I have watched Medicis(MDRX) climb on sales of dermatology medications. It's niche is different from PRCY in demographic group, but similar in targeting a professional group of practices. It was profiled in an interesting Forbes Magazine article several years ago. PRCY will hopefully experience similar success.
FOR PRIVATE USE ONLY:
By Michael Gianturco
Michael Gianturco
is president of The
Princeton
Portfolios. His
latest book is How
to Buy Technology
Stocks (Little,
Brown, 1996).
EACH YEAR 10 million acne sufferers
seek help from dermatologists. They
constitute the largest single category of
dermatology patients. Even so, the annual
dollar volume of prescriptions for the many
and various acne medications is only $500
million. That's too small and fragmented a
market for the big drug companies, which
are looking for blockbusters, drugs that can
each produce revenues of $300 million or
more and compete in markets valued in
billions.
What this means is that there is a small but
lucrative niche in acne products that can be
exploited by companies like Medicis
Pharmaceutical. This little Phoenix firm is
an acne expert. Two of its three major
products treat acne. One is minocycline
(brand name, Dynacin), an oral antibiotic
particularly effective against
Propionibacterium acnes. The other is
Triaz, a gel containing benzoyl peroxide, an
age-old acne remedy, plus glycolic acid, to
expose the infection, and a zinc
anti-inflammatory.
In the past three years Medicis has
expanded its annual revenue from $11
million to $25 million. In the year ended
June 30 it earned 84 cents a share, and its
net margin in the last quarter was 31 cents
on the dollar, up from 17 cents a year ago.
The stock has been steadily climbing, from
a 1995 low of a split-adjusted 1 3/4 to its
recent 40. Medicis has 7.5 million shares
outstanding and has filed to issue up to 2
million additional shares.
The lesson in this success story is that less
is sometimes more. Medicis has a spartan R&D budget, only 59 employees (half of
them sales reps) and no manufacturing
plants. Its fastest-growing product, Triaz,
deletes one of the active ingredients (an
antibiotic) used in the recipe for
competitive products--and yet studies show
it delivers better results.
Medicis licenses or buys drugs developed
by other firms. So its research spending is
minimal, although Triaz was invented by
Jonah Shacknai, the chairman, and Eugene
Gans, director of research. Their method of
manufacturing Triaz and its unique
composition are patented.
Medicis also jobs out all of its drug
manufacturing, so that it has no direct
exposure to Food & Drug Administration
inspections and bureaucracy. What's left?
Marketing.
Medicis concentrates on serving
dermatologists and styles itself "the
dermatology company." Of the 6,600
office-based dermatologists in the U.S. the
busiest half write 80% of the prescriptions.
It works out that the ratio of these active
dermatologists to Medicis sales
representatives is only about 100-to-1. By
narrowly defining its market, Medicis can
pay close attention to these customers.
Much larger competitors cannot afford to
take this much trouble to support a small
catalog of acne treatments. The
dermatology market is probably worth $5
billion in total, but is highly fragmented,
meaning no single prescription blockbuster
can hope to bring home one-fourth or
one-third of this huge pie.
In contrast, says Shacknai, Medicis is
interested in drugs with the potential to
produce as little as $10 million in revenues.
Large drug companies are willing to divest
products like that. The typical deal is for
money up front, plus a promise of royalties.
For example, Medicis bought from
SmithKline Beecham in 1991 a profitable
line of "fade creams" for liver spots,
freckles and other minor discolorations. It
returns revenues of $4 million to $5 million
and holds a 40% share of this modest
market.
The Medicis strategy may represent a trend.
At least two other publicly held
pharmaceutical companies also target a
single medical specialty or therapeutic
class: Dura Pharmaceutical and Jones
Medical. Jones has acquired two thyroid
drugs within the past year; Dura is building
a portfolio in respiratory drugs.
Shacknai is not a pharmacologist. He is a
lawyer who developed an expertise in drug
regulatory issues. He started Medicis
Pharmaceutical in 1988 in New York City,
took it public in 1990 at a split-adjusted 7,
got it into the black in 1994 and moved out
West in 1995. "In Phoenix we are the
twentieth-largest company in town. In New
York I doubt we were the twentieth-largest
company in our building."
A big fish in a small pond. I have been
accumulating Medicis for customer
accounts, and I consider it a buy at 35 or
better.
COPYWRITE FORBES MAGAZINE SEPTEMBER 23,1996
quote.yahoo.com
Hope this inspires out patience.
best art |
