Although a relative latecomer to the business of pharmaceuticals, Syntex Corporation is nevertheless responsible for holding large market portions of the oral contraceptive and anti-inflammatory drug markets. While Syntex presently enjoys comfortable margins as a mid-ranking pharmaceutical manufacturer (it has finally achieved its one billion dollar sales goal set in 1978), the company achieved Wall Street notoriety in the early 1960’s when stock prices reached as much as 100 times earnings.
The company quietly posted increased earnings as its product line expanded to include new drugs, but the true impetus behind Syntex’s reception on Wall Street was the workings of a financier named Charles Allen. Originally Syntex was founded in Mexico in 1944 by two German refugees. Company scientists concentrated their efforts on manufacturing bulk steroid chemicals and research. After the war, however, the direction of the business was changed by two new employees named George Rosenkranz and Carl Djerassi. While the two new executives pioneered the development of oral contraceptives, Syntex’s original owners wanted to continue producing bulk chemicals. At this point Charles Allen, Jr., senior partner in Allen & Company, stepped into the picture. As head of one of the leading investment banker firms in the country, Allen was respected not only for his financial prowess but also for his ability to predict industry trends and evaluate securities. Wall Street investors followed Allen with the loyalty of an army behind its commander.
In 1951 Allen became half-owner of the Ogden Corporation. Several companies were added to the corporation as subsidiaries, including Syntex. The acquisition of Syntex, however, created tax problems. As a result, Syntex was sold in 1958 to Ogden stockholders for only two dollars a share. Allen & Company ended up with about 40% or over one million of the 4.5 million Syntex shares outstanding.
Syntex is actually registered as a Panamanian company. Tax advantages convinced company management to reestablish business in Central America where much of its products are shipped through Panama’s free zone. When Rosenkrantz, a Hungarian-born naturalized Mexican citizen, became the company president, he kept headquarters in Mexico City even as Syntex’s growing U.S. concern shifted the company’s geographic emphasis. The company’s independent stature enabled it to reach an agreement with Eli Lilly and Company, one of the industry leaders. Syntex’s experience with producing bulk steroid chemicals (sex hormones had been extracted from the Mexican barbasco root) prepared it to enter the growing contraceptive market. The arrangement with Lilly paid for half of certain research costs at Syntex in exchange for Lilly’s rights to market the results of that research. Instead of asking for royalties or fixed-price contracts from other major drug firms, Syntex arranged an innovative agreement where it earned a percentage of what those firms earned. Thus Syntex gained quick access not only to Lilly, but to Johnson & Johnson, to Schering and to Ciba-Geigy, all major manufacturers of oral contraceptives.
By 1964 Syntex became a case in point of the virtues and vices of “a bubbling speculative market.” Since the company was financed by such a prominent Wall Street figure, since contraceptives had become the new glamour item, and finally since 150,000 shares on file for registration in Washington promised a future stock option program, this resulted in a stock price increase from a low in 1962 of 11 to a high of 190 in 1964. This enthusiasm was bolstered by a 3-for-l split and a Wall Street Journal cover story on birth control. To the horror of some financial experts, the company market value peaked at $855 million while sales for the year were only $16 million.
Problems began to arise during the 1970 Senate hearings on the adverse affects of birth control pills. Sales dropped 10% and earnings fell almost 50%. The price of Syntex stock mirrored these trends; it slipped from over $80 to less than $20 a share. Although prices did eventually climb to another high of $113, this would not be the last time Syntex stockholders would experience such a volatile period of stock market valuations. Syntex management realized that the Senate hearing had seriously threatened the company’s viability. Action was necessary in order to ensure that future company profits were no longer dependent on one product, namely, the sales of contraceptives. At this point, Syntex embarked on an effort to expand into a full-line manufacturer of Pharmaceuticals.
In the mid-1960’s the company began marketing products under its own label. In 1973 an independent marketing team was established with 400 salespeople operating in the U.S. and foreign subsidiaries. Product expansion continued into the topical corticoid market and Aarane, an antiasthma drug, was also introduced on the market. “Naproxen, an antiarthritic, was released abroad and in one year had become the best selling product in its field in Mexico.
Through acquisitions Syntex moved into the fields of animal health and dental equipment. By 1973 the dental division accounted for 6.5% of sales and the animal health division generated 22% of sales. One successful product in the animal health division was Synovex, a natural cattle hormone that captured more than 50% of the market when diethylstilbestrol (DES), a synthetic hormone, was banned by the Food & Drug Administration.
As a result of these measures the company reported increased sales figures. In 1972 sales reached $130 million or a nearly 30% increase from 1971. Net income surpassed $18 million and Syntex boasted of a 21% profit margin— the highest in the industry for that year. Oral contraceptives accounted for only 28% of sales and 35% of profits (in 1966 they accounted for 47% of profits).
Syntex’s Palo Alto research center became the focal point for the company’s expansion. Located near Stanford University the highly respected research center displayed the title of Syntex’s U.S. headquarters. Domestic operations accounted for 60% of Syntex’s sales. Research Director Djerassi earned the company even greater respect when he strengthened the research organization by recruiting talent through post-doctoral fellowships.
By the mid-1970’s Syntex’s plan to expand the product line and increase profits through two new drugs named Aarane and Naprosyn did not progress according to schedule. Due to the fact that sales of steroid drugs had reached a peak, Syntex executives had planned on Aarane capturing up to 75% or $40 million of the market. However, Aarane sales only reached $6 million annually by 1976. For this reason the sale of Naprosyn became a company imperative.
The new antiarthritic was released in the U.S. during May 1976. Although sales registered at a high of $20 million annually, the timing for the release of this drug could not have been less fortunate for Syntex executives. The FDA, under pressure from consumer and Congressional criticism, began to regulate drug testing procedures more strictly. The agency charged that lab tests for Naprosyn, conducted by an independent contractor, were invalid. By failing to investigate fully laboratory tests revealing long-term animal toxicity, the FDA argued that the administration of these tests had not adhered to proper federal guidelines.
With the price of its stock declining, company president Albert Bowers traveled to Washington confident that he could delay the FDA’s plan to hold a hearing on Naprosyn. While the FDA did agree to allow Syntex a 24-month period to conduct a replacement study in support of Naprosyn’s safety, company earnings declined for five consecutive quarters as a factor of the FDA encounter. With the end of the FDA investigation in sight, however, renewed promotional efforts behind the sale of Naprosyn as well as an overall operating increase helped Syntex to resume its expansion and growth. At this time the drug was being marketed throughout the world with the exception of Japan, and this country represented a major untapped market. With the Japanese government awaiting FDA approval, worldwide sales of Naprosyn promised large financial returns.
By 1978 Bowers boasted of a “strong resumption of growth in earnings” as both sales and profits reached record levels. With sales reaching $400 million, Bowers could point to Naprosyn as a large contributing factor to these impressive figures. The FDA, still awaiting test results on toxicity of the drug, continued to threaten Syntex with removal of the drug from the market should the results be unsatisfactory. With an approval for marketing the drug in Japan, however, and a new drug application submitted to the FDA for naproxen sodium (a drug useful not only in the treatment of soft tissue inflammation and dysmenorrhea, but also as an analgesic), Bowers announced a $1 billion sales goal for the mid-1980’s.
The year 1979, while continuing to record increased earnings, marked a period of lawsuits. A large number of British women filed suit against Syntex contending they had been harmed by using the company’s birth control pill. One plaintiff charged the company with withholding information about dangerous side effects after she suffered a severe stroke. She sought $1 million in damages because, as her counsel argued, she was unable to lead a normal life.
That same year Syntex agreed to settle out of court all pending lawsuits with Syntex shareholders and Industrial Bio-Test Laboratories, the independent lab responsible for the Naprosyn testing. The class action lawsuit alleged that IBT laboratories were inefficient in performing and reporting a study of the drug. While the company admitted no wrongdoing and was still awaiting FDA response to its resubmitted tests, a $2.75 million settlement fund was established. Syntex contributed $575,000 along with contributions from IBT and Syntex’s insurance company.
The lawsuits did not seem to affect worldwide sales of the drug. By 1979 sales for Naprosyn reached $27.7 million in the second quarter and $56 million in the first half of the year. International sales of the drug accounted for 60% of total sales. By June a merger was completed with Den-Tal-Ez, a dental equipment manufacturer. With one lawsuit settled Syntex’s future looked promising.
In the early 1980’s, however, Syntex was confronted with a new problem. The U.S. House of Representatives Subcommittee on Oversight and Investigations charged the company with failing to take action to protect the health of infants when reports linked Syntex manufactured baby formulas to metabolic alkalosis. The company had removed salt from Neo-Mull-Soy and Cho-Free in response to a belief that salt intake by infants could lead to hypertension as adults. Reports that babies were failing to gain weight and had lost their appetites led to a product recall in August of 1979. As a result, the National Institute of Health began a five-year follow-up study on the health of the afflicted children.
In 1985 a $27 million verdict was awarded to two boys who sustained brain damage allegedly due to the salt removal from the formulas. The verdict represented the largest personal injury sum awarded in Illinois. While the company has settled more than 100 cases involving the recall, it is currently considering an appeal. A Syntex spokeswoman said the company would accept responsibility only if brain damage was proven to be the result of the infant formula.
Throughout this period Syntex continued to expand. The Den-Tal-Ez acquisition contributed to a third of total sales in 1980 and Poly con contact lenses, still in the test stage, were predicted to earn $5-10 million in sales. Anaprox, the brand name for naproxen sodium, was selling quite well in foreign markets while awaiting FDA approval. The French pharmaceutical manufacturer, Laroche Navarron, was purchased and Syntex also announced plans to establish a subsidiary in Osaka.
Albert Bowers was named the new chief executive officer in 1980. A Ph.D. in organic chemistry, the 24-year employee was said to be highly qualified for the position vacated by Rosenkranz. Bowers claimed that his move from the laboratory to the executive office was challenging, but that his strong background in chemical research was an essential ingredient in the effectiveness of his leadership.
Syntex has recently been moving into the growing field of genetic engineering. However, this area of drug manufacturing has caused the company some problems. When the president of Syntex’s diagnostics division viewed the laboratory work of several Seattle microbiologists, he suggested a contract be drawn up where Syntex would pay $3 million for their research in exchange for the rights to manufacture and market tests developed for sexually transmissible diseases. When the agreement produced four successful products, a new venture was organized called Oncogen where Syntex and the microbiologists split profits 50-50. Later Bristol-Meyers was invited to join the venture by contributing $12 million. Eventually, however, the scientists sold their entire interest to Bristol-Meyers for $300 million. Bowers then proceeded to sell Syntex’s portion of the venture to Bristol-Meyers and now concentrates on in-house cancer research.
Syntex entered the business of pharmaceuticals and was greeted by industry analysts with a good amount of excitement. For years the company was one of the favorites of Wall Street while its stock climbed to new heights. However, much of the publicity seems to have faded as the company matured into a fully integrated pharmaceutical company. While Syntex continues to increase sales and profits, the recent $27 million dollar court verdict and the aborted venture into biotechnology finds management facing some important decisions about the company’s future direction.
Syntex Laboratories; Brazil Diamond Laboratories; Star Dental Manufacturing Co., Inc.; Starlite Dental, Inc.; Syntex Energy, Research, Inc. The company also has subsidiaries in the following countries: Mexico, Canada, Switzerland, Brazil, Spain and the United Kingdom.