Last fall, the pharmaceutical industry hit bottom in a public opinion poll, ranking last in Gallup’s list of 25 industries, finishing behind even the federal government.
Net ratings for pharma have never been lower since Gallup started asking people about industries in 2001. Gallup said a public image recovery is not likely until the drug pricing issue is resolved and the opioid crisis has passed.
“The problem we face is that our industry is under a lot of pressure,” says Roger Graben, president of Vitruvias, an Auburn-based pharmaceutical firm that focuses on bringing to market generic drugs that fit a niche. Generic drugs generally sell for far less than name-brand drugs.
“There has been a lot of talk about the excessive cost of pharmaceuticals, but what people really don’t realize is that middle men have sprung up in the last 25 years, mostly in the form of pharmacy benefit managers, that take a big portion of the proceeds of the product,” he says.
“Probably 30 to 35 percent of the profit in a product doesn’t go to the manufacturer or the drug store dispensing it; it goes either to the distributor and then the pharmacy benefit managers who negotiate on behalf of their clients. But it is a very secretive, non-transparent business and nobody really knows. It is a very, very complicated business we have developed in the past 30 years.
“I think it is virtually impossible for us to change the system,” he says.
He should know. He and his team at Vitruvias have been together for a while, and the team has extensive experience in the industry. The company is now part of a group of pharmaceutical companies focused on developing generic pharmaceuticals that are “either, one, complex APIs (active pharmaceutical ingredients) that are difficult to source, or, two, finished dosage forms that are inherently difficult to manufacture.”
According to Graben, “Carl Whatley, our CEO, founded a company in Montgomery in 2002 called ProEthic Pharmaceuticals. It was a brand name company, and we grew that and, in 2008, we divested that to Kowa Pharmaceuticals, out of Japan. They are still operating in Montgomery, and they have probably $300-$400 million a year in sales, 350-400 employees, and a lot of those being sales-based positions across the nation.
“After that, I stayed on there as chief operating officer until 2016 and joined Carl. Carl was sort of semi-retired and played with a number of different things, and in 2013, he and another fellow, Bryce Harvey, who had been involved with ProEthic, founded this company kind of on the generic pharmaceutical side. When we had ProEthic we also had a generic subsidiary, Midlothian Laboratories LLC, and Bryce had run that for us. We sold that to High Tech Pharmaceutical, and it is now a part of Mayne Pharma out of Australia.
“So really about 90 percent of us who work here worked together at ProEthic-Midlothian.”
The firm’s name, developed by Whatley and his wife Margie, is based on a famous Vitruvian Man drawing by Leonardo da Vinci, and was chosen to reflect a balance of life and nature, Graben says.
The company has a number of products on the market, including a generic injectable, tablets, capsules and ointments, but, going forward, the focus will be on the generic injectable market — a market that has held its value better than tablets and capsules.
Vitruvias has agreements with manufacturing partners in Taiwan, Canada and China, but the company says the coronavirus outbreak has not yet had an impact on it operations.
Generic drugs are equivalent to brand-name drugs but are manufactured after the brand name patent has expired and without the cost of clinical trials.
“You have to match in every asset,” Graben says. “You have to match the same amount of the same ingredients and know that, when you take it, you get the same amount in your body over the same amount of time.”
According to Graben, most generic drugs are approved by the Food and Drug Administration in two to four years, compared with the eight to ten years or more needed for approval of a new chemical product.
Whatley worked for Pfizer for 20 years before forming ProEthic Laboratories. “The logic behind that was that we wanted to be as professional and as ethical as we could in a business that had sort of dropped in the (public perception.) Pharmaceuticals used to be a very highly respected industry, but now it is kind of perceived as somebody more interested in making money than it is in helping people,” he says.
Auburn is more or less next door to hometown for the founders — Whatley from Montgomery and Graben from Lineville. But the pair chose Auburn for the talent pool offered by Auburn University. “One of the things about this business is, finding talent is very difficult,” Whatley says. “Most of the talent in this industry is up in the Northeast. That is sort of the pharmaceutical corridor in the United States, and so we needed to be in a place where we could attract people.”
The company is described as “semi-virtual.” Sales, distribution and rebates are handled by the Auburn office, as well as designing and overseeing development programs, filing regulatory documents and preparing new drug applications.
“After approval we do a variety of things,” Whatley says. “If a distributor has a problem, they may call us. A pharmacist may call and ask for information. Also any safety reporting and medical information — we provide that as requested. We also provide updates to the Food and Drug Administration each quarter.
“We also provide updates to the FDA on the quality of each product,” Graben says. “There are three major wholesalers that account for as high as 90 percent of the drugs in the U.S.
“We have a sales team that interacts with the buyers and negotiates contracts, and we process orders on a daily basis.”
Most pharmaceutical companies have a large sales force of representatives who call on physicians and other prescribers, but that is not the case with generic pharmaceuticals.
“Essentially your product is selected by the wholesalers and the pharmacists, so you don’t have a large sales force,” Graben says.
Both Whatley and Graben are hesitant to say much about product development other than to mention one hemophilia drug in the pipeline and a dermatological injectable.
“To be honest,” Whatley says, “if we publicize what we have coming, we alert our competitors. We have a number of projects on the drawing board and in various stages of development, some more interesting than others, but it is one of those things that we prefer not to publicize.”
However, according to Marketwatch, the generic drugs market is expected to exceed more than $688 billion in the United States by 2024, driven by new government activities aimed at manufacturing and promoting the use of generic drugs globally, which would seem to put Vitruvias in a good position.
The company received its first round of private investment two years ago to the tune of $12.5 million, according to published reports.
“We are cash flow positive right now,” Whatley says. “We are not actively looking for capital, although that is not to say we might not be doing that in the future, because of various and sundry projects we have on the drawing board. The private equity market is pretty robust right now.”
Benchmarks at Vitruvias
Vitruvias Therapeutics announces a collaborative development agreement with Hong Kong-based Bright Future Pharmaceutical Lab Ltd., to develop a portfolio of semi-solids to be marketed in the United States and China. U.S. distribution will be handled by Vitruvias and Bright Future will be responsible for China and other agreed upon Asian territories. The products will be manufactured by Bright Future’s newly constructed unit at its Hong Kong site, specifically designed for producing products in regulated markets.
Vitruvias Therapeutics agrees to license an approved potassium chloride extended release ANDA. The product will be manufactured by Bora Pharmaceutical’s Zhunan site, which was recently acquired from Impax.
Sunny Pharmtech Inc., a Taiwan-based API and finished-dose drug development company, and Vitruvius Therapeutics Inc. announce that their Abbreviated New Drug Application (“ANDA”) for Aminocaproic Acid Tablets 500 mg and 1000 mg has received final approval from the U.S. Food and Drug Administration.
Vitruvias Therapeutics Inc. announces completion of an $11.5 million Series A preferred financing. The investment was led by JW Asset Management LLC and Perceptive Advisors.
April 30, 2015
Sunny Pharmtech Inc., a Taiwan-based API and finished-dose drug development company, and Vitruvias Therapeutics LLC, a generic drug development company, announced a strategic partnership to co-develop a varied portfolio of generic drugs.
Bill Gerdes and Julie Bennett are freelance contributors to Business Alabama. Gerdes is based in Hoover and Bennett in Auburn.