I attended Sepracor's shareholder meeting today. It was a fairly low key affair. No hype. After the voting formalities Tim Barberich (CEO) presented an overview of company strategy and a review of the pipeline followed by Q&A.
The presentation was pretty much a review of known information, no big announcements. However, that is not to say that it was dull. When you get a concentrated recap of all that is going on it is very impressive. I could not help but hear the ring of cash registers as Tim described the various drugs and their market potentials.
Here are a few of the points (not necessarily new) that stuck with me.
SEPR expects to commercialize about 20 drugs by 2008.
SEPR expects to out-license at least two additional drug candidates in 1998.
The royalties on out-licensed drugs varies widely. Depending upon circumstances it varies between 5 and 15 percent. SEPR hopes to attain an overall average of about 10 percent.
SEPR cannot get FDA new drug approval for at least a year after the end of the phase III testing. It is necessary to demonstrate stability of results.
Tim said that there are many drugs in their pipeline which eliminate life threatening side affects in the parent drugs which he thinks will require the FDA to seriously consider pulling the parent drugs (ALA Seldane) when the ICE version is approved.
The nonsedating antihistamine market is about $3 billion today but will grow to $6 to 7 by 2003. Sepracor expects to participate in all four major drugs that define this market. However, Tim expects that by that time Norastemizole and DCL will dominate the market. Schering-Plough is going all out to bring DCL to market ASAP. They do not want any delays and are going to spend $200 million on development of DCL this year. (Isn't it nice to have someone else spend big bucks to develop your product for you.) S-P wants to switch their market from Claritin to DCL as quickly as they can in order to protect their franchise from generic encroachment. A further incentive for them is that they know Norastemizole is coming and will be a formidable competitor. Obviously SEPR would like to see Norastemizole, which they will sell themselves, be king of the hill but the royalty stream on DCL will be a rather nice consolation for the market share which they cannot capture.
Tim says that Sepracor is not having any problem hiring all of the high quality people that they need. They hire almost exclusively experienced people from big Pharma plus a few bright newly minted Ph.D`s. He said that they are building what is going to be the premier respiratory sales force. This will number at least 250 within two years as required under the terms of the Norastemizole co-promotion agreement with J&J.
It is believed that Sepracor's leading asthma drug, Levalbuterol, does not decrease lung function with long term use while the parent drug does. SEPR is currently running a large 1000 patient study comparing the two with the expectation that they will be able to demonstrate a statistically significant difference between them. It was clear from the discussion around Levalbuterol that SEPR thinks that they are going to have a very strong position in this $2 billion+ market. Levalbuterol will not be licensed out but will be sold by the sales force which they are assembling (big margins). The launch of the nebulizer version should be later this year.
SEPR expects to demonstrate efficacy, free of side effects, for its incontinence drug (S)-oxybutynin by the third quarter (phase I/II testing). This drug addresses a potential multi-billion dollar market.
Sepracor looks upon itself as a "small Pharma" rather than a Biotech company. Their strengths are not in molecular biology. They are good at discovery, medicinal chemistry, development and (eventually) marketing. They look to partnering with Biotechs as necessary for molecular biology expertise. Tim said that there are many (1200?) biotech companies with whom they can partner.
I cannot do justice here to the discussion of the many other drugs in SEPR's pipeline. Also, although I have not seen it quantified, it is clear that Sepracor is going to be throwing off a mighty earnings stream several years from now. Sepracor looks like good value today to me.
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