Douglas Pharmaceuticals says US drugs market will soon be largest, most lucrative

Chief executive Jeff Douglas told the NZBio conference in Auckland today that it currently has a $35 million turnover in the US.

Douglas Pharmaceuticals, New Zealand's largest drugs developer and manufacturer, expects the US market to become its biggest, overtaking the European Union, in the near future as new drugs it has under development come to market.

The Auckland-based company was founded in 1967 by the late Graeme Douglas, who died last week at the age of 87. He started the business empire in the back of his Te Atatu chemist shop when he made a cough syrup called Kofsin that he sold himself and through other pharmacists.

The company set up its first manufacturing site in 1980 making generic medication but moved into exporting in a big way in the early 1990s when the advent of government drug-buying agency, Pharmac, dramatically lowered prices on the domestic market and threatened its survival.

Chief executive Jeff Douglas told the NZBio conference in Auckland today that it currently has a $35 million turnover in the US where prices are particularly attractive and it was expecting that to grow dramatically to become its largest market.

It has nine to 10 active development products in various stages of lab testing and three or four more on regulatory review with the Food and Drug Administration in the US, he said.

The commercial model is quite different in the US where it attracts better margins by partnering with an existing big pharmaceutical company, going 50:50 on drug development and marketing costs and with profits. Under European rules it has to sell the intellectual property for each drug and enter into a five-year exclusive supply deal which means it is vulnerable to being replaced at contract renewal time, though Douglas said that hadn't happened yet.

Douglas Pharmaceuticals has been focused on diversification and getting into higher risk/reward novel drug development in a bid to meet its target of growing annual revenue to $244 million by 2020. Douglas said total sales are expected to be $185 million this financial year, of which $120 million will come from export. It employs 470 staff and exports to 35 countries.

It has struggled to get a foothold in China where Douglas said protectionist policies meant two breast cancer products it had submitted for approval seven years ago are yet to come even close to being signed off while in India it can't compete against tariffs and low-cost domestic manufacturers.

The company has four divisions: contract manufacturing for other drug developers which is expected to keep growing; compliance packaging which make Medico blister packs for prescriptions; over the counter consumer products ranging from cough medicine to hair care where it acts as an agent for other brands and sells it owns; and developing and manufacturing novel and generic drugs, including taking an existing molecule or drug and changing its form for new uses.

It is working with the University of Otago on a new drug for severe depression which Douglas said is "well advanced" and with the University of Manchester for a drug to treat cervical cancer.

It's also doing its first foray into biologics (derived from living organisms, though biotechnology is used in their manufacture) which have revolutionised the treatment of a number of chronic diseases such as rheumatoid arthritis and Crohn's disease and are used in treating a variety of cancers.

That's with a "customer from Wellington", Douglas said, and it would like to do more.

"We have in-house experience but if there is a market or project being talked about, we'd be delighted to listen," he said. "We don't want to be left behind in this industry."

Douglas said one of the hardest parts of the business was quality control with several manufacturers in China and India having failed recent audit inspections by the FDA.

"Some companies were taking short-cuts and the quality was not so good," he said. Douglas recently got through an FDA audit unscathed though he said one of the advantages of being so far away in New Zealand was is it gets a couple of weeks advance notice of an audit.

A move two years ago to import robots from Japan, which it onsells to pharmacies and rest-homes to fill Medico blister packs rather than doing them laboriously by hand, has paid off and Douglas said the company was now exercising its exclusive licence rights to sell them into Australia.


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