Berlex Laboratories, Inc.

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Berlex Laboratories, Inc.

340 Changebridge Road
Montville, New Jersey 07045-1000
U.S.A.
Telephone: (973) 487-2000
Fax: (973) 487-2003
Web site: http://www.berlex.com

Wholly Owned Subsidiary of Schering AG
Incorporated: 1979
Employees: 2,400
Sales: $1.2 billion (2003)
NAIC: 325412 Pharmaceutical Preparation Manufacturing

Berlex Laboratories, Inc. is a Montville, New Jersey-based subsidiary of German pharmaceutical Schering AG. Berlex markets some 20 products, such as an oral contraceptive called Yasmin and medicines used to treat multiple sclerosis, dermatological disorders, and cancer. The company also offers diagnostic imaging agents used in performing MRI scans. Berlex's bioscience division is located in Richmond, California. Generating about $1.2 billion in annual sales, Berlex contributes about one-quarter of its parent corporation's total revenues.

Late 1970s Origins

Although Berlex was founded in 1979, the roots of the company date back to the mid-19th century when Ernest Schering open a pharmacy in Berlin, Germany. He would incorporate the business in 1871 as Chemische Fabrik auf Actien and become involved in the production of chemicals, such as mercury compounds, that had uses in both pharmaceuticals and photography. In 1890, a year after Schering died, the company launched its first specialty product, a treatment for gout. Over the next few decades, the company diversified into such areas as electroplating for decorative metals, industrial and laboratory chemicals, and agrochemicals. In the 1930s it merged with a mining and chemical company and the resulting entity was renamed Schering AG. From its earlier days, the company was active in the United States. A subsidiary, Schering & Glatz, was launched in 1876 to distribute medicines produced by the parent company. However, 40 years later during World War I when the United States and Germany became enemies, the German-owned subsidiary was dissolved.

Schering returned to the U.S. market in 1929 by establishing New York City-based Schering Corporation, a subsidiary that focused on hormone research and synthesized steroid drugs. When Germany and the United States were once again pitted against one another in World War II, the company came under scrutiny, largely because its corporate parent was suspected of working closely with the Nazis to produce drugs that might help German pilots to withstand the strains of high altitudes, thus giving them the tactical advantage of being able to fly higher. In 1942 Schering's U.S. subsidiary was seized by the U.S. government, and some ten years later the government elected to sell the business to a private investment group headed by Merrill Lynch. As a result, the U.S.-based Schering Corporation was separated from Schering AG.

Schering AG struggled to rebuild its business during the difficult conditions that prevailed following the war. The company used its expertise in steroids to produce the first birth control pill, simply known as "the Pill," introduced to the European market in 1961. With the profits from this product, Schering was able to diversify and one again try the U.S. market. In 1972 it acquired a half-interest in New Jersey-based Knoll Pharmaceutical, the first of several acquisitions Schering would make in the United States over the next several years.

To complement its five divisions—Drugs, Industrial Chemicals, Fine Chemicals, Agrochemicals, and Electroplating—Schering made some U.S. acquisitions. To become involved in drug development in the United States, in 1979 Schering acquired certain assets of the Internal Medicine division of Cooper Laboratories, Inc., in New Jersey. The interests were folded into a new subsidiary named Berlex Laboratories. From Cooper Laboratories it gained expertise in such areas as cardiovascular disease, birth control, and diagnostic imaging. Berlex also became active in the endocrinology sector. The first product of note introduced by the subsidiary, iodinated contrast agents used in imaging, was shipped in 1982. Later in the 1980s Berlex launched two oral contraceptives, Levlen and Tri-Levlen, as well as Magnevist, the first enhancement agent for use in magnetic resonance imaging.

Legal Challenges in the 1980s–90s

After rebuilding its business during the postwar period, Schering AG had bought back all of the subsidiaries it lost because of the war. There was one exception, however: Schering Corporation in the United States, which had grown too large and turned into a major rival. For years the two companies fought over the right to use the Schering trademark in the U.S. market, a matter that reached the boiling point in 1983 when Schering-Plough (the name Schering Corporation took effect after the 1971 merger with Plough Inc.) sued Schering AG, claiming that Berlex had infringed upon its trademark. The resulting litigation dragged on until 1988 when a settlement was reached. Schering AG agreed not to use the Schering name in the United States and Canada in connection with its pharmaceutical products, relying instead on the Berlex trademark so as not to confuse the public.

In 1990 Schering entered the U.S. biotechnology sector by acquiring two San Francisco-area companies: Triton Biosciences and Codon Corporation. A subsidiary of Shell Oil Company, Triton pursued anti-cancer drugs. However, its increasing demands for more funding, without any viable products to show for all of its efforts, had convinced Shell that it would be better off concentrating on its core competency, and it willingly sold the biotech to Schering. Triton had an upside for Schering in that it had two products in clinical trials: Fludara, used in the treatment of refractory chronic lymphocytic leukemia, and Betaseron, a treatment for multiple sclerosis. Established by college professors, Codon raised money by hiring out the expertise of its personnel. Abbott Laboratories helped fund Codon for a period of time, then stepped away, leaving the start-up in a precarious financial position, with just $1 million of operating cash available. Codon eagerly agreed to be acquired by Schering, which was pleased to add the company's expertise in biotechnology manufacturing.

Schering's management was reluctant to impose a German corporate culture on Triton and Codon and elected to allow the biotechs to operate with a great deal of autonomy. As a result, Berlex became bi-coastal and split into two divisions, with the newly formed Berlex Biosciences based in California. While the New Jersey facility operated like a traditional pharmaceutical house, Berlex Biosciences continued to retain the culture of a small high-tech startup. Triton and Codon were consolidated, however, a move that caused some conflict, because the function of some departments overlapped and difficult decisions had to be made over who would be terminated and who would stay. Moreover, the two differed over computers, with Triton committed to mainframe client server architecture and Codon preferring the Macintosh computer. In the end, both mainframe and Macs would be used. For the first few years, consolidation was made difficult because operations were spread throughout the Bay Area. Then, in 1993, Berlex Biosciences was able to bring all the units together in a new facility located in Richmond, California, the Ortho Research Center, which had been built several years earlier by the Ortho Division of Chevron Chemical Company. After Chevron decided to divest Ortho, the center was put up for sale. Berlex paid $53 million for the site and invested another $4 million to retrofit the facility, which was divided into a two-story administration building and a three-story lab building.

New Jersey and California also found themselves in occasional conflict, primarily involving human resources practices such as performance review. To become more efficient in this area, as well as to avoid problems with morale, Berlex revamped its performance review system and rolled it out to both coasts. The California start-up mindset sometimes clashed with the sensibilities of the German corporate parent, the executives of which were more conservative by nature and believed the Americans were moving ahead on projects too quickly. To address this problem and forge better understanding between the two cultures, a work exchange program was established, allowing employees to spend up to one year at an assignment outside their home country. In the end, the East and West Coast arms of Berlex learned to work together, as did the entire American subsidiary with its German corporate parent.

During the first half of the 1990s, Berlex introduced several products into the marketplace. Launched in 1992 was Fludara, a treatment for the most common form of adult leukemia, geared toward patients who did not respond to chemotherapy. A year later, Berlex brought out Betapace, a treatment to help maintain normal sinus rhythm for patients with highly symptomatic atrial fibrillation and atrial flutter (AFIB/AFL). Also in 1993, Berlex introduced Betaseron, a breakthrough in the treatment of multiple sclerosis developed in conjunction with Chiron Corporation. (The product was manufactured by Chiron and sold by Berlex.) A genetically engineered form of interferon, a protein produced by the body to fight viruses, Betaseron was the first medication developed that could reduce the number of spikes in the disease, which could greatly worsen such symptoms as tremors, fatigue, and numbness. The drug Climara, a patch, was another first for Berlex when it was launched in 1995. Climara was the first transdermal estrogen replacement therapy product. The seven-day patch delivered estrogen to women directly into the blood stream, especially useful in the prevention of osteoporosis.

Company Perspectives:

Berlex's singular approach to developing and making specialized medicines already has yielded innovations in treating multiple sclerosis, dermatological disorders, female health concerns, cancer and in the creation of new diagnostic imaging techniques.

Also in 1995 Berlex introduced Ultravist, an iodinated contrast agent for use in computed tomography. A year later the company offered Feridex I.V., the first liver-specific, as well as the first organ-specific, MRI enhancement agent launched in the United States. To growth its business in imaging agents, in 1996 Berlex forged an alliance with Abbott Laboratories, which maintained a strong hospital product marketing unit. Under terms of the agreement, Abbott would sell Magnevist and Ultravist to hospitals and be responsible for distribution, customer service, and order processing, while Berlex provided technical support. It was a win-win situation for both parties. Berlex was eager to expand sales in its imaging agents, while Abbott was looking to make greater inroads in the diagnostic imaging market.

Starting in 1996 Berlex became involved in litigation connected to Betaseron. Biogen Inc. of Cambridge, Massachusetts, developed a drug called Avonex, which relied on a slightly different synthetic interferon. Berlex attempted to block the sale of Avonex because its introduction would violate the company's seven-year period of exclusive marketing. Biogen, on the other hand, contended that it had the right to market Avonex because it gained approval under the federal Orphan Drug Act, which was meant to reward companies for developing drugs used to treat rare diseases. In July 1996 Berlex sued Biogen for patent infringement involving the way Biogen produced the synthetic protein from ovary cells taken from Chinese hamsters. The matter would wend its way through the courts for the next eight years. In the meantime, Avonex dominated the market and became Biogen's flagship product, generating the bulk of the company's annual revenues, which reached $1 billion by 2000.

2000 and Beyond

In September 2000 Biogen won a decision in U.S. District Court, which Berlex appealed to the First U.S. Circuit Court of Appeals. Early in 2002 the two sides appeared to reach a settlement, which called for Biogen to pay Berlex at least $20 million in exchange for a license to the disputed patents. If the appeal sent the case back to the lower court, Biogen also agreed to pay Berlex an additional $55 million. Should the court rule against Biogen entirely, Berlex would be in line for an additional payment of $230 million. In February 2003, the appeals court upheld most of the lower court's ruling but ordered the lower court to re-examine one patent claim. As a result, Biogen was forced to pay Berlex the additional $55 million.

In the final years of the 1990s, Berlex moved to new headquarters in Montville, New Jersey, and introduced several new products. It launched Levlite in 1998, an oral contraceptive with a lower dosage than Levlen. In 1999 Climara became available in a new low-dose form. Another new Berlex drug, also launched in 1999, was Quadramet, used to treat the pain that accompanied metastatic bone cancer. In addition, Berlex acquired two new diagnostic imaging products in 1999: Acutect and Neotect.

The launch of new products accelerated for Berlex in the early years of the new century. In 2000, Levulan Kerstick, used to treat actinic keratoses, was launched, as well as Betapace AF, a replacement for Betapace and generic sotalol taken by patients suffering from atrial fibrillation. In 2001 Berlex launched five products: Campath, used to treat B-cell chronic lymphocytic leukemia; Refludan, a thrombin inhibitor used to treat patients with heparin-induced thrombocytopenia and associated thromboembolic disease; Finevin, an acne medication; Mirena, an implanted contraceptive; and Yasmin, an oral contraceptive. Additionally in 2001 Berlex acquired Refludan, a direct thrombin inhibitor used to treat patients with heparin-induced thrombocytopenia. A year later Berlex acquired Leukine, prescribed for older adults with acute myelogenous leukemia following chemotherapy, after bone marrow transplantation, or peripheral blood stem cell transplantation. In 2003 Berlex introduce Finacea, a topical treatment for rosacea.

After 25 years, Berlex was a clear success for Schering, one of the few European drug makers to crack the U.S. market. The winning strategy was to become a niche company, to focus on specific product lines, such as birth control and multiple sclerosis, rather than to attempt to compete with much larger companies over a broader front.