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Kiwi drug companies are trying to crack the big time in the US


Soaring drug prices are an easy target for politicians, featuring high during the US ­presidential election that resulted in Donald Trump’s ascension to the White House.

He talked tough, saying “Big Pharma” was “getting away with murder” with its high prices. However, when he hauled in the heads of the world’s biggest players, he didn’t so much drag them over the coals as dangle lower taxes and looser regulation to lure their massive ­manufacturing operations to the US as part of his vision to Make America Great Again with new jobs and cheaper drugs.

Within his first fortnight in office, he had altered the narrative: the rest of the world was paying too little for US drugs, he said, and that had to change.

The hitch in the President’s plan to bring manufacturing back to the US is that making medications abroad is not only dirt cheap for its pharmaceutical industry relative to American production costs, but it also creates production-value chains that make it easier to do business internationally.

What does all this have to do with New Zealand?

Beyond a piece of ancient history – that one of the world’s biggest players, Glaxo­SmithKline, started in Wellington almost 150 years ago – the country has no reputation as a drug maker. If anything, Big Pharma has punished New Zealand for establishing Pharmac, the Government’s value-seeking drug-buying agency.

However, this country does have two drug companies looking to make their mark on the global stage – our ­biggest, Douglas Pharmaceuticals, and the maker of the Maxigesic painkiller, AFT Pharmaceuticals.

Douglas Pharmaceuticals chief executive Jeff Douglas.

Established systems

Family-owned Douglas Pharmaceuticals is on track to reach sales of $200 million in the current financial year, previously signalling the US will become its biggest market, where it shares development and marketing costs with a larger partner. Chief executive Jeff Douglas doesn’t see “any great risk for the industry in the short term” and expects any US ­manufacturing push will be hard for American policymakers to achieve.

That said, his firm recently established a development business in Pennsylvania, set to be up and running in the next three months.

Similarly, AFT Pharmaceuticals chief executive and founder Hartley Atkinson doesn’t anticipate much change to firmly established US regulatory systems, beyond the possible loss of small drug companies’ ability to file first ­applications for ­authorisation to the US Food and Drug Administration (USFDA) at no cost.

Atkinson says those applications would cost US$2.4 million (NZ$3.3m) and “you could see someone saying, ‘Why are we giving filing free to a company outside the US?’”

In the US, AFT is chasing a slice of the near-US$3 billion in annual painkiller sales. The company’s Maxigesic tablets, a mixture of paracetamol and ibuprofen, will go to the USFDA this month, with an application for its intravenous use ­following close behind.

Like Douglas, AFT teams up with a larger partner with licensing and profit-sharing that let a local company do the heavy lifting: “They might get two-thirds of the profit and we get one-third. The important thing is as long as they’re doing well, we do well.”

Winning the US market would be the jewel in the crown for AFT, with some upcoming deals expected to yield the company significant upfront payments.

Closer to home, Australia offers big opportunities. A ban from February next year on over-the-counter sales of opioid drugs such as codeine makes ­alternative painkillers an attractive option. The outcome will be closely watched because opioid abuse is also a major problem in the US.

Auckland-based AFT was started in Atkinson’s garage in 1997, building itself into a relatively mature local business before listing on the stock exchange in December 2015, when it raised $33.2 million at $2.80 a share.

After listing, the shares rose as high as $3.22 in June last year, but tumbled in late November when its New Zealand sales were hit by a supply shortage. They were recently trading at $2.65.

International growth

Greg Main, a research analyst at First NZ Capital who watches AFT, says the company is for “patient” investors who can wait a few years to see if the investment of time and money into chasing international growth pays off. Maxigesic is just one of a large suite of medications AFT either makes or is ­developing, with much resting on its NasoSURF nebulisers for sinusitis, which are having clinical trials.

“You’re playing against some very big companies with very big budgets in the global pharmaceutical space and so the question is, ‘How do these guys compete against those guys that have research teams of thousands of people?’”

Main credits Atkinson with building a range of products that basically take an existing substance and turn it into a new idea. With a lean operation, if AFT starts “throwing off cash, it will probably be quite a lot”.

Main scours the detail of AFT’s ­financials – a loss of $11 million on revenue of $30 million in six months to September – but also watches to see whether the company is ­hitting its ­milestones, such as ticking off ­regulatory boxes, signing licensing deals and introducing new products into existing markets, something he says it’s broadly been achieving.

By the end of the decade, “it will be interesting to see what sort of earnings growth over the following years they’ll be forecasting next”, he says.

AFT was turning a small profit and reinvesting those earnings back into the business before Milford Asset ­Management and US-based Capital ­Royalty Group gave it funding lines to boost spending on research and development and build towards a global roll-out.

Although that has generated short-term losses, the company says it’s on track to break even in the 2018 March year.

Main says there is a window of opportunity for AFT, and while the major industry players are forced to focus on “the big blockbuster drugs” to justify their size and scale, the likes of AFT can think about a little niche “and do really well out of it”.

By 2020, Edison Investment Research is picking AFT to generate annual sales of $152 million, spitting out profit of $24 million; Douglas Pharmaceuticals’ target is to generate revenue of $244 million that same year. That also happens to coincide with the end of President Trump’s first term, when we’ll have a sense about whether Big Pharma was all shook up. It could be that the time of Trump will see Kiwi pharmaceuticals flourish.

This article was first published in the February 18, 2017 issue of the New Zealand Listener. Follow the Listener on Twitter, Facebook and sign up to the weekly newsletter.