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The company has focused on developing products with limited competition and longer life cycles. Par's strategy of aggressive business development including creative alliances and acquisitions, has successfully complemented its steadily increasing investment in internal research and development.
Par Pharmaceutical Companies, Inc., formerly Pharmaceutical Resources, Inc., develops, manufactures, and distributes a broad line of more than 170 generic drug products (an assortment of doses of 71 prescription drugs) through its principal subsidiary, Par Pharmaceutical. The focus is on anti-inflammatory, cardiovascular, and central nervous system drugs. About half of these products are manufactured by other companies, including GlaxoSmithKline, Dr. Reddy's Laboratories, and Merck KGaA. In addition, Israel-based subsidiary FineTech Laboratories, Ltd. produces complex synthetic pharmaceutical ingredients. Through an agreement with Bristol Myers Squibb, Par also markets a small number of mature brand name drugs. Par customers are drug distributors, wholesalers, and retail pharmacy chains.
Founding of Par Pharmaceutical: 1978
Par Pharmaceutical was incorporated in New York in September 1978 and became operational in 1979. Its founders included R.K. Patel, Ashok H. Patel (unrelated), and Perry Levine, who became the company's chief executive officer. Par grew into a high flyer in the fast growing generic drug industry. In the mid-1970s generics accounted for just 9.5 percent of U.S. prescription drug sales, but over the next decade that number would top 15 percent and continue to grow. Par capitalized on the trend, going public in 1983. In essence, the company targeted brand drugs that would soon lose their patent protections, performed required testing for the Federal Drug Administration, and then accumulated enough inventory so that when the brand drug lost its protection Par was able to quickly establish a beachhead in the market before other competitors arose and price cuts inevitably occurred.
After going public, Par enjoyed several years of strong growth. In 1985 it paid nearly $1.2 million in cash to acquire an 80 percent stake in another publicly traded generic firm, bankrupt BetaMED Pharmaceuticals, Inc. Based in Indianapolis, BetaMED was founded in 1979 by Gregory and Judith Buckley, along with Martin Sweeney, a former Eli Lilly & Co. executive. The company underwent a number of management changes and endured a string of losses before seeking Chapter 11 bankruptcy protection in June 1984. Par renamed it Quad Pharmaceuticals, Inc. Less than a year later, Par bought the remaining 20 percent interest for $560,000 in cash and stock. A new management team was brought in and the business began to post strong results. To support its growing business in generics, Par in 1987 established an in-house advertising agency, Generic Innovations, Inc., and Par Printing Enterprises, Inc., to provide printing services. In that same year, Par began trading on the New York Stock Exchange.
Par and the generic drug industry, however, were soon mired in scandal, with allegations that Food and Drug Administration (FDA) officials were paid off to approve drugs and that test results had been fabricated. Quad in particular drew attention, given that in just its second year under the control of Par it received approval for more products than any other drug company in the history of the FDA. Moreover, Quad's CEO, Dilip Shah, was a former FDA employee and maintained close ties to the agency's generic supervisor, Charles Chang. Congress took up the matter, with a House Energy & Commerce oversight and investigations subcommittee conducting hearings and preparing legislation that could very well close down Par. According to Business Week, "In July 1989, a fired Par researcher named Satish Shah had threatened to report senior officials to the FDA if they didn't pay him off. When they didn't, Shah called Washington. He claimed that Par had submitted different formulations of a hypertension drug called triamterene in order to pass both clinical and analytical tests. The drug passed the agency's scrutiny, but only one version went into production. (The FDA requires that the same formulation pass both sets of tests.)" Executives also faced criminal charges, stemming from a grand jury investigation launched by the U.S. attorney's office in Baltimore, initiated by evidence offered by another generic drug maker, Pittsburgh-based Mylan Laboratories Inc. Shah ultimately pleaded guilty to giving approximately $1,000 to Chang, and Ashok Patel also pleaded guilty to providing $500 to Chang.
Intervention of Kenneth Sawyer: 1989
By August 1989 Par was in difficult straits. Not only was it in the crosshairs of prosecutors, it also faced civil suits from enraged shareholders, who had helplessly watched their investment in Par crumble. Moreover, 68-year-old Perry Levine, not implicated in any wrongdoing, was advised by his physician to retire as soon as possible because of a long-term illness that had already prevented him from testifying before the House subcommittee. His son, Jeffrey Levine, an executive vice-president, was forced by outside directors of the company to take a leave of absence because they believed he had failed to look into the company's problems in a timely manner. At this point Perry Levine sought outside help, turning to Kenneth I. Sawyer, who was uniquely qualified to intervene.
After graduation from law school at Temple University, Sawyer worked five years in the Philadelphia district attorney's office. Then in 1975 he relocated to Fort Lauderdale, Florida, for the law office of Hodgson, Russ, Andrews, Woods & Goodyear, representing generic drug companies. Four years later he became an executive in the industry, accepting the presidency of a Goldine Laboratories Inc. subsidiary, Purge. He later became general counsel and vice-president at drug manufacturer Orlove Enterprises Inc. A few months before being summoned by Perry Levine, Sawyer had launched a private law practice. His tenure as a private attorney, however, would be short-lived, as he would spend the next 14 years as the head of Par, preoccupied with salvaging the business.
According to Business Week, "Sawyer's first taste of Par's corporate culture came soon after he arrived. He says Perry Levine offered a full-time job--with a Ferrari as a sweetener. Sawyer says the implicit message was: 'Help us, don't hurt us.'" Sawyer turned down the offer, but following Levine's ensuing resignation he became interim president and CEO, and a month later accepted the role on a permanent basis. (He would become chairman in 1990.) He faced a daunting task. "Problem was," in the words of Business Week, "the state and federal officials bearing down on Par didn't trust him any more than they did former management. ... To keep regulators at bay, Sawyer made them a deal: Not only would he cooperate fully with their investigations, but he would also launch his own and report back with any evidence of wrongdoing. If necessary, he promised to close the company down." While he conducted his own probe, Sawyer also took steps to shore up Par's finances, quickly terminating two-thirds of the company's 450 employees. As reported by Business Week, Quad was Par's only bright spot: "But when Sawyer tried to make an initial audit, some Quad managers blocked him. 'If you come in here, you'd be shooting yourself in the foot,' he recalls being told. Sawyer sued to gain access, and what he found, investigators say, was a pattern of phony submission for FDA approvals. ... Sawyer's findings led to indictments of three of the four owner-managers. Par bought them out and shut Quad in 1990." Sawyer also provided investigators with other key evidence. "As executives left the company under fire," according to Business Week, "Sawyer made it a practice to search their offices. Snooping around one night he found a set of keys to R.K. Patel's office credenza and looked inside. Incredibly, he found a bottle marked triamterene." The substance turned out to be the missing sample that Shah had called Washington about, and it was instrumental in the two Patels pleading guilty to charges of conspiracy to obstruct the regulatory functions of the FDA. Shah was still very much a player in the unfolding story at Par. Business Week reported that "in January 1990, Satish Shah had surfaced again--this time demanding that Sawyer pay him $300,000 or face more disclosures about Par's former practices. Sawyer agreed to meet with Shah, but he alerted the FBI." The hotel room where they met was bugged and Shah was soon arrested and charged with conspiracy to defraud the FDA in June 1992. While Shah was out on bail, Sawyer received a number of threats in the mail, and also came into the Par offices one day to find the walls plastered with news articles about workplace shootings. The U.S. attorney advised Sawyer to retain a bodyguard and he even took to wearing a bulletproof vest, a disconcerting sight for his wife, who also had to be escorted to and from her car by armed guards when she came to visit him at the office. According to Business Week, "The threats ended after Shah was convicted of conspiracy and jailed."
While concerned about the safety of his family and dealing with Par's legal problems, Sawyer cleaned house, ultimately dismissing 35 managers. The company itself pleaded guilty to ten felony counts and paid some $2.5 million in fines. Sawyer, in the meantime, looked for a way to get the company back to business. He improved the company's reputation with the FDA, voluntarily recalling some drugs and imposing a set of protocols for manufacturing and quality control that eventually became standard in the generic drug industry. Although subject to external audits, Par was permitted to once again sell some of its products, but it was banned for five years by the FDA from receiving new drug approvals. Sawyer concluded that the company's best chance to generate revenues was to take advantage of its distribution network. He was able to convince some drugmakers to let Par act as a distributor. He also engineered a restructuring of the business in 1991, creating Pharmaceutical Resources, Inc. (PRI) to act as a holding company for Par. In this way, PRI would be able to seek financing and pursue new opportunities without being subject to the pending lawsuits that continued to beset Par.
Forging an Alliance with Merck: 1999
After losing more than $42 million in 1991 on $34.2 million in revenues, PRI staged a comeback in the early years of the decade. Revenues peaked at $74.5 million in 1993, and the company posted four consecutive years of profit. A difficult stretch followed, however, as PRI endured several years of net losses: $8.3 million in 1996, $8.9 million in 1997, and $9.6 million in 1998. In fiscal 1999 the company laid off 50 employees and discontinued some disappointing product lines, but it was also during this year that Sawyer formed a key alliance with major European drug manufacturer Merck KGaA, which became PRI's largest shareholder, paying $2 a share to own a 42.5 percent interest. All told, Merck, in an effort to gain a presence in the U.S. market, invested more than $20 million in PRI. PRI, for its part, was able to share in the U.S. profits of 40 of Merck's high-margin generic products and jumpstart its drug pipeline in anticipation of the lifting of the FDA ban on new drug approvals.
In August 2001, Merck decided to cash in on its investment in PRI, selling its shares for $27 each, a total of $366 million, which represented a tidy profit on the investment. The distribution and manufacturing agreements forged between the two companies, however, remained in effect. Merck believed that the money it realized in the sale of PRI stock could be better utilized in some other way, and for PRI it was advantageous to cut the cord. The company had turned the corner and was in the midst of recording a comeback year. In 2001 PRI booked sales in excess of $271 million, a major jump over the previous year's $85 million, and it also reported net income of $53.9 million after losing $1.65 million the year prior. Also in 2001 PRI received six first-to-file drug applications from the FDA, allowing a six-month window of exclusivity to produce and market the drugs. Moreover, the company's pipeline included 20 drugs that were pending FDA approval and another 30 in different stages of development. PRI had reached the point where its relationship with Merck was in some ways holding back its growth. Because of conflicts of interest with Merck, PRI had been forced to shy away from ventures with other drug manufacturers. In the words of Westchester's Journal News, "Merck wanted to lead a subdued waltz while Pharmaceutical wanted to move along in a high-energy tango."
PRI's relationship with Merck was far from severed, however. In May 2002 it licensed to PRI the rights to 11 generic drugs under development and projected to enter the market between 2003 and 2006. Another significant alliance struck in 2002 involved Rhodes Technologies Inc. A joint venture with PRI called for the development and marketing of specialty pharmaceutical products. Also in 2002 PRI paid $32 million to acquire Fine Tech Ltd. from International Specialty Products. Adding the synthetic chemical process company provided some diversity for PRI, allowing it to develop proprietary pharmaceutical products and giving it the ability to offer drug development services to outside companies. The company enjoyed another year of impressive financial results, with net income in 2002 of more than $70 million.
In June 2003 Sawyer announced his retirement after heading Par and PRI for nearly 14 years. Following a three-month search, his replacement was selected: Scott Tarriff. He had been working for a PRI subsidiary since 1998. Prior to that, he spent 12 years at the Apothecon division of Bristol-Myers Squibb. The company, which had renamed itself Par Pharmaceutical Companies, Inc. by 2004, hoped to continue to follow its successful formula of allying itself with foreign drug manufacturers to market drugs in the U.S. market. Yet it also wanted to make a greater commitment to product development, with the goal of achieving a balance between licensed products and those developed internally. Tarriff told Drug Store News in November 2003, "As we look to the future, we are trying to build a specialty pharmaceutical section to our business, having some branded drugs that we will ultimately promote directly to physicians along with our business on the pharmacy side."
Principal Subsidiaries: Par Pharmaceutical, Inc.; PRX Distributors, Ltd.; Fine Tech Ltd.
Principal Competitors: Barr Pharmaceuticals, Inc.; Perrigo Company; Teva Pharmaceuticals Industries Limited.