The Vintage advantage

Partners find making generic drugs a profitable business

Sunday, November 12, 2006

By BRIAN LAWSON

Times Business Writer, brian.lawson@htimes.com

Vintage Pharmaceuticals quietly produced 2.5 billion prescription tablets in the past year, and that's just one facet of a hometown business working in a tremendously competitive industry.

Vintage makes generic drugs and sells them to its sister company Qualitest Pharmaceuticals, also based in Huntsville, which then labels and ships the drugs to customers across the U.S. The companies represent different sides of the business, but operate under one management umbrella.

The company employs about 525 people in Huntsville and another 125 employees at its manufacturing plant in Charlotte, N.C.

It produced 80 million prescription drug bottles last year and its 2006 production volume exceeds 2005, said company CEO Tom Young, who served as chief of staff to U.S. Sen. Richard Shelby.

"The great thing about the generic drug business is we're reducing people's health care costs everyday," Young said.

From 1999 to 2003, the average cost per purchase for brand name drugs rose from $59.49 to $82.53, generics went from $23.48 to $33.53, according to the Agency for Healthcare Research and Quality.

Started by William Propst Sr., the company's history mirrors the evolution of the pharmaceutical industry in the U.S. Propst Sr. is chairman of Qualitest and his son William Propst Jr., serves as the company's vice chairman.

Propst graduated from Samford pharmacy school in 1946, began work for Walgreens and opened his own store in North Alabama in 1963. He built five others in Huntsville and in 1968 was approached by the Kmart corporation.

He got the franchise to establish pharmacies in Kmarts across the U.S., then the company offered to buy the franchises from him and he took over as Kmart's pharmacy director in 1970. For Propst that meant a move to Michigan, where he served with Kmart for more than 16 years.

Propst said Michigan was one of the first states, in 1979, to enact a generic drug law and he had had a close vantage point to the beginnings of that market.

"During that time, generics were just becoming fashionable and we (Kmart) were buying them from everywhere," Propst said. "Management wanted to determine where we were buying everything from so we started Qualitest in 1985 to test the products."

Propst left Kmart in 1986 and bought a part interest in Qualitest so he could move it to Huntsville. By 1989, he realized to make the business work Qualitest needed to get into manufacturing.

Kmart wasn't interested in that, so he bought out the company's share and in 1992 bought a pharmaceutical production plant in Charlotte. He named that operation Vintage Pharmaceuticals. In 1996 the company opened its liquid drug facility here on 172 acres off Moore's Mill Road in the Chase area and in 2001, it built its tablet making facility.

Today the property includes a 320,000-square-foot tablet plant, a 260,000-square-foot distribution facility and a 180,000-square-foot liquid plant.

The process

The drug-making plants must operate under intense FDA regulation, with requirements for testing and quality control at each step. Those requirements include precisely following the company's formula for a drug that has been approved by the FDA. Any deviation would require approval of a new recipe.

The plants take in raw materials, both active and inactive ingredients, and test each item for quality. Once quality is established, the ingredients are mixed in very large blenders, and then tested some more. Pills are shaped by super high-pressure machines, coated if necessary by jets and then sealed.

The next step is bottling and labeling, which takes place in both manufacturing plants as well, followed by packaging. Then it is all shipped off to the Qualitest distribution plant on the same site for final packaging and shipping.

The company can take orders and ship in the same day, Young said, a major source of its competitive strength.

"We follow every single rule of the FDA," Young said. "We spend a lot of money on quality control."

Changing times

Generic drugs are chemically identical (the same active ingredients) to a brand-name drug, work in the same way and are taken the same way, according to the U.S. Food and Drug Administration. Most drug patents last for 17 years and during that period no one but the patent holder can make that drug. When the patent expires, generic drug makers can produce the same drug with FDA approval.

But original makers don't provide how to make the drug; generic makers have to reverse engineer the drug and make it exactly - though colors and inactive ingredients can be changed - as the original drug and the formula needs FDA approval.

It takes Vintage about two years to receive approval to make a generic drug, about a year for development to ensure the drug works exactly as it's supposed to and about a year for FDA review, company officials said.

U.S. consumers take a lot of prescription medication and the numbers continue to rise. For example from 1994 to 2005, the number of prescriptions increased 71 percent, from 2.1 billion to 3.6 billion, and per capita from 7.9 prescriptions to 12.3 in 2005, according to the nonprofit Kaiser Family Foundation, which studies health care issues.

With that much would-be business, there are an enormous number of companies seeking to tap in, and Qualitest's CEO Tom Young said competition on pricing and product delivery are keys in determining the company's success. The company seeks to or sells its products to a number of sources, including the drug store chains, grocery store chains, through mail order, independent pharmacists, the federal government and large wholesalers.

Concentration in the industry, on the pharmacy chain and wholesaler level has made the environment even more competitive, Young said.

Propst said when he started the company there were 250 to 300 drug wholesalers in the marketplace; today there are about 45 and three or four dominate about 85 percent of the business. As a result, the company has to concentrate on keeping its prices in line with its competitors, bringing out new products and maintaining its reputation for consistent and timely delivery.

The company doesn't challenge patents, it tends to focus not on the newest drug to join the generic ranks, but rather those that have consistent household use and are expected to be taken for years to come.

The company is in the midst of expanding its research and development operations in both pills and tablets. It has 30 pending abbreviated new drug applications currently and hopes to average around 30 - including pills and tablets - a year for the next four to six years, Young said. "There's no other generic drug company like us in Alabama," Young said.



The Vintage advantage Partners find making generic drugs a profitable business Sunday, November 12, 2006 By BRIAN LAWSON Times Business Writer, brian.lawson@htimes.com Vintage Pharmaceuticals quietly produced 2.5 billion prescription tablets in the past year, and that's just one facet of a hometown business working in a tremendously competitive industry. Vintage makes generic drugs and sells them to its sister company Qualitest Pharmaceuticals, also based in Huntsville, which then labels and ships the drugs to customers across the U.S. The companies represent different sides of the business, but operate under one management umbrella. The company employs about 525 people in Huntsville and another 125 employees at its manufacturing plant in Charlotte, N.C. It produced 80 million prescription drug bottles last year and its 2006 production volume exceeds 2005, said company CEO Tom Young, who served as chief of staff to U.S. Sen. Richard Shelby. "The great thing about the generic drug business is we're reducing people's health care costs everyday," Young said. From 1999 to 2003, the average cost per purchase for brand name drugs rose from $59.49 to $82.53, generics went from $23.48 to $33.53, according to the Agency for Healthcare Research and Quality. Started by William Propst Sr., the company's history mirrors the evolution of the pharmaceutical industry in the U.S. Propst Sr. is chairman of Qualitest and his son William Propst Jr., serves as the company's vice chairman. Propst graduated from Samford pharmacy school in 1946, began work for Walgreens and opened his own store in North Alabama in 1963. He built five others in Huntsville and in 1968 was approached by the Kmart corporation. He got the franchise to establish pharmacies in Kmarts across the U.S., then the company offered to buy the franchises from him and he took over as Kmart's pharmacy director in 1970. For Propst that meant a move to Michigan, where he served with Kmart for more than 16 years. Propst said Michigan was one of the first states, in 1979, to enact a generic drug law and he had had a close vantage point to the beginnings of that market. "During that time, generics were just becoming fashionable and we (Kmart) were buying them from everywhere," Propst said. "Management wanted to determine where we were buying everything from so we started Qualitest in 1985 to test the products." Propst left Kmart in 1986 and bought a part interest in Qualitest so he could move it to Huntsville. By 1989, he realized to make the business work Qualitest needed to get into manufacturing. Kmart wasn't interested in that, so he bought out the company's share and in 1992 bought a pharmaceutical production plant in Charlotte. He named that operation Vintage Pharmaceuticals. In 1996 the company opened its liquid drug facility here on 172 acres off Moore's Mill Road in the Chase area and in 2001, it built its tablet making facility. Today the property includes a 320,000-square-foot tablet plant, a 260,000-square-foot distribution facility and a 180,000-square-foot liquid plant. The process The drug-making plants must operate under intense FDA regulation, with requirements for testing and quality control at each step. Those requirements include precisely following the company's formula for a drug that has been approved by the FDA. Any deviation would require approval of a new recipe. The plants take in raw materials, both active and inactive ingredients, and test each item for quality. Once quality is established, the ingredients are mixed in very large blenders, and then tested some more. Pills are shaped by super high-pressure machines, coated if necessary by jets and then sealed. The next step is bottling and labeling, which takes place in both manufacturing plants as well, followed by packaging. Then it is all shipped off to the Qualitest distribution plant on the same site for final packaging and shipping. The company can take orders and ship in the same day, Young said, a major source of its competitive strength. "We follow every single rule of the FDA," Young said. "We spend a lot of money on quality control." Changing times Generic drugs are chemically identical (the same active ingredients) to a brand-name drug, work in the same way and are taken the same way, according to the U.S. Food and Drug Administration. Most drug patents last for 17 years and during that period no one but the patent holder can make that drug. When the patent expires, generic drug makers can produce the same drug with FDA approval. But original makers don't provide how to make the drug; generic makers have to reverse engineer the drug and make it exactly - though colors and inactive ingredients can be changed - as the original drug and the formula needs FDA approval. It takes Vintage about two years to receive approval to make a generic drug, about a year for development to ensure the drug works exactly as it's supposed to and about a year for FDA review, company officials said. U.S. consumers take a lot of prescription medication and the numbers continue to rise. For example from 1994 to 2005, the number of prescriptions increased 71 percent, from 2.1 billion to 3.6 billion, and per capita from 7.9 prescriptions to 12.3 in 2005, according to the nonprofit Kaiser Family Foundation, which studies health care issues. With that much would-be business, there are an enormous number of companies seeking to tap in, and Qualitest's CEO Tom Young said competition on pricing and product delivery are keys in determining the company's success. The company seeks to or sells its products to a number of sources, including the drug store chains, grocery store chains, through mail order, independent pharmacists, the federal government and large wholesalers. Concentration in the industry, on the pharmacy chain and wholesaler level has made the environment even more competitive, Young said. Propst said when he started the company there were 250 to 300 drug wholesalers in the marketplace; today there are about 45 and three or four dominate about 85 percent of the business. As a result, the company has to concentrate on keeping its prices in line with its competitors, bringing out new products and maintaining its reputation for consistent and timely delivery. The company doesn't challenge patents, it tends to focus not on the newest drug to join the generic ranks, but rather those that have consistent household use and are expected to be taken for years to come. The company is in the midst of expanding its research and development operations in both pills and tablets. It has 30 pending abbreviated new drug applications currently and hopes to average around 30 - including pills and tablets - a year for the next four to six years, Young said. "There's no other generic drug company like us in Alabama," Young said. © 2006 The Huntsville Times © 2006 al.com All Rights Reserved.