Jones Medical Industries, Inc.
Address:
1945 Craig Road
Post Office Box 46903
St. Louis, Missouri 63146
U.S.A.
Telephone: (314) 576-6100
Fax: (314) 469-5749
Statistics:
Public Company
Incorporated: 1981
Employees: 500
Sales: 125 million (1997 est.)
Stock Exchanges: NASDAQ
Ticker Symbol: JMED
SICs: 2834 Pharmaceutical Preparations; 5122 Drugs, Drug Proprietaries, & Druggists' Sundries
Company Perspectives:
The corporate mission at Jones Medical has been to seek out and develop niche markets within the pharmaceutical and nutritional products industry. The plan is to continue this mission by further developing the company's current market positions while aggressively pursuing new growth opportunities.
Company History:
Founded in 1981, Jones Medical Industries, Inc. (JMI) is a pharmaceutical manufacturer specializing in nutritional supplements, critical care drugs, and endocrine pharmaceuticals. The company carries out virtually no research and development into its own products. Instead, it acquires from other pharmaceutical companies the rights to manufacture and market existing, underpromoted drugs. This business strategy, which has proved to be highly effective, allows JMI to save on product development costs and to avoid the drawn-out and expensive approval process of the U.S. Food and Drug Administration.
The Early Years
Dennis Jones, the founder of JMI, was the son of an Illinois farmer. Jones said that he first learned the "art of entrepreneurship--selling, marketing, serving customers--and hard work" while employed at his father's farm equipment business (St. Louis Business Journal, June 25, 1996). After completing high school, he served briefly in the Marine Corps and then embarked on his career in the healthcare industry as a pharmaceutical salesman for SIG Laboratories. Though Jones never attended college, he has not regretted his lack of higher education. "I'm proud of the fact that I did it without a degree," he asserted to Investor's Business Daily. "Not having a college degree was one of the things that got me into my own business." He added that he was pushed to form his own company because the upper echelon of jobs in the corporate world were out of his reach.
Motivated by the desire not to be excluded from the highest rungs of the corporate ladder and by his belief in his own abilities as an entrepreneur, Jones cofounded the company O'Neal, Jones, and Feldman Pharmaceutical in 1969. This small-scale pharmaceutical manufacturer and distributor expanded primarily through acquisitions, and the company eventually rang up sales of nearly $9 million. When the partners sold O'Neal, Jones, and Feldman to the Chromalloy American Corporation in 1978, Jones began to explore the prospect of opening his own business. He told the St. Louis Commerce that he founded his own company "because I wanted to see if I could do it as well or better on my own. I guess you could say it's the classic entrepreneurial spirit." Armed with that spirit and $300,000, Jones and his wife, Judy, started Jones Medical Industries in 1981.
JMI initially followed a conservative business strategy. The company did no research and development of its own, instead purchasing a wide variety of drugs and nutritional supplements from other manufacturers and repackaging them under its own trademarks and trade names. Important early products included Duotrate (a medication to relieve angina, or heart, pain), Therevac (a "mini-enema"), and the T-Dry and T-Moist line of cold, cough, and allergy formulations. JMI carefully selected "mature" pharmaceutical products--drugs that had been on the market for a long time--whose profitability was declining. Because JMI recognized that major drug companies could heavily market only a few products at a time, it was able to purchase these mature drugs for about 60 percent of the revenue they generated annually. This focus on already established pharmaceuticals allowed JMI to capitalize on patient and physician familiarity with its products. As a result, JMI could minimize its sales and marketing costs and still make substantial profits. On January 19, 1987, Barron's summed up the success of JMI's approach: "By methodically milking his cash cows, Dennis Jones is showing how well the cautious approach works." Sales increased 625 percent from 1982 to 1987.
In 1986, with the goal of retiring an outstanding debt and raising investment capital, JMI made its first public stock offering. The results were positive and helped fund JMI's continued growth.
Product Diversification: 1988-95
JMI took an important step in diversifying its business in 1988, when it acquired the American Vitamin Company's natural vitamin line. JMI marketed these products exclusively to military commissaries throughout the world, and sales of nutritional supplements have remained an important part of JMI's business ever since. With its 1993 purchase of Bronson Pharmaceuticals, a manufacturer of vitamins and dietary supplements, JMI expanded its presence in this field. Using Bronson's staff and sales techniques, JMI was able to develop a new marketing arm to complement its presence in the mature drug market. The nutritional supplement marketing force conducted direct mailings to 400,000 consumers, physicians, pharmacies, and retail outlets in the United States and Canada.
In 1989 the company acquired from the Rorer Group the drug Thrombin, a topical agent used to control bleeding during open-heart surgery and skin grafting. The acquisition of Thrombin (subsequently renamed Thrombin-JMI) was an enormous breakthrough for JMI. Thrombin quickly became JMI's best-selling product, grossing $5 million annually, and a cornerstone of the company's success. In part because of the Thrombin purchase, Forbes magazine in 1990 rated JMI one of the 200 best small companies in the United States.
JMI's acquisition of Thrombin represented more than the addition of a highly profitable product. It also marked a major shift in the company's marketing strategy. JMI was able to allow its mature, or long-established, drugs virtually to sell themselves, as the physicians who prescribed them and the patients who took them had a history with those products. Thrombin's purchasers, on the other hand, were primarily hospitals and other institutions. As a result, JMI began to develop a sales force to market the drug more aggressively to these customers in an effort to expand its market share.
In keeping with this more forceful business posture, JMI in 1991 purchased the pharmaceutical company GenTrac, which was the largest domestic manufacturer of Thrombin. JMI was now able to produce its own Thrombin and was no longer reliant on a third party. (Until JMI's acquisition of GenTrac, the Rorer group had continued to produce Thrombin for JMI.) The acquisition was momentous for JMI, which saw its net sales jump to more than $20 million in 1991. In the April 15, 1991, issue of the St. Louis Business Journal, Jones said, "We wanted to control our own destiny and the most efficient way to do it was to acquire the biologically licensed manufacturer of Thrombin." Five years later, in the January 28, 1996, issue of the Wisconsin State Journal, Jones declared, "GenTrac has become our single most important operation."
Following its acquisition of Thrombin and GenTrac, JMI continued to seek out and actively develop other critical care products, such as Brevital Sodium, which JMI purchased in 1995 from Eli Lilly. Brevital was a short-acting, injectable anesthetic used in major surgeries, as well as the primary anesthetic used during dental surgeries. In a story carried on the Business Wire on August 31, 1995, Jones explained the purchase. Brevital Sodium, he said, "competes within the $525 million U.S. anesthetic market [and] enjoys a tremendous loyalty among dental and medical surgeons. We plan to aggressively focus on this market and believe that a tremendous growth opportunity exists." Jones's confidence proved correct, as Brevital Sodium, along with Thrombin, led the company's pharmaceutical sales for the year. JMI also continued to produce and develop new forms of its existing critical care and extended care products: Liqui-Char, an antidote used in the treatment of acute toxic digestion; Therevac; the Derma-Scrub line of professional scrub products for surgeons and medical staff; and Panthoderm, an anti-inflammatory skin care product. In 1993 JMI's sales rose to $43.2 million.
Acquisition of Endocrine Drugs: Developments Beginning in 1996
The year 1996 provided new opportunities for JMI and marked a major shift in the company's direction. Although JMI continued to buy existing products from other companies, it chose to focus its acquisitions on endocrine, or hormonal, drugs. In March 1996 JMI purchased from Eli Lilly the drug Tapazole, used in the treatment of hyperthyroidism, a condition in which the thyroid gland is overactive (as in Graves Disease). JMI followed suit by purchasing from SmithKline Beecham two other endocrine drugs--Cytomel, a synthetic form of the thyroid hormone T3, and Triostat, an injectable form of T3-both used as a replacement hormone in patients with hypothyroidism (an underactive thyroid). JMI also acquired Levoxyl, a synthetic form of the thyroid hormone T4 (also used as a hormone replacement), when it purchased Levoxyl's manufacturer, Daniels Pharmaceuticals, Inc., in August 1996.
The takeover of Daniels Pharmaceuticals was a turning point for JMI. In addition to gaining the rights to Levoxyl (another big seller for JMI) and the company's veterinary pharmaceuticals, JMI inherited the entire sales division of Daniels, consisting of 85 marketing representatives. This addition was further enhanced by JMI's purchase, in December 1996, of Abana Pharmaceuticals, a marketing company for generic drugs. The Abana acquisition doubled the size of JMI's sales force, and for the first time JMI had a direct physician sales force. This new marketing arm complemented JMI's two existing sales divisions: its institutional/critical care branch and its direct mail nutritional supplement branch.
JMI profited handily from its product and marketing expansions. Its stock price increased tenfold between 1995 and 1997, trading for as much as $50 per share (JMI's initial stock offering in 1986 was at $6 per share). Sales for 1996 broke the $100 million mark, an increase of nearly $26 million from its 1995 sales and a near tripling of sales since 1992. Net profits for 1996 were $18.2 million, a 46 percent increase over 1995.
The year 1996 was also kind to Jones and his wife, Judy, JMI's executive vice-president and treasurer. Jones was named the 1996 Healthcare Entrepreneur of the Year by Ernst and Young, a national accounting and management consulting firm. As JMI's profits rose, so did the Jones's compensations: Jones earned $477,599 for 1996, and his wife earned $237,518. The couple owned nearly 16 percent of JMI's stock, worth approximately $150 million. Even though Jones was emerging as a major corporate player, he attempted not to forget the lessons of teamwork and hard work he learned earlier in his career. "I demand my managers have an open-door policy," he told Investor's Business Daily (June 13, 1996). In JMI's corporate headquarters, private offices were separated by glass walls to create an atmosphere of openness.
In the late 1990s JMI was making plans to acquire additional products and companies that complemented and enlarged its current product portfolio. The company's goal was to reach $250 million in annual sales by the year 2000.
Business analysts concurred with JMI's positive outlook. The company, recognized as one of the "Top 200 Small Companies in the World" by Forbes in 1990, 1991, and 1993, was chosen as one of SmartMoney's "Best Investments" of 1998. The December 9, 1996, issue of Fortune declared that JMI's "cherry-picking strategy" was "as close to risk free as you can get." Analysts also pointed to the strength of the pharmaceutical industry in general. In the United States the number of elderly people was increasing, and that population group had the greatest need for medications and nutritional supplements.
Principal Subsidiaries: Daniels Pharmaceuticals, Inc.
Further Reading:
Cook, Ken, "Jones Medical Plans Public Stock Offering," St. Louis Business Journal, May 26, 1986.
"Entrepreneurs of the Year," St. Louis Commerce, July 1, 1996.
Galloway, Jennifer, "Medical Alchemy Turns Bovine Plasma into Pharmaceutical Gold," Wisconsin State Journal, January 28, 1996.
Gilbert, Jersey, "Where to Invest in 1998," SmartMoney, January 1, 1998.
"Healthcare Entrepreneur of the Year," St. Louis Business Journal, June 25, 1996.
"Jones Medical Acquires Thrombinar from Rorer Group," PR Newswire, October 4, 1989.
"Jones Medical Completes Acquisition of Daniels Pharmaceuticals," Business Wire, August 30, 1996.
"Jones Medical Completes $14 Million Brevital Sodium Acquisition," Business Wire, August 31, 1995.
"Jones Medical Reports 33 Percent Increase in Third Quarter EPS," Business Wire, October 21, 1997.
"Jones Medical Reports 89 Percent Net Income Increase," Business Wire, October 31, 1996.
Mahar, Maggie, "No Thrills Drug Company, " Barron's, January 19, 1997.
Miller, Patricia, "Jones Medical Buys Small to Hit $20 Million in Sales," St. Louis Business Journal, April 15, 1996.
Murphy, Daniel, "Jones Medical's Dennis Jones: Business Was His College, and He Learned His Lessons Well," Investor's Business Daily, June 13, 1996.
Steyer, Robert, "Jones Medical Chairman Gets 23% Increase," St. Louis Post-Dispatch, March 20, 1997.
Warner, Melanie, "Jones Medical Catches a Wave," Fortune, December 9, 1996, p. 46.
Source: International Directory of Company Histories, Vol. 24. St. James Press, 1999.
