Private Sector Project of the Year
Lisbon, Nov. 5 (Bloomberg) -- Hovione FarmaCiencia SA is using one of its oldest products to fight the world's newest terrorist threat.
The Portuguese company makes doxycycline, an antibiotic that U.S. authorities are increasingly choosing to treat anthrax over Bayer AG's more expensive Cipro, which they used after the initial cases of exposure to the potentially deadly bacteria.
After almost 20 years of selling doxycycline to treat respiratory disorders, sexually transmitted diseases, even an outbreak of plague in India, Hovione says it's able to quickly boost production to meet the increased demand. In fact, it's done so before.
``Ten years ago, before Desert Storm, it was exactly the same situation,'' Chief Executive Officer Guy Villax said in an interview. ``Every soldier that went to Desert Storm had their doses of doxycycline in anticipation for bio-warfare,'' and soldiers who went to Somalia did the same.
``Whenever there's this type of emergency, we have to find solutions,'' he said.
Hovione says it accounts for about 75 percent of the U.S. market for doxycycline, a generic drug. The family-controlled chemicals company exports the active ingredient for doxycycline to companies in the U.S. and about 30 other countries that put the ingredient into pills.
The company started preparing to boost production when it received a surge in hits on its Web page about doxycycline, soon after the Sept. 11 terrorist attacks, as people anticipated the possibility of bio-terrorism.
``We got our act together in terms of reorganizing production, redefining priorities, getting in touch with our raw-materials suppliers to put the supply chains in place,'' Villax said.
Hovione makes doxycycline at its plant in Macau, the former Portuguese colony governed by China since 1999. Hovione's near Lisbon boasts two Chinese statues of lions at the gates. The Portugal plant may pitch in to meet the increased demand, Villax said.
The U.S. government is ordering enough doxycycline to treat 20 million people for 60 days, Villax said. ``We know we are facing a peak in demand because of all this stockpiling,'' he added. ``We can produce large quantities very fast, but I cannot imagine that this rush is going to last beyond (the first quarter) of next year, and by that time there will be ample stocks and the concern with shortage will disappear.''
Besides costing about one fourth as much as Cipro, doxycycline is gaining acceptance as a safer drug for dealing with anthrax, with fewer side effects. After a report by the U.S. Centers for Disease Control last month recommended the use of doxycycline, officials in Washington who had provided Cipro to thousands of postal and government workers switched to the generic drug.
Doxycycline accounts for less than 10 percent of Hovione's annual sales of about $70 million, Villax said. ``It's an old product, and having regard for its life cycle, it's still a good money earner,'' he added. Antibiotics gradually give way to replacements as bacteria become more resistant and companies promote new products.
``I really think the future of the company is the fact that half our sales are (from) products launched less than five years ago,'' he said. Revenue has almost tripled from $25 million in 1995. The company doesn't disclose profits, though Villax said it's always had an operating profit since it started large-scale production in the 1970s.
``Hovione is a respected player, with a high-quality image,'' said Enrico Polastro, senior analyst for European pharmaceuticals and fine chemicals at Arthur D. Little Inc.
Villax's father, Ivan Villax, immigrated to Portugal in 1951 and started the company with two other natives of Hungary in 1959. Letters from the founders' names -- Horty, Villax and Onody --were combined for the company name. Ivan Villax's two partners later sold their shares, and he's still the company chairman.
``In the whole of the 60s, we were just a lab in the basement,'' Guy Villax said. ``Occasionally the basement exploded, and the kids were woken up, and that was our momma-and-poppa shop.''
Industrial-scale production began in the 1970s, selling Japanese companies ingredients for use in anti-inflammatory creams and anti-asthma pumps. In the 1980s, as many antibiotics' patents expired, Hovione joined the trend of companies making generic drugs.
The most recent round of growth comes from ``outsourcing'' work, producing pharmaceutical ingredients on behalf of specific drug and biotechnology companies.
``Big Pharma went through a major restructuring, spinning off the chemistry, consolidating,'' Villax said. ``At the same time, you had the emergence of all the biotech sector at Nasdaq, with tremendous amounts of capital to invest in drug discovery. And someone has to do the chemistry.''
Hovione aims to get half its revenue from generic drugs and half from outsourcing work, Villax said.
The company's shareholders include Hovione employees, plus some of the chairman's business associates from other ventures, though it has no plans to sell shares in the market, the CEO said.
Larger companies have approached Hovione about a possible purchase, he added, though he's skeptical about the benefits for customers, ``and I think that's what matters at the end of the day.''
--Jim Silver in the Lisbon bureau (351-21) 340-4545, or email@example.com