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Buyout ends 2-year saga as Rockville drug firm stays

Friday, Jan. 20, 2006

Two rocky years after Shire Pharmaceuticals of England ordered its Shire Laboratories Inc. division to move from Rockville to Pennsylvania, management of the local division has finally succeeded in purchasing it and will stay put.

Employees, in a company contest, have re-named it Supernus Pharmaceuticals Inc.

‘‘This is a remarkable achievement for our employees to stick it out, with the last two years being so uncertain. The credit goes all to them,” said Jack A. Khattar, president and CEO, who had the same titles with Shire Laboratories. ‘‘They stuck to this because we have a very strong culture.”

Khattar has secured a first-round investment of $27.5 million from venture capitalists New Enterprise Associates, said James Barrett, a general partner with the Baltimore investment firm who is now chairman of the Supernus board.

Also, Mike Sheffery of OrbiMed Advisors LLC of New York City said his firm has also invested in Supernus. Sheffery, a Supernus board member, did not disclose the amount.

‘‘We like the company,” Barrett said. ‘‘It is a proven drug technology that can now apply its efforts to their own property. They have an excellent team.”

Besides loyal employees and a cash infusion, it took Khattar’s dogged determination and local support to keep the company in place, according to Sally Sternbach, executive director of nonprofit Rockville Economic Development Inc.

‘‘While Shire was frying bigger fish in England, Jack had the quiet confidence to hold this together,” Sternbach said. In 2005 and continuing into 2006, Shire has been embroiled in litigation to stop other companies from launching generic versions of its hyperactivity drug Adderall.

Khattar, for his part, said Sternbach was instrumental in drumming up county and state support for his negotiations with Shire Pharma.

The parent company, under then-new CEO Matthew Emmens, decided in 2003 to consolidate all of its North American non-manufacturing divisions from Tennessee to Canada and move them to Wayne, Pa., near Philadelphia. Calls to Emmens’ offices in Philadelphia seeking comment were not returned.

A notice from Shire headquarters arrived in Rockville in December of that year, saying the division would be packing up and moving, Khattar said. Shire had two divisions in Rockville at the time.

However, according to Sternbach, Khattar thought a wiser decision would be to stay, for two reasons.

‘‘Jack felt that not every employee would transfer and that there is a real entrepreneurial spirit in his division that would probably not survive in a larger corporate situation,” Sternbach said. ‘‘He argued [with Shire] that shareholder value would be better if they stayed.”

She calls Shire Laboratories ‘‘one of Shire’s cash cows,” because the Rockville operation set its own records in revenues in 2004 and 2005. ‘‘Jack would not take no for an answer,” she said.

Khattar would not disclose revenue or profit figures. Shire Laboratories has annual revenues of $94 million, according to Goliath, an online business information service. Shire Pharmaceutics reported profits of $283 million in 2003 and $334 in 2004; its estimate for 2005 is $351 million.

‘‘They wanted to move us as soon as possible,” Khattar said of the parent company. ‘‘It took that long [to complete the buyout] because the parent company priorities changed.”

He and his management team often ‘‘could not get their attention,” because of Shire‘s legal matters and acquisitions of other companies, Khattar said.

Supernus has defined itself as a specialty pharmaceuticals company that focuses on developing products for its own portfolio and in partnership with other pharmaceutical companies. Among its key technologies are controlled-release drugs for many conditions, Khattar said.

‘‘It is rare you have an opportunity to acquire on fair terms to get a bucket of products with a proven technology,” Barrett said.

‘‘Our decision to acquire [Shire Laboratories’] product formulation and development business was based on [its] success and proven track record in developing advanced products such as Adderall XR, Carbatrol, Equetro and Oracea,” Khattar said in a statement.

Khattar said he argued with Shire Pharma that Rockville has a ‘‘pretty good pool of talent” and a high value of being located near the National Institutes of Health in Bethesda and the Food and Drug Administration in Rockville. He said it soon became clear that, rather than selling off the division to a third party, there was chance for an employee buyout.

At the end of 2003, SLI employed more than 100; it currently has 51 employees.

Between 70 and 80 of the employees stayed throughout the uncertainty, but 25 were laid off Dec. 21 at the insistence of Shire Pharma, said David Schappelle, human resources director of Supernus. Otherwise, the buyout was off, the parent company said.

‘‘When you are told by an organization that you are no longer going to be part of their global picture, it causes uncertainty,” Schappelle said. ‘‘But then when the news finally arrived in December [of the purchase], it was both uplifting and bittersweet to lose good employees so suddenly.

Two of the employees who stuck it out were Catherine Lugez, associate director of analytical sciences, who is pleased to stay near her home in Urbana, and Kevin Edwards of Reston, Va., research chemist and a Shire Laboratories employee since 2001.

Edwards, who said he is pleased that his wife can keep her job in Washington, D.C., said it looked like a long shot to keep the company in Rockville because ‘‘there are not a lot of pharmaceutical companies in the area.

‘‘But, lots of us have gotten attached to the company and the area and the pharmaceutical industry,” he said.

Lugez, a native of France, said she would have transferred to Wayne just to stay on the East Coast for the relative convenience of her visits to her homeland. She is happy that Khattar and Supernus management have promised each employee stock in the new company.

Before joining Shire Laboratories six years ago, Khattar was an executive with the drug delivery company CIMA. Previously, he held several marketing and business development positions at Merck & Co., Novartis, Playtex and Kodak in the United States, Europe and the Middle East.