Sankyo Pharma

Setbacks sometimes prompt a great leap forward. For Sankyo, a major product withdrawal-most painfully, of its potential blockbuster for diabetes, Rezulin (troglitazone)-created the reversal. Major liver effects appeared in the market population after Rezulin's launch by Parke-Davis and Sankyo Parke Davis, a previous joint venture between Sankyo and Warner-Lambert. Rezulin's unexpected withdrawal in 2000 clipped short the joint venture's lifecycle. And the great leap forward? Sankyo's subsequent decision to regroup in the United States with a leading subsidiary, Sankyo Pharma, and its sister unit, Sankyo Pharma Development, amount to bold moves for Japan's second largest pharmaceutical company.

Founded more than 100 years ago in Tokyo, Sankyo has grown significantly in recent years, now employing 11,250 people worldwide. In the West, it has long enjoyed a reputation for innovation, having made several breakthroughs with cholesterol-lowering statins and "glitazone" insulin-tolerance reducers. But, like many Japanese companies, Sankyo's approach to the US market proceeded conservatively until, in the wake of Rezulin, the company broke that mold.

In December 2000, Sankyo bought out the Sankyo Parke Davis joint venture and has since created an autonomous unit in the United States, headquartered in Parsippany, New Jersey, with a global development center in nearby Edison and a three-year-old Research Institute in San Diego

At a Glance.

PE gets the inside story straight from the president of Sankyo Pharma, Joseph Pieroni, a Big Pharma veteran who heads the task of developing an enhanced presence for Sankyo in the United States. He discusses Sankyo's novel approach to business management, its most recent products-the cholesterol-lowering drug WelChol (colesevelam) and Benicar (olmesartan medoxomil) for hypertension-its extensive pipeline of therapies for the treatment of cardiovascular conditions, metabolic disorders/diabetes, and cancer, and its plans for expansion.

Further insights come from John Alexander, MD, MPh, president of Sankyo Pharma Development, a division of Sankyo Pharma. Alexander fills in critical details about his unit's newfound responsibility for US and European product development and its role as a key player in the company's global R&D. (See "Global Researcher," attached related article.)

World Destiny

Pieroni takes ample time to narrate Sankyo's history, which fatefully intertwines with his own past and his previous companies. (See "Joe Pieroni,".) "Sankyo has a great discovery heritage that most people don't know about, and now it finds itself entering the United States and becoming a global company," he says.

Joe Pieroni Bio

Sankyo and Merck, where Pieroni spent ten years, share a long history of competition. Sankyo's relationship with Parke-Davis, where Pieroni worked for another ten years, was a saga of collaboration going all the way back to 1899.

"The first president of Sankyo, Dr. Takamine, was a scientist who worked in the Detroit labs of Parke-Davis Laboratories." Pieroni says. "While there, he isolated and elucidated the structure of adrenalin-quite an accomplishment." Takamine returned to Japan in 1899 to help form Sankyo.

After World War II, as Sankyo approached bankruptcy, Parke-Davis, then the world's number-one pharma company, came to Sankyo's aid by granting it a license in Japan for the antibiotic chloromycetin, at that time the world's leading pharmaceutical product. "In effect, it saved Sankyo, and the Japanese don't forget," Pieroni remarks. In the 1960s, the two companies set up a joint venture in Japan, called Parke-Davis Sankyo.

In the late 1970s, while Pieroni was at Merck, he became aware that Sankyo had discovered the statin class of cholesterol-reduction medicines. Sankyo's Dr. Endo had discovered the first in class, mevastatin or compactin, in 1971. Mevastatin failed to make it to market because of toxicity. Then came lovastatin, which became Mevacor.

"Most people know it as a Merck product," Pieroni explains, "but Sankyo and Merck discovered it simultaneously, and Sankyo had the patent rights for the entire world outside the United States and would not give Merck an unblocking license. That's one reason Merck had to develop Zocor (simvastatin) right on the tail of Mevacor. So Sankyo had a significant part in this great accomplishment-one of the best discoveries in the industry."

For almost every product category that Merck created during Pieroni's time there, he says that Sankyo held a competing product. Merck and other large companies beat a path to Sankyo's door in pursuit of licensing and joint-venture opportunities.

"Big Pharma executives knew, if they wanted to operate in Japan, they would have to think of Sankyo as a potential partner, because it was so dominant there," Pieroni recalls, "with a huge distribution and wholesaler network and a powerful sales force."

Full Circle

Meanwhile, Pieroni's career developed along seemingly ideal lines, leading to his present position. A Master's degree in organic chemistry from Fordham University whetted his appetite for the pharmaceutical business, as he worked in the laboratories of Sandoz every summer while doing graduate work. He soon switched paths, earning an MBA at Rutgers in 1973, and started his full-time career in pharmaceuticals as a Sandoz sales rep. Two years later, he joined Lederle International in market research, where he served as a product manager before moving to Merck International.

For the next decade, Pieroni worked his way up the "product management ladder" on Merck's international side. He says, "My job was to take products in their early stages and work with the research group and with local subsidi-aries around the world to come up with a unified product plan. That was a very valuable experience."

Pieroni also had several opportunities to work on licensing deals with Japanese companies. His group was responsible for the commercialization of Pepcid (famotidine), which Merck licensed from Yamanouchi in the mid 1980s. Similarly, he also helped license Norfloxicin, the first modern quinolone, from Kyorin in the early '80s. "As part of that experience," he recalls, "I worked with the Japanese to plan the marketing of Merck products for Japan."

Pieroni left Merck in 1987 to become vice-president of marketing for Parke-Davis International, where he saw a major challenge: "Working with a very thin product portfolio, I realized that Parke-Davis lacked global marketing-planning expertise-how to take a product in early-stage development and manage it worldwide. But its management did a nice job of taking a company organized less than optimally and globalized the pharmaceutical business."

Parke-Davis initiated a global planning process that encompassed clinical development, marketing planning, registration strategies, and R&D themes. "It became a classic global approach to the marketplace, and the fruit of that was first Accupril (quinipril), then Lipitor (atorvastatin), and Neurontin (gaba-pentin)." And, of course, Rezulin.

As Lipitor and Rezulin entered the late stages of NDA approval, Pieroni says management began to consider the notion of a joint venture between Sankyo and Parke-Davis. "Both products required huge resources," he says. "I was deeply involved in negotiations with Pfizer for the Lipitor co-promotion, but at the same time we were talking to Sankyo about what we could do to enhance Rezulin and help Sankyo, which needed to have a bigger stake in the United States."

Dual Purpose

Sankyo and Parke-Davis naturally structured their joint venture around each company's needs. Pieroni shares the intriguing details: "Sankyo recognized that it had already licensed Rezulin to Parke-Davis, and it couldn't take that back. So instead, it sought to enhance its participation in the product launch. Parke-Davis wanted and won concessions in the original licensing agreement, and it also got the resources to help support the launch of Rezulin. Sankyo won a foothold in the United States and a stipulation that it had the right to buy out the joint venture after three years, giving it a subsidiary in the United States."

Pieroni greeted an offer to head the joint venture with some trepidation. He had already entered the senior-management track at Parke-Davis/Warner-Lambert and worried that accepting the role would cost him upward momentum. But, with the provision that he could return to the company after three years, he agreed.

"We literally started, six years ago, with a blank piece of paper-four executives from Parke-Davis and three from Sankyo," he says, "Most of us had never met. We sat in a room and said, okay, we need to put together this joint venture to launch Rezulin in four or five months. That was the beginning of my entry into the Sankyo organization."

Since then, Pieroni has found several reasons to celebrate his decision. He soon realized that the venture would enjoy generous support from its relatively rich parents. He also began to feel inspired by the novelty of leading a small start-up organization. A few years later, the break-up of Parke-Davis in the Pfizer acquisition vindicated the move.

On the heels of that merger, however, Rezulin's withdrawal hit hard. Pieroni reflects on the difficult but educational event: "Losing Rezulin was the hardest and most useful kind of lesson. It was an incredible product, a breakthrough that, in the first two years, truly benefited many people. It was the most successful launch I have ever witnessed, measured by interest in the product.

"At that point, our company was totally dependent on Rezulin. People had joined us, in part, because of it. But when Rezulin was withdrawn, we didn't lose many people at all. I began to realize that culture, infrastructure, and a sense of ownership in a company can be more important than the products you sell. We were able to keep people despite going through this terrible setback."

Turning Inward

To the outside world, the joint venture made itself temporarily invisible as it regrouped around "Plan B"-a part of its long-term strategy that was about to become short-term.

"There were always two phases to the joint venture," explains Pieroni. "The first was to build a sales organization to sell Rezulin alongside Parke-Davis. We did that well. We hired experienced sales managers from big pharma companies-100 percent with pharma experience and 75 percent with diabetes experience-and put them into the field. So our unit was a kind of commando group, very knowledgeable about Rezu-lin and diabetes. But phase two was to build Sankyo's stand-alone capabilities so it would be prepared to buy out the joint venture and become a totally integrated pharma company in the United States."

About two years after the Rezulin launch, the company began to build a larger infrastructure with key functions that no longer relied on Parke-Davis systems. It also acquired a new product from Geltex now called WelChol, which joined Benicar in the stable of new products that the joint venture would develop and market independently.

WelChol filled the years-long gap between Rezulin and Benicar, which finally launched this April. Sankyo introduced WelChol in September 2000, an event that accelerated the company's plan for building independence.

"We realized that, if we were going to launch this product independently from Parke-Davis, we'd have to install other capabilities, such as managed care, distribution, and enhanced regulatory capability," Pieroni says. Then came the withdrawal of Rezulin, creating a six-month revenue gap before WelChol's launch.

"But Sankyo was very clear in its support of the joint venture: Regardless of what happened, now that we had WelChol and a pipeline of future products, it would continue to support our organization. So, even though we did go inward, we had nothing else to do but to build our capabilities."

Sankyo also had its co-promotion of antihypertensive Accupril with Parke-Davis to help it stretch through the six-month gap. Meanwhile, it shifted its sales force's focus from diabetes to cholesterol, a process made easier because of the previous cardiovascular training for Accupril.

"With the Pfizer acquisition, it became clear that it was the right time for Sankyo to buy out the assets of the joint venture, and that's exactly what happened as we were launching WelChol," says Pieroni. "By the end of that year we became a full Sankyo organization. We spent last year launching WelChol, the first product handled on our own, with full P&L responsibility, and we did very well." WelChol garnered more than $90 million in its first year, placing it among the top ten products launched in 2000.

That gave Sankyo a full year to prepare for the Benicar launch, culminating in a co-promotion agreement with Forest Laboratories. In the meantime, it acquired the GlucoWatch Biographer, a non-invasive glucose monitoring device, from Cygnus. GlucoWatch also launched in April of this year.

"We are totally responsible for the sales of GlucoWatch," Pieroni says. "Its strategic feature is that it capitalizes on our diabetes experience and, with two diabetes products in development, it keeps us in that field. Now we have WelChol, GlucoWatch, and Benicar-a good platform for the next couple of years."

The Right Staff

With that platform, Sankyo Pharma has expanded its operations significantly, hiring many industry veterans for a new life in the bustling subsidiary. Its US work force now numbers about 850. The commercial operations group consists of 750 employees, with 630 in the field organization and the balance in other functions. In parallel, Sankyo Pharma Development has grown to include about 100 full-time staff this year.

"If we had more than three products, we would have to expand that much more," Pieroni says. "Sankyo takes the classic approach: Size the organization to sell what's in your portfolio. We have the right complement of people to exploit those products for the next two years."

He says the quality of the people Sankyo attracts has outshone the quantity. To its surprise, the company appeals to many now available in the industry's merger-wrung labor pool. "We proved attractive to people who had spent a lot of time in Big Pharma, were a bit disgusted with its size and bureaucracy, and like the idea of getting in on the ground floor of a smaller company- of hiring their own teams and developing their own systems and processes. During the start-up phase of the joint venture, we had no problem recruiting for the sales force and the infrastructure around it."

Although the company aims for "full integration," it still uses the virtual approach when it makes economic sense. Sankyo Pharma outsources such functions as distribution and payroll, and Sankyo Pharma Development makes extensive use of CROs.

"We are still, for the most part, a young, virtual company, built on new technology, with no legacy systems and no bureaucracy," says Pieroni.

Development Plus

"As we improve our commercial capabilities, Sankyo is also bolstering its development capabilities," Pieroni continues. He cites the posting of John Alexander to head the development group as a sign of high commitment.

John Alexander

"John is a seasoned, 30-year veteran of clinical research," Pieroni says. "He started at Squibb and was responsible for the development of Capoten (captopril) and Pravacol (pravastatin), which is how he knew Sankyo so well. He ran a clinical research group at Squibb, went on to Searle and headed the clinical group there that was responsible for developing Celebrex. When you talk to outside people, they say Sankyo is very fortunate to get a guy like John Alexander."

Alexander has used his wide experience and connections to recruit others from BMS, Merck, and other top companies. As he builds the development group, he also takes on further responsibility for Sankyo's global pipeline.

Sankyo Pharma Development has offices in New Jersey and New York and works with the research center in La Jolla, California, on new product opportunities. At the end of 2000, it became a wholly owned Sankyo company. The clinical group, research center, and commercial group in Parsippany operate under the corporate umbrella of Sankyo Pharma, with Joe Pieroni as president. As Pieroni notes, the company's new US entity may hold the key to Sankyo's future global growth.

"Sankyo is using our experience to form a global process for development," he says. What was once a 100 percent Japanese decision making system now yields to the Western-style input of the US new products committee, which evaluates all Sankyo pipeline candidates for US and global potential and has used that committee as a model for a new global steering group.

"Once Sankyo makes a decision on which products to develop, the global steering committee, of which John is a member, decides how to develop the products globally. The steering committee includes the clinical development heads of Europe, Japan, and the United States. There are also multidisciplinary global development teams for each product."

Already, according to Pieroni, the new system has profoundly affected the way Sankyo does business. "For the Japanese, it's not easy to change systems and to break down barriers, but they are changing," he says.

"In the past, Sankyo simply licensed out the product and walked away from it. Now, if we want to feed this organization, we can't do that. Let's say we believe that a product is high risk and we don't want to take it on as a project for our relatively small organization. Why not take the approach that we will accept a 50/50 co-development and co-promotion deal with a company with the right level of expertise in a given area? We'll pay for half of the development. We'll sit on a steering committee and the partner will share the work and the risk."

One example of that approach is CS-747, an antiplatelet product licensed to Lilly. "Without a lot of intervention, CS-747 would have been licensed to Lilly outright. But instead, the model is 50/50 co-development. Lilly does the clinical component. We sit on steering and operating committees. When the product comes out commercially, we have a 50/50 co-promotion. That is a huge change in the mentality of Japan. The whole question of net present value and evaluating deals, the way American companies do it, is now part of their culture."

The US business development group will likely have major input into the licensing process for Sankyo from now on, he says, because of the unique art of deal making in the West. "The people we have are pretty shrewd. They understand the art of the deal and what the other company wants. It's no longer a simple matter of agreeing on the royalty rate. It has to do with who is booking sales, who gets credit for what, what the profit split is. If you split the advertising and promotional budget 50/50, the partner has a say in what we spend on A&P, what advertising agencies we pick, what the ads look like, and so forth. It's a different game."

Plans Ahead

Beginning in 2001, just after Sankyo Pharma became an independent company, it authored a strategic plan with five- and ten-year outlooks on products in its pipeline. The US group drew up the plan on its own initiative and shared it with Japanese management, according to Pieroni.

"In our ten-year vision, we challenged them by saying that the US division of Sankyo will begin to be the biggest contributor to sales and profit of any unit around the world-including Japan. They said, 'Do you really believe that?' And I said, 'If it's not true, Sankyo will not be successful.'"

Pieroni points to its Benicar partner, Forest Labs, as a model for Sankyo's US expansion. "On the basis of one product, Celexa (citalopram), Forest has gone from being the 31st company in the United States to among the top 20 in three years," he says. "Its sales force has grown from 500 to 2,000 this year, along with all of its other related successes."

In the next few years, Sankyo Pharma intends to become a "fully functional" company with at least three product launches and related alliances under its belt. By 2010, the company plans to become a mid-sized company, about the same size as Forest. That will bring multiple sales forces, and allow the company to play an equal role in any co-promotion if it wishes.

Beyond 2010, Pieroni believes the US subsidiary will have grown beyond its Japanese parent, making it the largest Sankyo operating unit in the world. The company's global strategic plan also envisions the US market making up the lion's share of the company's business outside Japan-eventually, more than 50 percent of global sales. That may be one reason the Japanese are taking a virtual hands-off policy toward its US arm.

"We have a great deal of autonomy," says Pieroni. "We submit a plan, and we commit to achieving it. The Sankyo executives have given us a tremendous amount of leeway. People don't usually think of working for a Japanese company, because they say there's too much intervention, but in our case it's been marvelous."

John Alexander is quite a catch for a company the size of Sankyo Pharma, a testimony to this virtual US start-up's entrepreneurial appeal for Big Pharma veterans. PE calls on Alexander for an inside look at his separate development unit:

PE: What are you building at Sankyo Pharma Development?

Alexander: One of Sankyo's strategies is to build both the commercial organization and the development group in parallel. Sankyo is trying to run global development from the United States because of the importance of FDA and the US market.

PE: What changes has that brought since the end of the US Sankyo-Parke Davis joint venture?

Alexander: Dr. Kanichi Nakamura, who headed the US development group, has returned to Japan, where he is a board member and the new-product development head. I report directly to him, and Joe Pieroni reports to the international business head in Tokyo. That is an important vote of confidence in the US organization and in us.

PE: How have you structured Sankyo Pharma Development in the United States?

Alexander: We are partnering with the contract research organization, MDS Pharma Services, in a new clinical pharmacology unit (CPU) that's been quite successful. They built a CPU with 68 beds in Neptune, New Jersey, about 45 minutes from our office in Edison. We lease 24 beds from them that are served by a dedicated staff. When Sankyo's compounds are ready for human testing, we try to study them at that unit.

We weren't sure how important the facility would be, but it's become quite important. The R&D group in Tokyo sees it as a critical asset because of the need for successful early studies in humans. Getting them started quickly, in a facility where we can have priority and confidence in the quality, has been very helpful.

PE: How does the reporting structure affect your overall responsibilities?

Alexander: I now have responsibility for new-product development in the United States and Europe. I work closely with Joe Pieroni and the planning group for all new global development products. We are developing compounds in the United States and also in Europe directly from our office in Dusseldorf. We support the commercial group through clinical trials with new products, Phase IIIb to IV clinical trial support, and also the regulatory, quality assurance, and drug safety.

PE: Will all that be part of re-engineering R&D globally?

Alexander: Yes. I'm working on a project that will start in July in Japan to pick the right products for development and improve our ability to move products to the market in times of competitive development. That is one initiative of a global R&D redesign.

PE: What is the status of your group, and where is