Schering seeks to expand dominant position in MR contrast

New radiopharmaceuticals offer growth potential

Schering is changing gears. The bulk of revenue earned last year by the German supplier of imaging agents came from the sale of x-ray contrast agents. But company strategists hope to change that--and soon.

They plan to build on the firm's dominance in the fast-growing global market for MRI contrast, serving up new MR applications while staking out an expanded position in both diagnostic and therapeutic radiopharmaceutical markets. Resources for R&D, and potentially for corporate acquisitions in MRI and nuclear medicine, will be generated by the still-dominant, but slowing, sales of Schering's x-ray contrast business along with continued growth in its flagship Magnevist MR agent, the first MRI contrast product to reach market, Schering executives told DI SCAN.

The change in emphasis away from x-ray contrast agents is market driven, according to Alexandra Hauber, a pharmaceuticals analyst with Bear Stearns in London. These agents have become commodities, she said, forcing Schering to focus on lowering its production costs while developing new contrast products in other modalities.

"Schering is basically milking the x-ray business and expanding in other areas, particularly MRI and radiodiagnostics," she said.

Price competition is a factor for contrast media in most imaging modalities, said Robert Milos, vice president and general manager of Berlex Imaging.

"I don't know of anyone who has raised prices in this industry," he told DI SCAN. "That is a fact of life."

The silver lining is that the low prices have kept generic pharmaceutical suppliers from coming into the marketplace when patents expire on imaging agents, he said. Consequently, since the commercial life of a contrast agent continues as long as it has clinical utility, Schering will be making money off Ultravist, its first agent, for years to come.

"Anything in the way of a new x-ray agent (for Schering) will probably not come out before the end of the decade," Milos said.

Although the MRI contrast market is smaller than x-ray's, Schering's market position is much more dominant in MR. The firm is one of several global x-ray contrast suppliers with approximately equivalent leadership positions. Schering has held on to the top spot in MRI since first introducing Magnevist 15 years ago.

"We certainly have the majority of the (MRI contrast) market and have been successful in increasing our share every year for the last four years," Milos said.

U.S. contrast sales through its subsidiary Berlex Laboratories led the global pack over the past year, according to the Schering's 2001 annual report. Sales of the firm's diagnostics and radiopharmaceuticals business rose 22% in the U.S. last year, while maintaining a more moderate 8% growth rate in Europe and actually declining 5% in Japan, due largely to unfavorable exchange rates and price pressures on both x-ray and MR contrast. U.S. sales of Magnevist shot up 28% in 2001, accompanied by a 10% growth in sales of x-ray agent Ultravist. Diagnostics and radiopharmaceutical products made up 39% of Schering's overall U.S. business last year versus 20% of European sales and 68% of the Japanese business.

Overall, diagnostics and radiopharmaceuticals contributed 30% of Schering's revenues last year, with sales rising 7% from £1.36 billion ($1.27 billion) in 2000 to £1.45 billion ($1.35 billion) in 2001. This performance was second in growth only to the firm's fertility control and hormone therapy business segment, which was up 12%.

Schering's global MR contrast sales rose 13% from £289 million ($270 million) in 2000 to £327 million ($305 million) last year. Price pressures and an unfavorable Japanese yen caused x-ray contrast sales to decline 2% from £738 million ($689 million) in revenue in 2000 to £722 million ($674 million) in 2001. The company's still-emerging radiopharmaceutical sales amounted to £151 million ($141 million) in 2001, while ultrasound contrast sales declined 14% to only £10 million ($9.3 million) in 2001.

Total company sales increased 8% to £4.84 billion ($4.52 billion) in 2001 from £4.49 billion ($4.19 billion) in 2000. Net income rose 24% from £336 million ($314 million) in 2000 to £418 million ($390 million) last year.

Growth slowed slightly during early 2002. Schering's net sales rose 7% in the first quarter (end-March) to £1.24 billion ($1.16 billion) over the same period last year. Net income for the period increased by 12% to £141 million ($132 million). U.S. sales were up 29% in the first quarter of 2002 over the same period of 2001.

Growth in Schering's MRI contrast media sales should continue through the end of the decade as new agents targeting expanded applications of the modality become available. The firm is readying agents developed with partners as well as internally.

The best hope for a significant boost in Schering's MR business is found in new agents targeting MR angiography applications. The company hopes to initiate sales of two MRA agents in 2004. U.S. partner Epix Medical developed the MS-325 blood-flow agent. Supravist is being developed internally. Schering gained Japanese development, production, and marketing rights for MS-325 from Epix last year, giving it worldwide marketing rights for the product.

"I think the MRA opportunity it is pursuing together with Epix, and also its own agent, looks potentially exciting," Hauber said.

Other special-use MRI agents, such as the firm's liver-specific Resovist product launched in Europe last year and targeted for Japan this year, aim at niche markets that are smaller than the general central nervous system applications of Magnevist or the growing use of MRA.

MRA is a rapidly expanding market, growing probably between 30% and 40% annually, Milos said. While the number of CNS MRI procedures continues to grow, it is likely that this category will drop to around 50% of all MR procedures by 2010 as MRA and cardiac applications take off, he said.

Another growth area for Schering will be in radiopharmaceuticals, where the firm had virtually no position prior to its acquisition of Diatide in 1999. Schering/Berlex has two technetium-labeled nuclear agents in its portfolio: Neotect, targeting the lung, and Acutect, for the imaging of acute deep vein thrombosis in the lower extremities.

Perhaps more significantly, however, the Diatide acquisition provided research and development capabilities in nuclear medicine, which have been integrated into Schering's internal development program, Milos said. A key Schering strategy is to develop agents that carry both a diagnostic and therapeutic isotope in order to "find, fight, and follow" a disease.

Schering's development of targeted imaging and therapeutic agents also got a boost from technology brought on board through the acquisition of the German antibody R&D firm MorphoSys last year.

Growth will be harder to find in the ultrasound contrast arena, which has been disappointing for all vendors, Hauber said.

"The (ultrasound) machines have improved a lot," he said. "That has reduced the climate for having an imaging agent in the first place."

Schering is not currently selling ultrasound contrast in the U.S. Sales in other parts of the world are continuing, but demand is low.

"I believe ultrasound contrast will become important at some point in time," Milos said. "It just hasn't happened yet."