Twenty-two years after graduating college, Michael Jaharis purchased his first pharmaceutical company. That was in 1972. Four decades later he had amassed a career — and a fortune — in the pharmaceutical industry highlighted by the sales of three companies: Key Pharmaceuticals, Kos Pharmaceuticals, and Pearl Therapeutics.
Along the way he experienced plenty of the trials and tribulations that go hand in hand with being an entrepreneur. “When you run a company, you are always concerned about things such as raising capital, making payroll, or just how you’re going to make everything work,” Jaharis says. “We also asked ourselves, ‘What do we do, or what can we do, to make people aware of at least one of our drugs?’” Through those struggles and by answering those tough questions, he was able to forge some best practices that stayed with him with each subsequent investment and challenge.
KEY PHARMACEUTICALS
When Jaharis and fellow investors purchased Key Pharmaceuticals in 1972, the company was essentially bankrupt. It could not compete with larger companies on multihundred-million-dollar discovery and development projects for new chemical entities (NCEs). “I realized the only way to create value for this small, bankrupt company was to examine its existing strengths. I saw Key’s expertise in sustained-action formulations as a way to improve the effectiveness, and in some instances, the potency, of drugs that were already available at the time. So, we were able to cost-effectively commercialize a succession of products that addressed deficiencies in the original product while dramatically improving patient compliance. This was the kind of innovation that Key could afford, which is why I called this approach ‘affordable innovation.’” Of course this specialty pharma approach is now well-established, but the idea was new and innovative in the 1970s.
One of Key’s early successes was the asthma drug theophylline, which patients self-administered multiple times a day. Key scientists devised a sustained-release delivery mechanism that allowed oncedaily dosing with equivalent effectiveness and lower toxicity. Later, dissatisfied with the effectiveness of his company’s sustained-action nitroglycerin product, Jaharis directed development of the first transdermal, sustained-delivery nitroglycerine patch. Transdermal remains one of the most-researched alternative-delivery technologies in specialty pharma.
In 1986, Jaharis sold the company to Schering-Plough for $836 million.
KOS PHARMACEUTICALS
Two years later, in 1988, Jaharis founded Kos Pharmaceuticals, a developer of prescription products for the treatment of chronic cardiovascular, metabolic, and respiratory diseases. He considers his proudest achievement at Kos to be the creation of a market for Niaspan, a prescription drug that increased HDL (good cholesterol) and lowered LDL (bad cholesterol). At the time, that was a unique strategy — a differentiator for Kos — considering most Big Pharma companies were focused on strictly LDL therapies.
Niaspan is not an NCE (new chemical entity); it is a reformulation of a vitamin of the B complex. Thus, Kos did not spend money inventing the molecule, but instead, created a more patient-friendly formulation, which made it affordable for the small company to develop and bring the drug to market. “I once again applied the concept of affordable innovation and utilized drug delivery technology to develop and bring to market a high-performing cardiovascular product.”
In 2006 Abbott Labs purchased Kos Pharmaceuticals for $4.2 billion.
PEARL THERAPEUTICS
Jaharis’ venture capital firm Vatera Healthcare Partners invested in Pearl Therapeutics in 2010. Recognizing the firm’s innovation in its respiratory products for COPD, Vatera funded clinical, regulatory, and business development efforts as well as provided financing to support new product development. Funding Pearl’s programs into Phase 3 clinical trial testing validated the company’s technology and paved the way to the sale to AstraZeneca for $1.15 billion in 2013. “Our experience with Pearl reinforced our belief in the value of having a strong scientific team and supporting innovative research,” comments Jaharis.
Vatera continues to work with innovator companies working on treatments for serious, prevalent conditions for which existing treatments are ineffective or nonexistent. “I am excited about the projects we are involved in, not only from the investment side, but also because of the potential to fulfill an unmet need,” says Jaharis.
FUTURE DRUG DISCOVERY OPPORTUNITIES
During its heyday, NCE discovery and development focused on a limited number of accessible biological targets and an equally circumscribed set of molecular scaffolds. Innovation became more difficult as companies mined tried-and-true approaches to drug discovery. After a period of playing the law of big numbers with 100,000-molecule (and larger) compound libraries, new biological tools emerged that allowed for a more targeted approach to drug discovery and development. Yet the feeling persists that the golden age of small molecule drug discovery is fading; with the harvest of “low-hanging fruit” (i.e., well-known and high-patient-volume diseases such as hypertension that now have multiple small molecule treatment approaches), innovation in small molecule development is now a less attractive pharmaceutical target. Simultaneously, the maturation of specialty pharma has created serious financial entry barriers.
Jaharis acknowledges the differences between then and now, but remains highly optimistic about the future. Bringing a therapy to market is more difficult today than when he acquired Key. Evermore watchful regulators and the ballooning costs of drug development have been significant factors. The time and cost of discovery through development has been estimated at 10 years and $2 billion. Although these kinds of figures have been challenged, higher than ever development costs are now accepted as fact.
“I would say that the targets for pharmaceutical entrepreneurship have changed. Yes, conditions such as hypertension, cholesterol, asthma, and so on that affect large numbers of patients are now very well served through multiple pharmacological options. But, that doesn’t mean there isn’t room for improvements and enhancements,” he says.
One area still ripe for innovative therapies is cancer. Many forms of the disease still lack safe, effective treatments that significantly prolong life. Jaharis also likes the prospects for drugs that fight diseases (including hepatitis C), treatmentnaïve markets such as for celiac disease, and rare or orphan disorders.
Not every pharmaceutical entrepreneur will succeed to the extent of Michael Jaharis. Yet opportunities exist and continue to emerge as innovators seek to fulfill unmet medical needs. According to Jaharis, good business prospects begin with a passionate, knowledgeable management team with proven track records. From there, entrepreneurs should create a vision for their business that will attract funding as a start-up.
“I lean toward branded pharmaceutical products. While generics have a role in the pharmaceutical armamentarium, innovation creates more exciting opportunities because introducing new products directly improves people’s lives,” he says.
INNOVATION IS ALIVE AND WELL
Despite pricing, regulatory, and scientific challenges, Jaharis believes innovation in pharmaceuticals will continue. He stresses that keeping an entrepreneurial pharmaceutical company on the right path is a matter of making consistent progress toward goals. “Top managers should ask themselves if they are continuing to innovate, if their therapies are still relevant to patients, and if they are expending precious resources thoughtfully. And while it’s important to stay focused on your original goals, you also need to be flexible enough to adapt to changing environments.”
His last bit of advice is one echoed by top executives in all forms of business, but, considering his track record, it comes off less as a cliché and more like a dictum. “My strongest belief is that all success in business depends on a manager’s ability to recruit good people who can work without significant monitoring. This becomes especially important when selecting people who work in areas in which a manager is not an expert.”
HOW MICHAEL JAHARIS GOT STARTED IN PHARMA
After graduation from Carroll University in 1950, Michael Jaharis was drafted and soon found himself in a medical unit in Austria where he helped run medical and pharmaceutical supply during the Korean War. Upon his discharge Jaharis decided to obtain his law degree, but he needed a job to cover tuition.
Based on his Army experience, Jaharis was hired as a sales representative for Miles Laboratories in its prescription drug division. “My territory extended from the north of Chicago’s Loop to the Wisconsin border. At the same time I began law school at DePaul University as a night student. I’d planned on opening a law practice after graduation.”
After receiving his JD, Jaharis moved to Miles’ legal department. His mentor was John Buckley, who managed food and drug law for the Miles ethical and over-the-counter divisions. Jaharis credits Buckley with teaching him what was possible within the legal framework of a growing, dynamic industry. Jaharis eventually rose to top legal executive counsel for food and drug law at Miles and became involved in marketing as well. “We had a lot of good lawyers at Miles, but not many considered using the law to expand a drug portfolio,” he says.
As a sales rep, Jaharis recognized that acetaminophen was as effective as aspirin without what he calls “unpleasant side effects.” He recommended Miles explore the potential for acetaminophen as a standard tablet instead of as part of the Alka-Seltzer line as a “fizzy tablet.” The company ignored Jaharis’ advice. In the meantime, Johnson & Johnson bought a small company that was promoting the acetaminophen formulation Apamide, and ultimately introduced the drug as an OTC tablet that later became Tylenol — a brand that is arguably the most successful OTC medicine ever.
By Dan Schell
