For centuries, the people of Mexico have rubbed their hands and feet with the root of a scraggly herb called barbasco in the belief it would heal wounds. Then, in the mid-1940s, the plant found a more lucrative application: Syntex Corp. plucked it from folklore medicine for use as a cheap source of a substance needed to make sex hormones.
The Palo Alto drug maker, founded in 1944 by a group of scientists, spent the next few years using a steroid extract from the plant to pioneer the birth control pill. Rich in knowledge but lacking resources to make and market such a pill, Syntex sold the substance during the 1950s and 1960s to major U.S. drug companies such as Johnson & Johnson and Upjohn, which used it as the main ingredient in three of the first four oral contraceptives in the United States.
Selling its first product to other drug makers cost Syntex the leading spot in the oral birth control market, a position it has never been able to recapture. But subsequent gains outweigh that loss. Money earned from early research catapulted Syntex into the hard-to-enter drug industry, providing funds to develop other drugs it later could afford to market under its own label--a far more profitable practice than offering products wholesale.
Enough Money to Survive
"To make money you don't want to stay a research firm," Syntex Chairman and Chief Executive Albert Bowers said in a recent interview. "But you have to make enough money to survive till you're strong enough to sell products of your own." Syntex eventually introduced a birth control pill under its own label, but it remains a distant third in oral contraceptive market share. "It's the price you have to pay," Bowers said. "It's a small price."
Today, 41-year-old Syntex ranks 11th in sales among U.S.-based drug companies. Despite its growth and early role helping spawn the sexual revolution, the company is virtually unknown among consumers because it makes no over-the-counter products. Among competitors and Wall Street analysts, however, Syntex is known and praised as the only start-up company since World War II to become a major player in the drug market worldwide. Its name is invoked both as a role model for would-be pharmaceutical giants and as a mirror of opportunities and hurdles facing today's established leaders.
"Syntex could be viewed as a microcosm of the drug industry," says David Crossen, analyst at Sanford C. Bernstein & Co. in New York. "It possesses substantial growth potential. It also is beset by serious problems in the form of its loss-ridden non-drug businesses, its over-dependence on one product and heavy competition for its planned new products."
For executives in biotechnology--the drug industry's newest start-ups--Syntex serves as a text-book example of how to become a fully integrated drug company. These fledgling firms look to Syntex as they fight to balance the sale of early research to major companies (including Syntex) with the goal of remaining independent. Syntex's history has become an industry blueprint on the effective use of early profits to leverage a start-up into the big leagues.
Firm Beat the Odds
"If I had to pick a company that beat the odds of doing that, of breaking into the drug industry club, the model would be Syntex," said Robert A. Fildes, president and chief operating officer of Cetus Corp., a leading biotech company which is based in Emeryville in the San Francisco Bay Area. "We want to do the same thing."
Syntex followed the success of its birth-control pill work with two other "blockbusters"--Wall Street's term for big money-makers in the drug market. The first was Synalar in 1961, a steroid-based cream to apply to the skin to reduce inflammation. Steroids are a sub-class of hormones, which trigger and regulate many key body functions, including those differentiating the sexes.
The second was Naprosyn in 1972, a non-steroidal drug to reduce inflammation in arthritis patients.
Naprosyn has become the leading arthritis drug and the fifth best-selling drug in the world. Its success is largely responsible for feeding Syntex's spurt of growth since the mid-1970s.
Like many drug companies during the 1960s and 1970s, Syntex went on an acquisitions spree with the goal of diversifying into other areas of health-care. By 1980, Syntex had five divisions outside its drug operations: beauty care, contact lenses, dental products, diagnostic equipment and agriculture. Syntex learned that while drugs can be very profitable, many health-related ventures are money-losers.
Today the company says it expects most of its growth through the rest of the century to come from drugs, and, when the shakeout in the medical equipment market ends, from diagnostic products.
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