Growth Spurt: Endo Pharmaceuticals

By Tom Steinert-Threlkeld  |  Posted 2003-05-01 Print this article Print

Endo Pharmaceuticals started out small. But it acted from the beginning as if it would be a billion-dollar company.

Birmingham, Ala., March 25 (The New York Times)—The investigation into accounting fraud at HealthSouth is expected to widen to include not only executives at the company but also investment bankers and auditors.

Lexington, Mass., March 25 (The New York Times)—The Raytheon Company said that it might be forced to reduce its backlog of aircraft orders by $1.75 billion because of a depressed market and delays in the introduction of new business aircraft.

Chadds Ford, Pa., March 25 (The New York Times)—Endo Pharmaceuticals Holdings Inc., maker of the Percocet pain medication, raised its 2003 sales forecast by $30 million yesterday, setting off a 16 percent increase in its share price.

Tales of reduced revenues and accounting fraud are common these days. A company that ratchets up its sales forecasts stands almost alone. Yet when Carol A. Ammon, Mariann T. MacDonald and Louis J. Vollmer decided in 1997 to go into the drug business on their own, they were setting out as insects in the aviary.

In the U.S. alone, each of the five biggest pharmaceutical makers generates more than $10 billion in annual sales. Pfizer, the largest, sells nearly $20 billion, according to IMS, a Fairfield, Conn., tabulator of market data.

If the trio were to take over 35 medicines from the DuPont Merck Pharmaceutical Co. joint venture where they worked, they would be starting out at less than 1% of Pfizer's size. If they made missteps, they could quickly reach a dead end.

Ammon, in particular, had large ambitions for the company that the three cofounders would come to call Endo Pharmaceuticals. She thought the venture could rapidly reach billion-dollar size by focusing on pain.

The $15 billion-a-year prescription "pain management" market has been growing at a rate of 28% annually, according to Endo. Among the market basket of drugs DuPont and Merck were willing to let go were Percocet and Percodan, two well-known painkillers.

Percodan had been on the market for more than a half-century. But both Percocet's and Percodan's patents had expired, enabling other drug makers to sell generic versions. To make an impact, Ammon and friends would have to be good marketers.

If they were, that would pose a problem for Eric Bloom, the company's vice president of information technology. He would have to decide whether to build a software and server infrastructure fit to serve a billion-dollar company, using the wallet of a company that had been nothing more than a virtual corporation in 1997.

Sure, the company might become a billion-dollar baby of DuPont Merck. But, at least at the outset, that didn't matter. DuPont would, in effect, be Endo's computer services supplier, handling everything from financial reporting to manufacturing orders to distribution.

And sure, those functions would have to be assumed by Endo after the first 10 years of its life. But who was to tell what that size really would be after that time? Should he plan for a boom—or the more realistic state of a $200 million or $300 million company? After all, if big growth were indeed to be achieved, his staff could manage a changeover from one enterprise planning system, if necessary.

"The bottom line is, if you're going to do it, why not just do it once?'' says Bloom.

Endo would be facing enough difficulty transferring its business operations and financial tracking from DuPont, he reasoned. Better not to go through the thicket of transferring data and transforming processes twice.

Tom was editor-in-chief of Interactive Week, from 1995 to 2000, leading a team that created the Internet industry's first newspaper and won numerous awards for the publication. He also has been an award-winning technology journalist for the Dallas Morning News and Fort Worth Star-Telegram. He is a graduate of the Harvard Business School and the University of Missouri School of Journalism.

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