Marion Laboratories, Inc.

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Marion Laboratories, Inc.

9300 Ward Pkwy
Kansas City, Missouri 64114
(816) 966-4000

Public Company
Employees: 2,567
Sales: $474 million
Market Value: $5.332 billion
Stock Index: New York

One of the smaller yet financially sound companies in the health care industry, Marion Laboratories develops, manufactures and markets pharmaceutical, hospital and laboratory products. Formally incorporated in 1964, the company spends relatively small amounts on research and development, a unique strategy for a drug company. This practice reflects positively in the companys financial health Marion Laboratories currently owes no substantial long-term debt, and its shares are increasingly attractive to investors. The success of the company reflects the character of its founder and current chairman, Erwing M. Kauffman.

After serving as an officer in the U.S. Navy during World War II, Kauffman took a job as a salesman with a pharmaceutical company in Decatur, Illinois. Energetic and aggressive, Kauffman flourished. Within a year his commissions made him the highest paid employee of the company, even including the companys president. Amazingly, Kauffman was punished for his success: the company reduced the size of his territory and trimmed his commissions. Kauffman resigned and started his own company.

At its inception, in 1950, the company had $4,000 in capital. To hold overheads, Kauffman operated from the basement of his house. The one and only product he manufactured was a calcium supplement made from crushed oyster shells. Kauffman operated alone: during the day he made and packaged the product and made sales calls; in the evenings he typed orders and labels for the packages. His company grew until it had achieved 40% of the $100 million a year market.

Marion Laboratories, incorporated in 1964, succeeded the original company. To attract valuable people, Kauffman offered both share options and a profit sharing plan. During the 1950s the plan purchased shares in the company, which allowed four Marion employees to retire with a net worth of more than one million dollars.

During its first decade the new company actively pursued a policy of acquisitions; the fruits of diversification eventually accounted for 40% of the companys sales.

The hugh expenditure required for research and development of a new productabout $60 million dollarsinhibited many companies from introducing new drugs in the 1970s. Marion Laboratories basked in the luxury of not investing millions of dollars on product research. The hope of discovering a miracle drug and making a fortune failed to entice Kauffman. A natural at sales, Erwing Kauffman influenced the company to spend little on developing original products; rather, he sought to establish a niche in the marketplace through existing products. In 1974 the company spent nothing on original research. Instead, Marion spent $1.8 million on reformulating and developing products discovered but rejected by other companies.

In 1964 Marion earned $130,000; by 1974 earnings on sales were $12 million, and the company enjoyed a 36% return on equity. Although analysts projected stagnation or decline in the share price, the company has continued to perform well and currently enjoys one of the highest ratings among health and drug companies.

In 1978 Marion Laboratories established its consumer products division. During the same year the company introduced Gaviscon, an over-the-counter antacid. Marketed in chewable tablet form, the product provides for the temporary relief of heartburn. It was immediately successful, and accounted for 6% of the companys net sales in 1986.

The company continues to maintain its interest in drugs that treat ailments related to the influence of calcium on the body. The largest percentage of net sales, 47% in 1986, came from Cardizem. The drug slows calcium buildup and prevents the artery muscles from being blocked by calcium deposits. Cardizem is used in the treatment of stable and unstable angina. The Food and Drug Administration has granted approval for Marion to release Caridizem in tablet form. Similar compounds were submitted to the FDA for approval by other companies in the latter part of 1986. How much of a threat these products pose to Marion Laboratories remains unknown.

Marions ulcer drug, Carafate, gained FDA approval in 1982. The product represented a new mode of therapy in ulcer treatment. Carafate forms a protective barrier preventing further damage to mucosal tissues blocking the diffusion of gastric acid and pepsin in ulcer craters. The drug poses no threat to healthy tissue where proteins are bound.

Both Carafate and Cardizem originated from research conducted by the Japanese company, Tanabe Seiyaku, and Marion pays licensing fees to Tanabe. The mutual interests of both companies have grown, and in 1984 they entered into a joint venture to manufacture and market Tanabe products in the United States and Canada.

Marion Laboratories now markets the following products: Sivadone, a cream used to prevent infections in cases of second- and third-degree burns; Ditropan tablets and syrup, a urological agent that treats certain bladder conditions; Nito-Bid Capsules and Ointment, which manages angina pectoris or chest pain caused by insufficient blood-flow to the heart (this product accounted for 6% of the net sales in 1986). The hospital products division sells diagnostic products such as Culturette, a disposable, 10-minute culture transport system used by hospitals and clinics to diagnose Group A streptococci. Another product, Toxi-Lab, a broad spectrum drug detection system, may find new users other than hospitals as concern about drug abuse increases. Ard, another hospital division product, speeds the identification of bacteria in the blood stream that can cause infection in patients using antibiotics. Bac-T-Screen also detects bacteria.

Marion Laboratories is also notable for its concerns with community services. The company has instituted STAR Students Taught Awareness and Resistance. The aim of this educational program is to help reduce drug abuse in young children in Kansas City. The Kauffman Foundation contributes three-quarters of the funding for the five year, $5 million project; Marion Laboratories contributes the rest. Erwing Kauffman instigated the educational campaign after a 1983 drug scandal involving the Kansas City Royals baseball team, which he owns. Kauffman and his wife Muriel also support an ongoing project aimed at teaching life-saving techniques such as cardiopulmonary resuscitation.

American pharmaceutical companies face stiff international competition, and their enormous expenditures on research and legal fees for patents can severely dilute profits. In this context Marion Laboratories holds a unique position among its peers. These financial drains have been historically avoided by the company, which now finds itself in a healthy position. The company continues to reflect the entrepreneurial spirit of its founder, not following the trends of other companies but creating its own means to success.

Principal Subsidiaries

Marion Laboratories lists all subsidiaries under four wholly owned divisions: Consumer Products Division; International Division; Professional Products Division; Scientific Products Division.

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Marion Laboratories, Inc.

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