:11:58 which occurred in the latter part of October.

00:12:02 Filings will occur in the southern European areas.

00:12:06 The ranolazine IND for SR was an IND filing required in the U.S.

00:12:12 because we had to move from an instant-release formulation

00:12:15 to a sustained-release formulation

00:12:18 in order to achieve twice-daily administration.

00:12:21 15385, which is the agent

00:12:24 for the treatment of male erectile dysfunction,

00:12:28 because it's an expedited program in the truest sense,

00:12:32 that is, a program that moved into full development

00:12:35 with little clinical or other data available

00:12:39 at the time we moved into development

00:12:41 as a whole series of milestones.

00:12:43 And as you can see, we have met all of them on time.

00:12:48 The next slide begins with ganciclovir oral.

00:12:53 And there we have had some very major successes,

00:12:57 but we also have the one instance

00:12:59 where we were unable to achieve the milestone that had been set.

00:13:05 The milestone that we missed was the initiation

00:13:08 of studies with higher doses.

00:13:12 That's looking at the 6-gram-per-day dose.

00:13:15 The original milestone had been for a November 93 startup,

00:13:20 and we were unable to begin the study until December 7.

00:13:24 That may not seem like much of a delay,

00:13:28 but part of the new paradigm is to set goals

00:13:31 and then to hold people to them absolutely.

00:13:35 No excuses accepted.

00:13:37 We do provide sympathy, but we don't accept excuses.

00:13:41 And as a consequence, that 7-day delay,

00:13:44 though predicated upon slow regulatory clearance from the FDA,

00:13:50 nevertheless meant we did not achieve that milestone.

00:13:55 However, ganciclovir is moving with great success

00:14:00 toward the initial submission of registration dossiers,

00:14:04 and I will give you more details with respect to that

00:14:07 as I move through the presentation.

00:14:10 We were able to file the ANDAs for IM and oral ketorolac on time.

00:14:16 That's part of a generic strategy

00:14:18 which really becomes most relevant

00:14:20 only once the patent has expired.

00:14:22 But nevertheless, we had to be sure

00:14:24 that we had the first filings in place,

00:14:26 and that has been accomplished.

00:14:29 An IND was filed for a new molecule coming out of evaluation.

00:14:33 That is a molecule that's an analog of parathyroid hormone

00:14:38 and will be used for the treatment of osteoporosis.

00:14:41 The drug evaluation staff should be given high credit

00:14:46 for bringing that in a couple of weeks early

00:14:49 and for getting the IND in place

00:14:51 so that we could begin clinical evaluation

00:14:53 of that important concept.

00:14:56 And finally, RS25259,

00:14:59 the most recent drug taken into expedited development,

00:15:03 completed the clinical functional plans in December on time.

00:15:08 We'll be presenting their lifetime strategic plan

00:15:11 to the Portfolio Management Committee

00:15:14 in March or April of this year

00:15:17 and has, in fact, begun Phase II trials in both indications.

00:15:24 The indication of prevention of nausea and emesis

00:15:27 in patients who receive chemotherapy

00:15:30 and the prevention of nausea and emesis

00:15:33 in patients who have undergone surgical procedures,

00:15:36 particularly abdominal procedures,

00:15:38 that are associated with substantial episodes of emesis.

00:15:43 The next slide is a slide

00:15:46 that lists the compounds in registration and preregistration,

00:15:51 both in the human pharmaceutical area

00:15:54 but also in the diagnostic and veterinary area.

00:15:57 The next slide characterizes the stage of development

00:16:01 for each of the molecules listed earlier in the presentation.

00:16:06 I've already alluded briefly to ketorolactatransdermal,

00:16:09 and it's in Phase I trials

00:16:11 confirming its kinetic profile and cutaneous tolerance.

00:16:16 The middle column, listed as Phase II, Phase III,

00:16:20 is a designation that we often use

00:16:22 when we make presentations to the investment community.

00:16:27 And to provide clarification,

00:16:29 I'd like to indicate specifically

00:16:31 where each of those molecules currently resides.

00:16:35 RS15385, which is the treatment for impotence

00:16:38 or male erectile dysfunction,

00:16:41 is in a stage with respect to development

00:16:46 wherein we have chosen to expedite the program

00:16:49 by using the Phase II dose-response study

00:16:54 as a pivotal registration trial.

00:16:57 RS25259, the molecule used

00:17:00 for the prevention of nausea and vomiting,

00:17:05 is in Phase II for both of the indications,

00:17:08 as I mentioned earlier,

00:17:10 while CNTF is in Phase II

00:17:14 in terms of the design of the study,

00:17:16 but by negotiation with Food and Drug Administration,

00:17:18 that too will be viewed as a pivotal trial,

00:17:21 and so it's in a Phase II-3 status.

00:17:26 Finally, with respect to ranolazine,

00:17:29 for angina, the development program is in full Phase III,

00:17:33 the full registration pivotal studies,

00:17:35 and for the treatment of intermittent claudication,

00:17:38 we are in Phase II.

00:17:41 The next slide is a list of those compounds

00:17:44 now in evaluation,

00:17:47 which will be the compounds that feed the pipeline

00:17:50 and move into development

00:17:52 as we learn enough about them to make that decision.

00:17:55 Now briefly to turn to the two molecules

00:17:58 that will be submitted in registration format

00:18:02 on a worldwide basis during the current calendar year.

00:18:06 The first is microphenolate mofetil,

00:18:09 and on this first slide

00:18:11 is the vision that the Program Management Team,

00:18:15 the PMT, is working toward achieving,

00:18:19 and I think it's a vision that has allowed them

00:18:23 to bring substantial energy and focus to their program.

00:18:28 The next slide shows the indications

00:18:32 for which microphenolate will be studied

00:18:37 and for which submissions will occur,

00:18:39 and they're in approximately the sequence of those submissions.

00:18:43 The first regulatory submissions,

00:18:45 which will occur in the latter part of this calendar year,

00:18:48 will encompass prevention of acute rejection

00:18:51 in renal allograft patients,

00:18:53 patients who have received kidney transplants,

00:18:56 and treatment of acute refractory rejection.

00:19:00 Those are rejection episodes

00:19:02 unresponsive to full standard therapy.

00:19:07 The prevention of acute rejection in heart transplant program

00:19:11 will begin this month, January of 1994,

00:19:16 and will be the centerpiece of the second registration package,

00:19:21 and the acute rejection,

00:19:24 or the prevention of acute rejection in liver transplant patients

00:19:27 will be the third major transplant registration.

00:19:34 We've had to delay the liver transplant program.

00:19:39 It was to be in parallel with the heart transplant program

00:19:43 because of some issues with respect to the kinetics of the IV formulation.

00:19:47 We've got to go back and redefine

00:19:49 the appropriate intravenous regimen for microphenolate

00:19:53 before we can initiate that trial.

00:19:58 There will also be data collected

00:20:01 from all of the patients in the first three programs

00:20:05 to be assembled and used

00:20:08 for the pursuit of the chronic rejection indication.

00:20:12 We believe the most compelling data will undoubtedly come

00:20:15 from the heart transplant portion of the program.

00:20:20 And finally, I simply want to remind people

00:20:22 of the alternative indications

00:20:25 that we will be looking at in the not-too-distant future.

00:20:28 These include asthma, restenosis following coronary angioplasty,

00:20:34 and graft-versus-host disease

00:20:36 in patients who have received bone marrow transplants.

00:20:41 The next slide lists the formulations

00:20:46 that have been developed for microphenolate.

00:20:49 The first registration will include within it

00:20:52 the capsule and tablet formulations.

00:20:55 As I indicated earlier, the IV formulation

00:20:57 will be a part of the liver transplant registration package,

00:21:01 and the suspension will be a portion

00:21:03 of the pediatric indication transplant package.

00:21:09 The final slide on microphenolate

00:21:11 lists a number of the positive attributes of the molecule,

00:21:17 and I think among the most important

00:21:20 are the fact that microphenolate

00:21:24 will have additive efficacy,

00:21:27 that is, additive to the efficacy already achieved

00:21:30 with the current standard therapy,

00:21:33 which includes cyclosporine.

00:21:36 We believe that the registration trials currently underway

00:21:41 will demonstrate an improvement

00:21:44 in the acute rejection rate

00:21:47 from about 40% to 50% down to approximately 25%,

00:21:52 thus a halving of that rejection rate.

00:21:55 And it's that additive effect that we think

00:21:57 is the critical attribute of microphenolate.

00:22:02 The only real competitor at the present time

00:22:06 in the renal transplant area is Breconar,

00:22:10 and we're well ahead of Breconar.

00:22:12 It has some toxicity problems that have surfaced,

00:22:17 and we believe that our approvals

00:22:19 will put Breconar in a very difficult position

00:22:22 because they'll then have to show further additive benefit

00:22:26 or they'll have to show stand-alone superiority

00:22:29 to microphenolate, both of which we believe

00:22:31 are fairly arduous challenges.

00:22:36 The pie chart on the next slide

00:22:40 refers to a question that was posed

00:22:44 to a group of approximately 2,000 physicians

00:22:48 attending an annual meeting

00:22:50 of the American Society of Transplant Surgeons

00:22:53 and the American Society of Transplant Physicians.

00:22:57 They were asked, if you could add a new agent

00:23:00 to prevent chronic rejection, which would you add?

00:23:04 It's interesting to note that based on the exposure

00:23:08 to the various new agents, principally via publications

00:23:11 or by virtue of the fact that these physicians

00:23:13 may have been investigators for those agents,

00:23:17 57% selected microphenolate,

00:23:21 a dramatic number, I think,

00:23:25 when you look at the number of other new agents available.

00:23:29 FK-506, as you will note, had only 16%.

00:23:36 And we do not believe that rapamycin provides

00:23:40 a real challenge to microphenolate either,

00:23:43 because of the lateness of their development program.

00:23:49 The next slide introduces oral ganciclovir.

00:23:53 The NDA will be submitted early in calendar 1994.

00:23:59 And we've had some really good preliminary feedback

00:24:03 from two major regulatory agencies

00:24:05 with respect to oral ganciclovir,

00:24:08 both from the U.S. FDA

00:24:10 and from the French regulatory agency.

00:24:13 In both cases, we have shared the data with those agencies,

00:24:18 and both have indicated that they believe the data

00:24:21 certainly supports the submission of a registration dossier

00:24:26 and also supports their rapid review of that dossier.

00:24:32 And as a consequence, we could anticipate

00:24:36 a fairly quick turnaround, at least in those two countries,

00:24:39 once the submission has gone in.

00:24:44 The next slide characterizes a number of the benefits

00:24:49 that oral ganciclovir will provide to patients.

00:24:53 I think most of them are fairly obvious

00:24:56 when one considers that it will be the first oral agent

00:24:59 and that all other agents require intravenous infusion

00:25:03 and permanent indwelling catheters.

00:25:07 One of the important considerations

00:25:09 is that there will probably be less neutropenia

00:25:11 in patients who receive oral therapy.

00:25:14 That is in part because they achieve

00:25:17 somewhat lower plasma concentrations.

00:25:20 The trade-off there is that the effectiveness

00:25:23 of the 3-gram oral dose of ganciclovir

00:25:26 is somewhat less than the IV regimen,

00:25:30 but is nevertheless adequately dramatic

00:25:33 that it will, we believe, support the registration.

00:25:39 Clear benefits to the patient are improvement in quality of life.

00:25:44 These patients will not, at least in order to receive

00:25:47 anti-CMV therapy, need to have indwelling catheters,

00:25:52 and a cost saving, because it's obviously much cheaper

00:25:56 to administer an oral drug than an intravenous drug.

00:26:01 The maintenance treatment with oral ganciclovir

00:26:04 is only our first submission with this molecule.

00:26:07 We also have underway two very large studies

00:26:10 to evaluate the prevention of CMV disease in AIDS patients,

00:26:16 as well as a study looking at the prevention of CMV disease

00:26:19 with oral ganciclovir in transplant patients.

00:26:23 We've completed patient recruitment

00:26:25 in the Syntex-sponsored study of prevention in AIDS patients.

00:26:30 The second study, which is sponsored

00:26:32 by the U.S. National Institute of Health,

00:26:34 is nearing the completion of patient recruitment.

00:26:37 We will, however, be following these patients

00:26:39 for a prolonged period of time,

00:26:41 and so it will be at least 18 months

00:26:44 before we have the beginning of final results from those trials.

00:26:48 We're nevertheless quite optimistic

00:26:50 with respect to the utility of the drug in that setting,

00:26:53 based both on some preliminary clinical data

00:26:55 and on animal data as well.

00:26:58 I'm now going to talk to you

00:27:01 about life beyond the 30-month call-to-action plan

00:27:04 and really talk about the strategy of the corporation.

00:27:07 I think this is an important discussion.

00:27:10 But before I do that, I'd like each of you

00:27:13 to recognize the fact that strategies

00:27:15 are only as good as the people that can carry them out.

00:27:19 And I think that this is a time to say thank you

00:27:23 to a bunch of very special employees in the company.

00:27:26 Most of us had the opportunity

00:27:28 to spend time with our families and friends

00:27:31 over the Christmas holidays.

00:27:33 There were shutdowns in many parts of the world.

00:27:36 But during that time, several issues arose.

00:27:39 One, the suspension of ketorolac in France

00:27:43 and the subsequent need to begin providing data

00:27:47 to other European countries regarding ketorolac.

00:27:51 A very large body of people, both in Maidenhead

00:27:55 and in the United States,

00:27:57 spent their holidays working on producing this data.

00:28:01 And to them, I really would like to say thank you.

00:28:04 A second group was working on a situation

00:28:07 that arose with ganciclovir in terms of production.

00:28:11 They overcame the difficulties that were presented.

00:28:15 And again, they were forced to work

00:28:17 during this critical period of time.

00:28:19 So to you, I say thanks.

00:28:21 And third, we learned at the very last minute

00:28:24 of a de-reimbursement of both ketorolac oral

00:28:29 and of naproxen and naproxen sodium in Italy.

00:28:34 It was necessary to work over the holidays again

00:28:37 to provide data to Recordati, our Italian distributor.

00:28:41 And those folks did a magnificent job.

00:28:44 So to each and every one of you

00:28:46 who put in that special effort, thank you.

00:28:48 And it gives me a lot of confidence

00:28:50 that whatever strategy we go down,

00:28:53 we have the players to carry the ball.

00:28:55 Thank you very much.

00:28:57 Let me talk to you about our strategy.

00:29:02 The Executive Committee decided

00:29:05 that the 30-month call to action,

00:29:07 while all-encompassing, really only lasts for 30 months,

00:29:10 and there has to be life beyond that.

00:29:13 As a consequence, we've spent a great deal of time

00:29:16 working both as an Executive Committee

00:29:19 and working with a large group of managers

00:29:22 on a worldwide basis to hone and to develop

00:29:25 a strategic plan that all could understand.

00:29:28 So let's start with the strategic statement.

00:29:31 The first is that... let me read this to you.

00:29:34 Syntex's strategy is to provide unique and important drugs

00:29:38 that truly meet the needs of our customers worldwide.

00:29:41 The two drivers of this strategy

00:29:43 are customer orientation and innovative products.

00:29:46 Now, if you look at that, it doesn't sound real exciting.

00:29:50 It sounds like apple pie and motherhood,

00:29:52 but I'm going to try and get behind that

00:29:55 for each and every one of you.

00:29:57 Next slide states something that's fairly obvious,

00:30:01 that these two strategic elements

00:30:03 are not competitive, but they're complementary,

00:30:06 and that true customer orientation

00:30:08 focuses on the importance of new drugs

00:30:11 in lowering health care costs, something new,

00:30:14 and improving patient care.

00:30:17 Innovative products really have to be viewed as innovative

00:30:20 through the eyes of the purchaser,

00:30:23 not through the eyes of Syntex's scientists

00:30:26 or marketing people.

00:30:28 If innovation is recognized within our company

00:30:31 and not by the audience that we promote and sell to,

00:30:36 we'll go nowhere.

00:30:38 The next slide talks about what is the difference

00:30:41 between this strategy and the strategy

00:30:44 that the corporation has been following for a long time.

00:30:48 Customer orientation really is a major change

00:30:51 in the way we're focusing our company's efforts.

00:30:54 We've always had a wonderful research organization at Syntex.

00:30:59 The quality of people has been absolutely outstanding,

00:31:03 but in understanding what is needed

00:31:06 to allow a customer to bring our product

00:31:10 into their formulary, into their reimbursement list,

00:31:13 or the like, on a worldwide basis,

00:31:15 is something that we really need to develop and sharpen.

00:31:19 The strategy requires a broader corporate-wide commitment

00:31:23 to our customers and our new products.

00:31:26 Again, customer focus.

00:31:28 Well, how are we approaching this?

00:31:30 Let me get away from the slides and talk to you

00:31:33 about some real-life situations

00:31:36 and tell you how we're dealing with situations

00:31:38 such as these today.

00:31:40 I think Syntex has had a lot of innovation and research,

00:31:44 yet the products that have come out since Naperson

00:31:47 have not been truly viewed as innovative

00:31:50 by the customers that are represented to us.

00:31:56 Let me give you a couple of examples.

00:31:58 First, back in the late 70s, Syntex was one of the pioneers

00:32:04 in developing new classes of steroids

00:32:07 to be used both in an inhaled fashion for asthma

00:32:11 and in a nasal fashion for a variety of allergic conditions.

00:32:18 With regard to the inhaled steroid,

00:32:21 our marketing research organizations at that time,

00:32:25 doing their due diligence, felt and predicted

00:32:29 that there was no market for this type of product.

00:32:32 As a consequence of that,

00:32:34 flunisolide bronchial was never marketed

00:32:37 by a Syntex marketing unit.

00:32:39 It was licensed to third parties who have gone on to sell it.

00:32:43 The marketplace, which we predicted to be about $3 million in size,

00:32:48 has now achieved almost $500 million in sales.

00:32:52 We really made a key decision based on bum marketing research data.

00:32:57 On the nasal steroid,

00:32:59 we developed a fine formulation with a propylene glycol base which stung.

00:33:04 Our competitors also had stinging bases.

00:33:07 Because of that parity,

00:33:09 we achieved about 33% of the marketplace in our key markets.

00:33:14 Our competitors came out with aqueous products.

00:33:18 We were extremely slow in developing the aqueous product

00:33:23 and then did not produce good enough clinical data

00:33:26 to convince the regulatory authorities that this product should be approved.

00:33:32 As a consequence, we're here in 1994

00:33:35 still waiting for the aqueous flunisolide product to be approved.

00:33:39 Our 33% market share is down to virtually nothing

00:33:43 and we're not in the bronchial marketplace.

00:33:45 So two major goofs on one product.

00:33:48 Cinerel, the product for endometriosis that we had high hopes for.

00:33:55 The product has literally not done well in any marketplace that it's entered.

00:34:00 It's not a significant player.

00:34:02 The main competitor in the United States and in other markets

00:34:06 is the Takeda Abbott product known as Lupron in the United States.

00:34:13 The sadness of this is that Lupron is delivered

00:34:16 in an injectable sustained release form.

00:34:19 That's an innovation that took place at Syntex.

00:34:24 We were the discoverers of the ways to deliver these sorts of products.

00:34:29 Yet we were unable to commercialize that discovery.

00:34:33 It took somebody else to do it.

00:34:35 As a consequence of that,

00:34:37 we are receiving royalties from a Takeda Abbott

00:34:40 in the order of about $30 million a year

00:34:43 while they're enjoying approximately $400 million a year in in-market sales.

00:34:49 How would you like that in our hands today?

00:34:52 One of the reasons that we came out with a nasal form

00:34:56 was that it was a path of least resistance.

00:34:59 We really did not do a good job in market research as well

00:35:03 in determining that the nasal form would not be highly acceptable.

00:35:07 A third product that I'd refer to is Improstol,

00:35:10 an anti-ulcer agent that is only marketed in one country of the world today.

00:35:15 It tied up a great deal of research for a number of years,

00:35:20 and yet excellent therapy was on the market

00:35:24 and on the way to the market from competition.

00:35:27 Yet we sank tens of millions of dollars into this project

00:35:31 without any return at all.

00:35:34 This is kind of beating my breast about historical events,

00:35:38 but what are we doing to change things today?

00:35:41 How would things be different in 1994?

00:35:44 To begin with, both Jim and myself have recognized the need

00:35:48 for enhanced, improved marketing research capability in this company.

00:35:54 Marketing research is not an easy field.

00:35:57 We're asking our people to predict in 8 or 10 years

00:36:01 what a market will look like.

00:36:03 We have to understand our competition,

00:36:05 our ability and capability to develop products, etc.

00:36:09 To make a long story short,

00:36:11 we've set up a task group of the best people in the company

00:36:15 to benchmark against what practices are taking place

00:36:19 both in the major companies of our industry

00:36:22 and in companies outside our industry in the high-tech area.

00:36:26 We've come back with a recommendation on how to approach the task.

00:36:31 This is now being implemented in all of our units on a worldwide basis.

00:36:36 It looks like cutting-edge marketing research capability.

00:36:41 Time will tell whether we're right or not,

00:36:43 but we're certainly not sitting still on this

00:36:45 because many decisions that we make are based on the forecasts

00:36:49 that come out of marketing research.

00:36:52 A second point is the fact that we formed an organization called POMAC,

00:36:57 Portfolio Management Committee,

00:36:59 that consists of Bob, Bob Lewis, Jim Wilson and myself.

00:37:05 It's our job to look at all the products in the development pipeline

00:37:09 and to prioritize the effort that's put behind them.

00:37:13 We prioritize them based on a very rigorous review of the market,

00:37:18 of competition, of the scientific innovation that we see,

00:37:22 of pharmacoeconomic advances,

00:37:25 how will this help the cost of health care,

00:37:28 and on other variables that are really important

00:37:31 in determining what products we want to push in this company.

00:37:35 POMAC is only in existence less than a year,

00:37:38 and I think it's gone a long way

00:37:40 in determining the products that Bob Rowe just presented to you.

00:37:46 As part of POMAC, when a product moves into development,

00:37:49 when it's accepted for advanced development,

00:37:53 we form project management teams.

00:37:56 This, I think, is a very critical part

00:37:58 of the research and the marketing development program.

00:38:03 What we have here is a multidisciplined approach to product development.

00:38:08 On these project management teams,

00:38:11 we have a team leader who is a proven executive,

00:38:15 either in this company, or if we have to, we will go outside the company.

00:38:20 We have people representing marketing full-time.

00:38:24 We have people representing research

00:38:26 who have stayed with the project for a period of time.

00:38:29 We have people from manufacturing, from our patent groups,

00:38:33 or from any discipline in the company that's needed

00:38:37 to advance this particular compound.

00:38:40 This is a highly focused approach,

00:38:42 and it seems to be working quite well now

00:38:44 in every aspect that we have approached.

00:38:49 As part of the responsibility of these project management teams

00:38:54 in a VIX group,

00:38:56 they are being asked to put together a lifetime strategic plan.

00:39:01 That means they try and view the lifetime of the product,

00:39:05 including what competition is going to be doing

00:39:08 during that period of time,

00:39:10 what line extensions are needed and when they're needed,

00:39:13 and what should a patent expiration strategy be.

00:39:17 I think this is a tremendous advance

00:39:19 because, hysterically, this company has waited until the last minute

00:39:23 to think about developing the right line extensions

00:39:26 or figure out what we must do in terms of patent expiry.

00:39:31 I want to share with you our strategic goal

00:39:33 because this is one that we really can measure.

00:39:36 I'm going to read it to you.

00:39:38 During the decade from fiscal 96 to fiscal year 05,

00:39:43 Syntex will generate more sales and profits from new products

00:39:47 than any other pharmaceutical company on a size-adjusted basis.

00:39:52 That's a mouthful.

00:39:53 To achieve this goal,

00:39:55 Syntex will introduce at least one major new product,

00:39:58 and I underscore major,

00:40:00 every two years throughout the period.

00:40:02 Now, I personally believe there is an opportunity

00:40:05 to put a major new product out virtually every year during this period.

00:40:11 That's how rich the pipeline appears at this point in time.

00:40:14 So this is a very noble goal and one we're going to shoot for.

00:40:19 A supportive strategy that needs to be emphasized

00:40:24 in this particular taping and throughout our careers at Syntex

00:40:28 is the fact that not all the brains in the world reside within Syntex.

00:40:32 There's a world outside of us that is very exciting,

00:40:35 particularly on the scientific side

00:40:38 where we see so many great new discoveries

00:40:40 and the unpeeling of a scientific onion

00:40:43 on what causes disease and gene therapy and biotechnology.

00:40:48 We've got to get our hands into that.

00:40:50 We're trying, I think, pretty well

00:40:52 to move more and more into working with outside parties.

00:40:57 So you see a slide.

00:40:58 It outlines that we will expand our capabilities

00:41:02 based on dealing with partners on the outside,

00:41:06 and some real-life examples come in on the next slide.

00:41:10 We have recently forged research alliances

00:41:13 with the biotech firms such as Aguron and Chiron,

00:41:17 and I can tell you sitting here right now

00:41:19 that Marty Becker, Bob Rowe, Bob Lewis, Jim Wilson, and others

00:41:23 are very involved in specific discussions

00:41:25 with more partners during this year.

00:41:29 The co-development of compounds with other pharmaceutical companies.

00:41:33 We have Synergen as a living example with CNTF and NGF.

00:41:37 That's working splendidly at this point.

00:41:40 Assigning clinical work to a contract research organization, the CROs.

00:41:45 Well, rather than developing every product in-house,

00:41:49 Bob Rowe and his people are contracting

00:41:51 to work through outside third parties to perform the same tasks.

00:41:56 There's in-and-out licensing compounds such as the SynVis

00:41:59 that we've licensed in from Biomatrix in certain countries in Europe.

00:42:04 In manufacturing, we're going to Wyeth in the United States

00:42:08 to produce huge quantities of ketorolac injectable.

00:42:12 Antibioticos in Italy is producing the prime ingredient

00:42:16 for mycophenolate mofetil.

00:42:18 Again, going outside for fermentation help.

00:42:21 We're seeking marketing partners wherever we can.

00:42:25 We have struck a number of deals, certainly with Ledley, with Roche,

00:42:31 and in the United States recently with a company called HMS

00:42:35 who is marketing the Hamilton line of products

00:42:38 to chain drugstores in the U.S. and to wholesalers on our behalf

00:42:42 and doing a very good job.

00:42:44 And we're going to work closely with all other types of folks

00:42:48 that can help us in dealing with the new paradigm that we see

00:42:51 in terms of health care around the world.

00:42:55 Now, let me close with a look at the 50-year slide in front of you.

00:43:02 I want to talk to you about the viability of the company.

00:43:06 We are clearly going through a very difficult period of time.

00:43:11 Our engine of growth, ketorolac, is running into problems.

00:43:15 Naprocin has gone off patent in its largest market.

00:43:19 We have no major new compounds available to us in the very short term.

00:43:25 Yet, I think we have to face this with toughness and with character

00:43:30 because I truly believe that what makes a company like Syntex,

00:43:35 one is its people, and we have strong, good, capable people,

00:43:40 and two is the ability to produce high-technology, innovative,

00:43:44 cost-effective products.

00:43:46 So I'm feeling that if we can fight our way through the current situation

00:43:51 and frankly not worry about the things that we can't control,

00:43:55 such as the environment, changes in health care,

00:43:58 governments doing whatever they do,

00:44:00 but to do our job as well as we can do, keep our nose to the grindstone,

00:44:04 keep pushing through the difficult times, we'll be okay.

00:44:09 So please keep the faith, and again, I wish you all a very happy,

00:44:13 healthy, and prosperous new year.

00:44:16 One employee wants to know whether there will be more layoffs

00:44:19 in the beginning of 1994.

00:44:21 That seems to be the most popular rumor around Syntex today.

00:44:25 Let me start just by saying that is totally untrue.

00:44:29 I've gone public in saying that our goal is to reach an employee level

00:44:35 of 9,500 people.

00:44:37 We're at about 10,000 people today, and those areas,

00:44:41 such as primarily the production plants that will be closed,

00:44:45 are aware of the time schedule for that closing.

00:44:48 Now, I do want to say that as we look at individual departments

00:44:53 around the world for efficiency, there may be some changes

00:44:57 both up and down, but on a corporate-wide, across-the-board basis,

00:45:02 the major cuts are finished.

00:45:04 In the 30-month call-to-action plan, we were asked to reduce expenses.

00:45:09 However, we believe that there will be $2 million spent

00:45:13 on investigating the new SAP computer systems.

00:45:16 Is this true, and is this the right time, or could we defer these expenses?

00:45:21 I feel that this is the exact time to be spending the money.

00:45:25 Even though we're cutting costs around the company,

00:45:28 we have not gone out of business.

00:45:30 We're trying to grow the business.

00:45:32 One of the things that's really obvious is the antiquated software system

00:45:37 and computer system that we run around Syntex Corporation.

00:45:41 As our consultants came in, Vic, and talked to us about what was right

00:45:46 and what was wrong in the company,

00:45:48 they couldn't believe the nature of our software system.

00:45:52 By that, I mean that each unit historically in this company

00:45:56 has been able to develop their own programs.

00:45:59 These are programs that don't talk to each other,

00:46:01 so we have to build bridges between programs.

00:46:04 We now have bridges on top of bridges and pontoon bridges

00:46:08 to bridge all the information that's available.

00:46:10 That's not the way the 21st century is going to be handled.

00:46:15 It's not the way our competition is working today.

00:46:18 Clearly, we're going to need a very sophisticated system

00:46:21 to gather data, both financial data and manufacturing data.

00:46:26 We're trying to drive the cost down in manufacturing.

00:46:29 One way to do that is to forecast well,

00:46:33 but from that forecast, kick off data on costs,

00:46:36 on the movement of goods, on the availability of raw materials,

00:46:39 on the needs to move product A to point B on the right day.

00:46:44 We don't do that very well today.

00:46:46 I think there's gold to be mined.

00:46:48 Why is the U.S. so concerned about the patent expiry for naproxen?

00:46:52 The patents in Europe and elsewhere have expired many years ago,

00:46:55 and we seem to have done well there.

00:46:57 Vic, I had a full head of hair only two weeks ago.

00:47:00 Now the patent's expired, and look at me.

00:47:03 The fact is that, unlike Europe,

00:47:06 the pricing disparity between the selling price of the product

00:47:11 in the United States of naproxen and the generic prices

00:47:15 is incredibly different.

00:47:17 Pricing in Europe has always been constrained

00:47:20 by government reimbursement policies,

00:47:22 and as a consequence of that, the falloff to generics was noticeable,

00:47:26 but nowhere near as noticeable.

00:47:28 That's one point.

00:47:30 I think the second and more important point is that in dollar terms,

00:47:34 about 70% of our worldwide business comes from the United States,

00:47:39 and losing any piece of that is terrible.

00:47:42 It's like when Syntex Laboratories sneezes,

00:47:47 the corporation must produce a handkerchief immediately.

00:47:50 It's not an inconsequential effect.

00:47:54 I must also say that in looking at European generics,

00:47:58 up to now their pricing structures seem to be more rational

00:48:03 than those we see in the United States.

00:48:05 Here it seems that price is the only thing that is discussed

00:48:09 in terms of generics.

00:48:11 In Europe, not as much money is being left on the table.

00:48:14 We have a much more rational industry today.

00:48:17 Vic, thanks for the questions.

00:48:19 I appreciate them.

00:48:21 For all of you out there who are watching this tape,

00:48:23 we'll be back in three months

00:48:25 to talk about the second quarter of fiscal 94.

00:48:28 I hope this has been useful to all of you.

00:48:32 I wish that I could be with you personally,

00:48:34 but this is second best,

00:48:36 but it's a good way to keep everyone in the loop.

00:48:39 Thank you all very much.