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Exclusive Life Science Feature • Model — multiple, complementary businesses — specialty pharma and pharmaceutical technology units create a solid cash flow and partnerships to fund infrastructure and proprietary new-product development All three Ms have evolved amidst tough conditions and resulting shakeout in the SP sector in the past five years. They reflect practical strategies based on what has worked and what has not in a highly competitive business marked by company failures and consolidation. Here, Aptalis is a case in point. Its combined and markedly different assets result from the well-publicized merger of Axcan and Eurand in 2011. The merger represents a break from the original SP model, where a single company would typically focus on either specialty-drug development or drug-delivery technology. Verwiel views it as a fortuitous confluence, and the resulting cultural mix as a "clinical mindset" that sees a new role for specialty pharma as an innovative force in the industry. MINDSET: SPECIALTY PHARMA EVOLVES Not long ago, no pharma company would have used the adjective "specialty" to define itself. From its inception in the 1980s, drug delivery had remained separate from pharmaceuticals as a business — although a few companies, such as the makers of asthmadrug inhalers, distinguished themselves by their delivery technology as well as the drugs delivered. Technically speaking, all drugs have some form of delivery, even the simplest pill. But when the large pharmas woke up to the potential of extended release (XR) and other "line extensions" for their off-patent drugs, the delivery sector soared — as companies "licensed in" the new technologies, rather than creating them in-house. Even so, the pharma giants let a lot of products go off-patent and compete in their original forms with generics. Specialty pharma was born when new players leapfrogged both pharma and generics by combining the best of both worlds. The term "specialty pharma" holds two clues to its own origin and meaning. One, by the spelling of "specialty" (not "speciality"), the term shows its American roots. Two, in America, at least when coined initially, the term could only mean one thing when applied to companies outside Big Pharma: special forms of existing or generic drugs. Only later did specialty pharma take on the additional meaning of "drugs for special populations" and branch into the development of original specialty drugs. And over time, the sector spread globally. Nowadays, specialty pharma is outperforming all other industry sectors in growth and profits. But it took a major shakeout of the early pioneers and some aggressive risk management to put the sector in its current shape. Aptalis represents some of the major moves the surviving SP companies have made to ensure their prosperity — consolidation, diversification, and an effective balance of revenue-producing specialty products with original specialty-drug research. MISSION: SPECIALTY MEANS NICHES Once Big Pharma harvested the low-hanging fruit of drug delivery — mainly XR for primary care products such as antibiotics and antihypertensives — it left a sea of smaller markets untouched. Into that sea sailed specialty pharma, and the SP sector is still navigating among the plentiful islands of opportunity to fill the unique medical needs of niche patient populations. "With specialty pharma products, by targeting smaller populations, you can make very significant breakthroughs in outcomes or quality of life," says Verwiel. "So in our specialty pharma mission, companies are committed to funding research in a very particular, focused area. The same mission gives us the willingness to use innovative technologies and maximize partnering opportunities." For Aptalis, the main targeted islands are cystic fibrosis (CF) and certain gastrointestinal (GI) conditions. (It also has a line of softgel pediatric vitamins and other OTC nutritional products.) If the mix sounds somewhat odd, it is because the two foci come from a 2011 merger of two quite different companies, Axcan and Eurand. The merger also accounts for the strategic alignment of the company as a hybrid specialty commercialization/product development model. It melds solid revenue producers such as its SP products division with its pharmaceutical technology (PT) division, which applies proprietary delivery and manufacturing platforms to its own and other companies' products. The company's hybridization makes sense: To compete in SP, you need more than steady income; you need constant technological innovation — a path that inevitably leads not just to the combination of new delivery with existing drugs, but into novel-drug territory. "One of the main reasons for the merger was to leverage the product-development knowledge in the PT division for our own SP products and development pipeline," says Verwiel. Axcan had a number of products on the market when the merger occurred, including two pancreatic enzymes for exocrine pancreatic To ensure success, specialty pharma companies such as Aptalis have consolidated, diversified, and created a balance of revenue-producing specialty products with original specialty-drug research. July 2013 LifeScienceLeader.com 25