G. D. Searle & Company

G. D. Searle & Company

P.O. Box 5110
Chicago, Illinois 60680
U.S.A.
(708) 982-7000
Fax: (708) 470-1480

Wholly Owned Subsidiary of Monsanto Company
Incorporated:
1908
Employees: 10,500
Sales: $1.55 billion
SICs: 2834 Pharmaceutical Preparations

Chicago-based G. D. Searle & Company is a mid-sized pharmaceutical firm owned entirely by chemical producer Monsanto Company. Searles best-known products include Dramamine, the pill, and the intrauterine contraceptive (IUD). In addition to ethical Pharmaceuticals, Searles business interests include over-the-counter products, most notably NutraSweet brand sweetener. For the majority of its century-long history, the company was guided by four generations of the Searle family. Searles innovative marketing and aggressive promotions, as well as its struggles to remain profitable, captured attention in the early 1990s.

The firm was named for Gideon D. Searle, who founded his namesake company in 1889 on the corner of Ohio and Wells streets in Chicago. Initially the small firm sold a wide variety of products, but soon reduced its product line to highly specialized and profitable items. In order to develop these goods, Searles laboratory research concentrated on innovating drugs for the treatment of cardiovascular diseases, the central nervous system, and mental disorders. Son John G. Searle became president and chief executive officer of the company in 1936. In 1941 company headquarters were moved to Skokie, a northern Chicago suburb. One of the most successful products to emerge from Searle laboratories was the 1949 discovery of Dramamine, the first motion sickness pill. In 1966 Dramamine remained a leader in motion sickness medications; by the 1980s the drug had become a household staple.

The companys reputation as a manufacturer of quality drugs corresponded to its growing profits. Increasing sales by $1 million to $2 million annually, the company had sales of $37 million by 1960. Searles former successes, however, offered no indication of the large profits to come with the introduction of one of the most revolutionary drugs of the decadean oral contraceptive. Under the direction of Dr. Albert L. Raymond, head of Searles research department since the 1930s, pioneering work with synthetic hormones in 1951 led to Searles development of Enovid, the first contraceptive of its kind to reach the market. Within four years of the introduction of the pill in 1960, Searles sales increased 135 percent to $87 million, with a 38 percent return on stockholders equity. Moreover, almost half of the companys $73 million in total assets existed in cash and marketable securities, long-term debts were virtually non-existent, and Searle stock traded at 34 times earnings.

Notwithstanding three stock offerings between the years 1950 and 1966, the Searle family maintained a 46 percent share of their namesake enterprise. Upon John G. Searles death in January of 1978, the family had become one of Chicagos wealthiest, with an estimated net worth of $250 million. John Searles descendants were not only destined to become wealthy men, but his two sons would eventually assume positions of company leadership. Interestingly enough, however, in early 1963 a proposed merger between G. D. Searle and Abbott Laboratories, arranged by the two companies presidents, was said to be inspired by John Searles lack of confidence in his offsprings business acumen. The golfing partners arrived at a tentative agreement over drinks in Chicagos exclusive Old Elm golf club. According to the arrangement, no plans were made to include top management positions for John Searles sons.

The proposed merger never occurred. One explanation cited John Searles realization that the amount of bickering on the golf course between him and Abbotts George Cain was an indication of how poorly they would get along as business partners. A more likely explanation pointed to the complications arising from the younger Searless sizable holdings in the merged company. At any rate, John Searle went into semi-retirement during 1966 in the wake of the aborted merger; he assumed the title of chairman and his two sons moved into executive positions. William L. Searle became vice-president of marketing while his older brother, Daniel Searle, a Harvard Business School graduate, succeeded his father as president with the additional title of chief operating officer. Daniel now inherited the leadership of one of the most profitable pharmaceutical companies in the industry.

Yet even before the leadership had changed, a number of industry developments foreshadowed an era of growing problems. Competition from other manufacturers producing birth-control pills, including Upjohn and Johnson & Johnson, reduced Searles share of the market. Furthermore, a concern about side effects associated with oral contraceptives slowed managements decision to increase production and prolonged the Food & Drug Administrations market approval of Searles Ovulen, a second generation contraceptive. And finally, the increasing cost of research, coupled with its unpredictable results, meant that company scientists were unable to bring to fruition a new product line. By 1965 earnings decreased to $23.2 million, down from $24.2 million the previous year; while industry competitors posted net profit increases of 19.4 percent, Searles dropped 4.4 percent.

It was under these circumstances that Daniel Searle initiated an ill-fated policy of acquisition. Purchasing a dozen small companies with a wide variety of products, including nuclear instrumentation, medical electronics, and veterinary and agricultural products, Searle diversified into unfamiliar waters. While industry competitors made similar purchases outside the business of ethical drugs, few companies were less fortunate in their choices. By 1977 Searle reported a $95 million write-off; sales had increased to $844 million, but return on equity dropped from 50 percent to 11 percent. The acquisitions outside the area of Pharmaceuticals accounted for 57 percent of sales but only 13 percent of profits, and G. D. Searles profitability decreased sharply.

In addition to a new generation of family executives, 1966 brought Dr. Raymonds tenure as director of the research department to an end. Dr. Thomas P. Carney, former director of research at Eli Lilly, succeeded Raymond as head of the Searle laboratories. Carneys background in both chemical engineering and organic chemistry, as well as his success in developing profitable agricultural chemicals for Lilly, promised to facilitate the development of new innovative drugs for Searle. Aldactone and Aldactazide, two diuretics used in the treatment of hypertension, and Flagyl, a drug to cure reproductive tract infections, awaited and received FDA approval.

By 1971 an estimated 80 percent of company profits resulted from sales of Pharmaceuticals other than oral contraceptives. The previous years profits had actually risen 12 percent, but only on the companys ability to use its Puerto Rican operations as a tax shelter; while profits before taxes actually fell $5 million, Searles tax bill was reduced by $9 million. Long-term debt was now reported at $49 million.

By 1973 sales of Aldactone and Aldactazide alone contributed 18 percent of annual revenues, surpassing sales generated from the birth control pill for the first time. Research at Searle laboratories, with expenditures increased 33 percent, led to the development of a new artificial sweetener. Discovered seven years earlier, aspartames unique structure resulted from the combination of two naturally occurring amino acids. While the company awaited approval to market the product as a food additive, production was planned using the expertise of Ajinomoto, a Japanese company experienced in the manufacture of amino acids. With cyclamates removed from the market and questions circulating about the safety of saccharin, Searles new product represented the possibility of a large market share. In addition to developing the sweetener, the company moved into new areas of birth control. A copper intrauterine contraceptive was introduced in England and awaited market approval in the United States.

The FDA approval of Aspartames use as a table top sweetener, as well as a food additive in a number of items, resulted in a minor victory for Searle. Sugar prices had recently tripled and the market for low calorie products began expanding significantly. Furthermore, aspartame lacked the bitter after taste of saccharin and eliminated 95.5 percent of the calories of sugar. Yet several disadvantages in the new product caused industry analysts to remain cautious in their assessment of aspartames future. The projected cost for the new sweetener was many times greater than that of saccharin, and its short shelf lifeit lost its sweetness after several monthsprecluded any speedy acceptance in the profitable soft drink market. Bottlers would resort to a more stable, less expensive product before they would turn to aspartame. Nevertheless, Searle persevered in the test marketing of Equal, the consumer brand name for its new product.

Despite such hopeful products emerging from Searle laboratories, many industry analysts remained skeptical about the companys future. Diluted earnings, resulting in part from the companys numerous acquisitions, aspartames unclear future, and the expiration of a number of important patents all contributed to this attitude. Yet, apart from these problems, Searle management could never have been prepared for the series of blows dealt them in a televised hearing involving an FDA challenge to their reputation. A Senate subcommittee on health, headed by Edward Kennedy, sought to investigate allegations about questionable research surrounding the safety of both Aldactone and Flagyl. A 1972 article in the Journal of the National Cancer Institute, with the support of numerous subsequent independent studies, cited an increased incidence of lung tumors in mice treated with Flagyl. Similar cancer risks, not evident in Searles research data, appeared in tests of Aldactone.

While conceding that clerical errors had occurred, Searle categorically denied any suppression of lab tests. The company did embark on a public relations campaign to improve its image of social responsibility. The price of company stock, however, dropped from around $25 to $15 per share as analysts estimated that sales of Flagyl, Aldactone, and Aldactazide would be reduced by half its previous volume. With a new strategy of public relations, Searles problems were hardly over. In December of 1975, in an unprecedented move, the FDA suspended permission to market aspartame based on an audit of Searles new drug applications filed since 1968.

The FDA actions resulted in more delays than actual damage. While labels warning about cancer risks appeared on the investigated products, sales for Aldactone and Aldactazide actually rose 24 percent on the last quarter of 1975; Flagyls increased 12 percent. Aspartame remained under investigation, only to receive market approval seven years later. The $29 million already invested in its production was left in abeyance.

While the assault on Searles corporate integrity marred the companys public image, internal problems threatened to disrupt its very operations. By 1977 money borrowed in the United States against the $420 million saved in the Puerto Rican tax shelter translated into an interest payment of $24 million; earnings from this same tax haven amounted to only $17 million. This, in turn, had some affect on overall company earnings so that shares gaining $1.56 in 1975 gained only $.57 in 1977.

To remedy the situation, an outsider was called in to assume control of the company. Donald H. Rumsfeld, a former congressman, presidential aide, and defense secretary, agreed to step in as president and chief executive officer, thus ending four generations of family management. Daniel Searle, who advanced to chairman, had met Rumsfeld 15 years earlier and supported him in his congressional election bid. Their friendship gave impetus to Rumsfelds mid-life career change. While refusing to state he had given up public life for good, the accomplished politician rose to the challenge of correcting the companys numerous problems.

Searles turnabout was almost immediate. By repatriating Puerto Rican dollars, bringing in new staff, selling unprofitable divisions, and announcing a massive write-off, Rumsfeld cleared the way for major changes in the company. An optical retailing business, under the name Vision Centers, represented a profitable new acquisition. In 1978 this retailer of eyeware contributed $91 million; a five year estimate placed contributions at $400 million. While long-term debt now stood at $350 million, Vision Centers profits were necessary to improve the companys performance.

By 1981 Searle reported the second-highest profit margin among 30 leading U.S. drug firms. Furthermore, an FDA announcement ended aspartames years-old struggle to win market approval. Rumsfelds revitalization of the research department through the infusion of $100 million promised a new line of Pharmaceuticals from anti-ulcer medication to treatments for herpes. An aggressive policy of licensing and joint ventures generated income to supplement the research costs. Long term debt was reduced to $89 million as the renamed Pearle Vision Centers moved to the top of the optical retailing business.

In 1983 a 39 percent drop in earnings during the first quarter prompted a decision to sell the eyecare subsidiary. Ostensibly, income generated from the sale would help improve pharmaceutical research which had not produced an extremely lucrative blockbuster drug in several years. Drug research, however, did not bring the sought after profits; instead, industry analysts were surprised as sales of aspartame reached record breaking figures. As a tabletop sweetener and a food additive in cold cereals and dry drink mixes, sales between 1981 and 1982 increased from $13 million to $74 million. As the product was ready to enter into the immensely profitable soft drink market, Searle invested $25 million to expand production in the United States. Once Searle received the expanded FDA approval, carbonated drink companies lined up to secure contracts. By the end of 1983 virtually all major bottlers became Searle customers, and with the marketing plan to print the consumer name on all products using the sweetener, NutraSweet became a household name.

Despite this expansion after 17 years of testing, fears of aspartames side effects were not completely dispelled. One study noted changes in behavior after large quantities of carbohydrates and aspartame had been ingested. Woodrow Monte, director of the Food Sciences & Nutrition Laboratory at Arizona State University, along with several consumer groups, challenged NutraSweets safety by pointing to its production at high temperatures of methanol, a compound associated with poisoning. The FDA reasserted aspartames safety by pointing to the existence of methanol in fruit juices.

While sales of aspartame reached $336 million in 1983, the continuing question of its safety was not the only issue to concern Searle management. The sweeteners patent was scheduled to expire in 1987; forthcoming competition threatened the sales figure. Even more disturbing was the lack of new pharmaceuticals. One observer facetiously predicted that the company, like its new campaign to sweeten sodas exclusively with Nutra- Sweet as opposed to a combination with saccharin, was in danger of itself becoming 100 percent NutraSweet.

As sales of NutraSweet edged towards its maximum market potential the Searle family, still holding a 34 percent interest, announced its decision to liquidate part of its stake. Industry analysts, noting the timing of this announcement, predicted that the family could collect as much as $75 per share. Four months after the announcement, not one company had tendered an offer. The financial burden of running NutraSweets huge operations, as well as an Internal Revenue Service investigation into allegedly deficient taxes paid by the Puerto Rican subsidiary, deterred potential suitors. Liability for the contested taxes was estimated at $381 million.

Only two months later, the announcement to withdraw the offer to sell Searle seemed to indicate a new effort to remain independent. The company purchased 7.5 million of the Searle family shares, reducing their holdings to 21 percent. Rumsfeld succeeded Daniel as chairman, which further solidified independent management. No sooner had these events taken place when Monsanto Co., a chemical firm, announced it planned to purchase Searle for an agreed-upon $2.7 billion. For Monsanto the acquisition represented an end to its long search for an ethical drug company that could generate the income necessary to boost its maturing agricultural chemical products. Monsanto also hoped to benefit from Searles experienced marketing and sales staff, its biotechnological expertise, and the attractive market potential of new products like the antiulcer drug, Cytotec.

Along with Searles attractive qualities, Monsanto also accepted the drug companys tax dispute liabilities. What the new parent company did not expect, however, was to become embroiled in a new controversy. Searles Copper 7, the most widely used intrauterine contraceptive device (IUD), was suddenly accused of causing pelvic infections and infertility. Even more disturbing was a major business magazines disclosure that the company distorted information surrounding the IUDs safety. The final version of the companys lab results did not state that some cells in the test monkeys developed premalignant transformations, but only referred to cell modification. Similarly, Searles human test results may not have accurately reported the rate of pelvic inflammatory disease developed by users. On January 3, 1986, facing 305 pending lawsuits out of a total 775 claims, Searle withdrew the Copper 7 from the market. While continuing to defend the products safety, the company acted to preempt growing litigation costs; Searles defense had already cost $1.5 million. The specter of events surrounding the Dalkon Shield, an IUD manufactured by A. H. Robins, undoubtedly expedited Searles removal of the IUD from the market. Litigation costs surrounding alleged infections and ailments suffered by users of the Dalkon Shield eventually caused A. H. Robins to seek protection under Chapter 11 of the Bankruptcy Code.

The Copper 7 crisis continued to unfold in the late 1980s, as hundreds of new claimsincluding shareholders charging the company with failing to inform them of the IUD suitswere filed against Searle. Although a jury ordered Searle to pay $8.2 million for damages related to the Copper 7 IUD in 1988, the company appealed the decision.

Apparently undaunted by the ongoing litigation, Monsanto established a new strategy for Searle, combining research and development goals with performance objectives, and promoting those efforts with aggressive marketing initiatives. By the mid-1990s, the company planned to average one important new product introduction each year, annual sales of $3 billion, and a standing among the worlds top 15 drug companies.

Launched in 1987, Searles Patient Promise marketing program made it the first pharmaceutical firm in America to extend refunds on any of its products that proved ineffective. The program successfully promoted Searles blood pressure treatment, Calan SR, to the leading position among such calcium channel blockers. By 1990, the drug had captured one-fifth of that market in spite of competition from at least three similar medicines, and had become Searles leading product. And according to an article published in Forbes magazine that year, Calan SR was the catalyst that changed Searles financial losses into profits.

Searle countered burgeoning governmental and popular criticism of the U.S. pharmaceutical industry with a separate special public relations campaign. The companys Rx Partners program set up interviews wherein top executives of pharmaceutical firms could offer their perspectives on such divisive issues as pricing, marketing, and research and development.

Led by Sheldon G. Gilgore in the early 1990s, Searle underwent an admittedly difficult restructuring in 1992, as the company fought to achieve consistent profitability. The reorganization focused on three primary areas: rationalizing capacity; consolidating global research and development efforts; and a reduction of the administrative workforce by nearly 2,000 employees. Savings from this effort helped make possible a massive $305 million investment in research and development (20 percent of sales). Although Calan SR was still Searles leading product, by this time it had lost its patent protection and was under competition from generics. Pinning its future on new patented drugs, Searle launched three products in 1993: Daypro and Arthrotec, two nonsteroidal anti-inflammatory drugs (NSAIDs) specially-formulated for treatment of arthritis, and Ambien, an insomnia treatment. Daypro became Searles first product to exceed over $100 million in sales within the first year of its American introduction. Heavy investment in research and development put several promising drugs in Searles pipeline as well, including treatments for AIDS, cardiovascular disease, cancer, and septic shock.

Although these developments seemed to indicate Monsantos continuing confidence in its pharmaceutical subsidiary, some business analysts speculated that an early 1990s industry shake-out that witnessed the merger of drug producers and distributors made Searle ripe for divestiture.

Principal Subsidiaries

Akwell Industries, Inc.; Dental Health Services of Tampa, Inc.; G. D. Searle Inter-American Co.; LARO, Inc.; SCI Corp.; Searle Cardio-Pulmonary Systems, Inc.; Searle Chemicals, Inc.; Searle Food Resources, Inc. The company also lists subsidiaries in the following countries: Argentina, Australia, Bangladesh, Belgium, Bermuda, Brazil, Canada, Denmark, Finland, France, Greece, Hong Kong, India, Ireland, Japan, Korea, Malaysia, Mexico, The Netherlands, New Zealand, Norway, Pakistan, Panama, Philippines, Portugal, Puerto Rico, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, United Kingdom, Venezuela, and Zambia.

Further Reading

Klimstra, Paul D., Integrating R&D and Business Strategy, Research-Technology Management, January/February 1992, pp. 2228.

Levine, Joshua, Selling Hard Without Hype, Forbes, December 10, 1990, pp. 202, 204.

Ostrowski, Helen, Pharmaceutical Giants Tell Their Story, Public Relations Journal, October 1993, p. 20.

updated by April Dougal Gasbarre

Cite this article
Pick a style below, and copy the text for your bibliography.

  • MLA
  • Chicago
  • APA

"G. D. Searle & Company." International Directory of Company Histories. 1996. Encyclopedia.com. 25 May. 2016 <http://www.encyclopedia.com>.

"G. D. Searle & Company." International Directory of Company Histories. 1996. Encyclopedia.com. (May 25, 2016). http://www.encyclopedia.com/doc/1G2-2841600069.html

"G. D. Searle & Company." International Directory of Company Histories. 1996. Retrieved May 25, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-2841600069.html