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Growing pains Featured

8:40am EDT February 24, 2005
When William Nuerge joined Xanodyne Pharmaceuticals in November 2004, he assumed leadership of a rapidly growing company.

In just a few short years, Xanodyne, which was founded in 2001 and focuses on products in the areas of women's health, urology and pain management, has grown to nearly 150 employees and acquired several smaller pharmaceutical companies to complement its expanding roster of products.

Nuerge, who has spent more than 25 years in the pharmaceutical industry including stints as president and CEO of Shire U.S. and COO of Richwood Pharmaceuticals Co., was reunited with Xandoyne founder and Chairman Roger Griggs, who previously founded Richwood and sold it to Shire.

Just four months into his new role, Nuerge is busy. He's still integrating corporate cultures following the merger of Xanodyne and Integrity Pharmaceutical Corp., which occurred several months before his arrival. And Xanodyne recently acquired PX Pharmaceuticals Inc. and is in the process of bringing to market one of PX's developments, a revolutionary new vaccine that prevents recurrent urinary tract infections in women.

Smart Business caught up with Nuerge to discuss the challenges of managing a fast-paced company, the rigors of the pharmaceuticals industry and how he intends to direct Xandoyne's growth.

What's the most difficult part of growing a pharmaceutical company?

There are different ways you can grow. You can grow with your current products that you're marketing -- you can try to build value in those. You can grow organically through your R&D, your own pipeline you have in place. And, you can grow through business development, where you're looking to acquire other companies and other products and projects that you can put into your R&D pipeline.

Xanodyne does all three. So the real hurdle is the financial commitment to do all that -- what do you fund?

What you try to do is make the company profitable through your existing marketed products, and you try to, as much as possible, use that funding toward your internal development. Then, when you go out and do business development, you start looking for financial sponsors that are willing to partner up with you.

What value proposition do you use to entice outside investors?

You have to use your strengths. In our case, that means people. We have a very strong management team, a terrific team, a seasoned team, as well as some good, strong, young hungry middle management. You also usually have to have a focus. Our focus is women's health care, pain management and urology.

We're focusing in areas that we can do well in. We call it the P's -- people, product, profit, pipeline, partnerships, passion. That's what we go out and sell. We also show them our performance, another good P. They (financiers) see our pipeline and the value of the pipeline, and they invest in that.

How do you ensure your team keeps its focus and doesn't stray outside its core strengths?

You look for synergies. For example, Xanodyne was founded as a pain management and oncology company. Roger [Griggs] founded Richwood as a pain management company. We ended up becoming the ADHD support company. That's not where we started, but we took advantage of an opportunity that came along and we focused on that. Then we no longer were a pain management company.

When he left Shire, after the merger of Shire-Richwood, he [Griggs] started Xanodyne, which was a pain management/oncology company, and he did that with one of our key investors, who is a pain management specialist. So we're currently in pain management and oncology.

What we found in oncology was that we had a product, a blood product, and we were able to take that and, through our development group, find a niche in the women's health care area for heavy menstrual bleeding. So we kind of switched. We're still a pain management company, but now were also a women's health care company.

You take advantage of opportunities as they come along, but recognize that you can't do everything. We're no longer an oncology company, but there's a lot of crossover. Women's health care, urology and pain sound like very different specialties, which they are, but there's a lot of crossover.

Pain covers everything. Women have pain from the time they have breast tenderness, from the time they have menstrual pain, they have childbirth pain, they have cancer, there's arthritis, they have all kinds of pain. And the same thing in urology; men have pain.

Then there's a crossover in urology and women's health care, particularly when it comes to urinary tract infections. So we try to stay focused where we can have some synergies in products and in our call patterns with doctors.

Within that focus, how do you decide which products to pursue and which to abandon?

We work with shareholders, so it's all opportunity cost. What resources do we have? We're going to put those resources on those products, not only the products that we market but also the projects that we fund in development that will give us the greatest return on our investment.

It's very simple. If you have 100 sales reps and you can call on OBGYNs and pain management specialist and urologists, you only have so much resource to use. You're going to pursue the one you think is going to give you the greatest return on your investment. That's what we do. We actually sit down and we figure out how best to use the resources we have.

What metrics do you use to measure success?

Obviously, growth is important. And progress, progress, as far as you want to see your pipeline move along, be successful, be on time and be within the cost parameters that you budgeted for or expected. I'm here to grow a company and create opportunities for shareholders and stakeholders.

You grow and create opportunities for your employees and you also keep your shareholders happy. Growth is the No. 1 parameter we look at.

Because Xanodyne is such a young company, how do you know if you've taken that critical step from start-up venture to well-established industry player?

It hasn't already happened. We're still what I would call a developing commercial operation and a developing pharma company. That point will be when we become profitable. I look at that as a key, and profitable in the manner when we can be profitable but still fund our future.

Anybody could be profitable if they cut out all their spending, but you've got to invest in your future. So when you come to the point when you can maintain profitability as well as continue to fund your future and grow for the future, you're there.

How much of the company's budget is funneled into R&D?

We spend as much on R&D as we bring in on sales. Right now, we have three late-stage projects. Two are in phase three and one is in phase two. The later you get into the phases, the more expensive they get because you start to put the drug into use and you have to do a lot of clinical studies. So we're in late stage, which means we're soon to market, we're talking about '07, '08 and '09.

There's a huge investment between now and approval, so right now we have a very large percentage of our budget that goes into that. We'd like to get that down to between 10 percent and 15 percent of our sales numbers. At that point, we're an established, risk-adverse, stable company.

With several mergers under both your belt and Xanodyne's, what are some of the growing pains you've found common among mergers?

First of all, you only merge if it makes sense from a business perspective. Integrity was a women's health care company and Xanodyne was a pain and oncology company.

Through their oncology work, Xanodyne came up with a product through their blood work in oncology that could be developed for heavy menstrual bleeding. That fit into the women's heath care area, so it made sense to bring the two companies together because the development matched the integrity and focus.

But with regard to growing pains, there's integration. What you see from the outside, it looks like some of these big pharmaceutical companies are still integrating from a year ago. The cultures are different, you've got redundancies of positions, it's a big conversion from running the business, there's a lot more to it than what most people, shareholders in particular, see from the outside.

It takes an intense amount of effort to integrate. You've got discrepancies in compensation, for example. One company may pay their sales reps $75,000 a year; the next may pay $50,000 a year. So you've got to integrate all of that and make things equal across the board. It's easy for people to talk and say we're going to merge two companies, but it takes the functional departmental people a long time to work out the true integration to get one culture.

What you do is look at your common areas. For example, if you have duplicate sales forces, you may decide to expand your sales force. It may mean some of your sales reps have to take different territories. There may be redundancies. You have to take the best of who you have and you have to treat people fairly.

If you have two development groups, you look at the projects you're funding and recognize that you can't fund them all. So you look at the ones that are going to give you the greatest focus on where the company's going in the future and the greatest return. You repeal some of those projects and maybe reinvest more in some of the other projects.

On the contractual side, corporate accounts, everything changes. And it's very difficult and takes a lot of work. But you know you're doing it for the long-term return and, in the initial stages, a lot of times it'll cost you to integrate companies because you have severances and downtime. I've been through many [mergers] and they're not enjoyable until you have everything completed and it's running smoothly.

How do you envision Xanodyne's growth over the next few years?

You never know where you're going to end up. You've got to take advantage of your opportunities as they come. Right now, we're spending a lot of time looking at other opportunities to build in the therapeutic areas that we have.

Our goal would be to ultimately take the company public or have some other transformational event for our shareholders. We're not very patient; we don't expect to take years. By this time next year, I would view my job as a failure if we hadn't transformed this company into the vision that I had, which would be a steady, risk-adverse company that is profitable and funding it's own future.

How to reach: Xanodyne, (877) XANODYNE or www.xanodyne.com