6 Industrial Way West
Eatontown, New Jersey 07724
Telephone: (908) 389-1182
Fax: (908) 389-1014
Incorporated: 1983 as VRG International
Sales: $112.2 million (1994)
Stock Exchanges: NASDAQ
SICs: 2834 Pharmaceutical Preparations
A small yet fast-growing pharmaceutical company, Roberts Pharmaceutical Corporation licenses or buys drugs that are nearing completion of the federal approval process, operating not as a manufacturer of medications, but as a purchaser, developer, and marketer of products that have already been subjected to preliminary research by larger drug concerns. One of the pharmaceutical industry's elite group of small-sized competitors, Roberts Pharmaceutical was founded in 1983 by Dr. Robert A. Vukovich, who led the company from a one-man operation to the rousing success it had become by the mid-1990s, with roughly 350 employees and more than $100 million in annual sales. During the mid-1990s, the company marketed its pharmaceutical products in seven countries and maintained operating subsidiaries in the United States, Canada, and the United Kingdom.
The Pharmaceutical Industry in the 1980s
As the 1980s were winding down, a trend within the pharmaceutical industry was picking up speed. Increasingly, as the decade was drawing to a close, drug companies were seeking the benefits of consolidating their operations with other drug companies, touching off a spate of mergers among the largest pharmaceutical concerns that divided the multibillion dollar market for prescription and nonprescription drugs into increasingly bigger slices. One after another, one large drug company merged with another large company, combining the already prodigious assets owned by each to create a cadre of industry titans who held sway over drug research and manufacturing. In the space of a few short years, behemoth drug conglomerates were created as industry stalwarts joined forces: SmithKline merged with Beecham, Rhone-Poulenc merged with Rorer, Bristol-Myers merged with Squibb, Marion Laboratories merged with Merrell Dow, and American Home Products merged with A.H. Robins. Ironically, as the big merged with the big, the same trend that tightened the grip these massive pharmaceutical corporations held on the drug market also benefited a much smaller breed of pharmaceutical competitors. One such company was Roberts Pharmaceutical.
For large national and international drug companies, merging yielded instantaneous benefits, combining the might of two competitors into one appreciably more powerful corporation. Once the agreement to merge was signed, the company created through the consolidation enjoyed increased marketing strength, a broader product line, and, of particular importance in the pharmaceutical industry, greater financial resources to devote to the research and development of pharmaceutical products. There was, however, a price to be paid for the advantages of large size. Large pharmaceutical companies needed to realize large profits to maintain their stature, a circumstance of their magnitude that forced the bigger drug companies to eschew involvement with products that had little hope of generating sufficient sales or profits to contribute to their growth. As a result, there were numerous, potentially profitable drugs that large pharmaceutical companies were forced to pass over, a condition of their operating strategies that created opportunities for small drug companies willing to market what industry giants could not afford to do.
Although the rash of mega-mergers widened the gap separating what large and small drug companies considered to be financially viable drugs to market, the disparity had existed for decades before consolidation became a pervasive trend during the late 1980s and early 1990s, something one employee of a large pharmaceutical corporation noted during his career. Robert A. Vukovich, the founder of Roberts Pharmaceutical, had spent much of his professional life working for several of the most prominent drug companies in the world, serving in various research and management capacities at Warner-Lambert, Squibb, and Revlon. Vukovich spent five years at Revlon and another ten years at Squibb, noting during his tenure at each company that corporate strategy precluded the development of certain drugs. "There would be many product opportunities that would be passed up," Vukovich later remembered in an interview with the Business Journal of New Jersey, "We would pass up on products all the time that didn't meet certain strategies or didn't have [potential] third-year sales of $50 million." Vukovich's observations had a definitive effect, sparking his interest in forming his own small drug company that could develop those drugs the billion-dollar pharmaceutical corporations passed up.
Early 1980s Company Origins
After spending years working for others, Vukovich decided to set out on his own, resolving to establish his own small pharmaceutical concern and vie for the business eschewed by large corporations in the industry. Knowing, as he succinctly put it, that "big companies need big drugs to deliver big growth," Vukovich entered the pharmaceutical fray with his mind set on obtaining the rights to drugs with licensing opportunities, hoping to build his business on the business cast aside by his larger pharmaceutical counterparts. In 1983, he formed VRG International, a contract testing laboratory that soon shifted its focus and then began its meteoric rise in the pharmaceutical industry, recording exponential growth before adopting the Roberts Pharmaceutical name in 1988.
A one-man operation, VRG International represented a modest beginning for Vukovich, giving the former pharmaceutical researcher and manager nowhere to go but up. In this direction, Vukovich and his fledgling enterprise moved with resolute speed, registering startling growth in an industry dominated by entrenched giants. To operate successfully within the shadow of these recognized world leaders in drug research, manufacture, and marketing, Vukovich employed a strategy he coined "search and develop," an approach tailor-made for a small, resourceful, and under-financed company such as Roberts Pharmaceutical. While the huge corporations spent millions of research and development dollars, Vukovich spent his time and limited financial means searching for, rather than researching, product opportunities that, as he termed it, "may not fit the big company mold." Using the numerous contacts he had developed within the pharmaceutical industry during his career, Vukovich scoured the world to find drugs that, typically, were undergoing Food and Drug Administration (FDA) scrutiny and then acquired the rights to such drugs, avoiding the costly, time-consuming, yet conventional research and development approach used by large pharmaceutical corporations.
Rapid Growth During the Late 1980s
The strategy worked, fueling the company's growth and drawing the attention of industry observers and the business press. By 1985, two years after the company was founded, VRG International's annual sales reached $200,000, a respectable but otherwise unremarkable total for a small pharmaceutical firm. From 1985 forward, however, the pace of growth increased considerably, as Vukovich's business flourished during the latter half of the 1980s. The $200,000 generated in sales in 1985 quintupled the following year, reaching the $1 million mark, then nearly quadrupled in 1987. At the end of 1988, by which time VRG International had been renamed Roberts Pharmaceutical, Vukovich was sitting atop a firm that was drawing praise from both those within and outside the pharmaceutical industry. Over a four-year period, the company's annual sales had increased an incredible 3,350 percent, enough to make it the fastest growing private company in New Jersey and silence any speculation that small drug companies were a dying breed.
Roberts Pharmaceutical's energetic sales growth during the second half of the decade had been highlighted by the establishment of a 20,000-square-foot headquarters facility in Eatontown, New Jersey in 1986 and by the opening of a 26-bed clinical research facility at Riverview Medical Center in Red Bark, New Jersey in 1988. The company had also broadened its geographic scope considerably in 1988, forming two subsidiaries, Monmouth Pharmaceuticals Ltd. in Great Britain and Roberts Pharmaceutical in Canada, to bolster its search and development activities.
By the end of the 1980s, the conditions in the pharmaceutical industry were becoming increasingly better for Vukovich and his fast-growing company. While Vukovich was employed by Revlon, Squibb, and Warner-Lambert, operating strategy had stipulated that a drug must have potential third-year sales of at least $50 million. By the end of the 1980s, as Roberts Pharmaceutical was growing by leaps and bounds and as large drug corporations were consolidating, the projected three-year minimum had grown to $250 million, creating, theoretically, more opportunities for a small drug company that did not require huge, money-generating medications to sustain its existence. In the years ahead, this fundamental difference in the operating strategies between the industry stalwarts and Roberts Pharmaceutical would enable Vukovich to secure a firmer grip on his company's markets and ensure that the future for small drug companies would be filled with numerous prospects.
Another fundamental difference separating the way Vukovich's business and large drug corporations operated was that, unlike its much larger competitors, Roberts Pharmaceutical did not manufacture the medications it marketed. Instead, the company contracted out the production of its pharmaceutical products to roughly two dozen manufacturers, relying on a number of strategic alliances to license and produce its products. By the end of the 1980s, Roberts Pharmaceutical had affiliations with nonprofit, academic, and corporate organizations. The company was involved in research activities with eight universities, the National Cancer Institute, the U.S. Army, and the U.S. Department of Energy, among others. Licensing agreements had been struck with some of the most prominent drug and scientific concerns in the world, including Bayer AG, Dupont, Johnson Matthey, and Chemie Linz. Further, manufacturing contracts joined Roberts Pharmaceutical with industry leaders such as Squibb (the former employer of Vukovich), Ben Venue Laboratories, and Pace Pharmaceuticals. With these strategic alliances in place by the end of the decade, Roberts Pharmaceutical entered the 1990s as a fast-rising company, one of the elite of a burgeoning breed within the pharmaceutical industry.
1990 Public Offering
About the only obstacle blocking the company's growth as it entered the 1990s was a shortage of cash. Although product opportunities were abundant, to acquire the rights to drugs undergoing exhaustive FDA approval trials, Vukovich needed money. He helped to resolve this problem by taking his company public as the new decade began. In 1990, two million Roberts Pharmaceutical shares went on the market at $16 per share, giving Vukovich a quick infusion of cash to purchase the rights to pharmaceutical products. The initial public offering in 1990 helped the company assume a more aggressive acquisitive stance, as it began buying both established and development-stage compounds. As part of the expansion program that took place during that year, Roberts Pharmaceutical acquired, in January 1990, IV Therapy Associates, which distributed high-cost biotechnology pharmaceuticals for use in physicians' offices on a prescription basis. In September 1990, the company acquired the rights to a group of 16 over-the-counter products from UpJohn, including Cheracol, a line of cough medicines, Haltran, for menstrual pain, and Pyrroxate, for allergies.
Additions to the company's product line continued in 1991, when four prescription products from the Norwich division of Procter & Gamble were acquired in March, the same month Roberts Pharmaceutical secured the rights to three nonprescription products from a joint venture involving Johnson & Johnson and Merck. On the heels of these acquisitions, another public offering was completed in June, when 2.3 million shares were sold for $10.25 per share, providing the resources for further acquisitions.
By the end of 1991, Roberts Pharmaceutical was marketing 38 pharmaceutical products, with eight additional products in the later stages of development and another dozen undergoing pre-clinical testing. The company's strategy of buying or licensing drugs on which larger pharmaceutical corporations had conducted preliminary research was proving to be a boon to its growth, eliminating some of the significant developmental risks associated with bringing a drug to market yet positioning it to reap the financial rewards once the drug was granted FDA approval. Of the company's six drugs undergoing advanced clinical testing at the end of 1991, each, according to Vukovich's projections, were capable of eventually generating $100 million in annual sales, which represented enormous potential growth for a company that was anticipating $12 million in annual sales by year's end.
From the early 1990s to the mid-1990s, Roberts Pharmaceutical enjoyed robust growth, as it continued to add to its product line by acquiring pharmaceutical products undergoing FDA scrutiny. Annual sales soared from roughly $10 million at the beginning of the decade to more than $100 million by 1995, drawing the attention not only of those in New Jersey but of investors and industry observers throughout the country. Roberts Pharmaceutical was ranked during this period of strong growth as one of the 50 fastest growing companies by Fortune magazine, as one of the 100 fastest growing companies by Inc. magazine, and as one of CEO magazine's "top 50 companies." As the company moved forward from the mid-1990s and prepared for the latter part of the decade and the future ahead, Vukovich hoped to keep his company's name among the nation's elite and continue the pace of growth that had transformed his fledgling, one-man operation into a flourishing international enterprise.
"Climbing Quickly," Business Journal of New Jersey, September 1989, p. 46.
Peaff, George Jr., "On the Fast Track," Business Journal of New Jersey, September 1989, p. 43.
Savitz, Eric J., "Who Needs R&D," Barron's, October 28, 1991, p. 16.
Source: International Directory of Company Histories, Vol. 16. St. James Press, 1997.