As friends and business associates wrestle with the sudden deaths of billionaire Barry Sherman and his wife Honey, his company is forced to find its way without the man who guided the firm for its entire 43-year history.
Apotex Inc., the generic drug giant Mr. Sherman created, is suddenly left without its champion at a time of significant upheaval across the pharmaceutical industry. Intense competition and moves by governments and other health-care providers to drive down costs have led to big declines in generic drug prices and profit margins.
Since founding the company in the 1970s, Mr. Sherman's name has been almost synonymous with Apotex. In Canada, he is revered as the scientist who found a way to reverse-engineer brand-name drugs by studying their chemical components, and then reproduce and sell them for much cheaper – to the benefit of provincial health plans and patients.
While Mr. Sherman technically stepped back from an executive role at Apotex years ago, he remained chairman of the company and friends says he continued to work tirelessly, right up until his death. Mr. Sherman was still the company's chief formulation officer, crucial to designing almost every dose formulation Apotex brought to market, and the company's reputation and success has been closely tied to his tenacity, personal connections and penchant for litigation.
Mr. Sherman's death comes amid intense industry upheaval, particularly for generic manufacturers. While the systemic winds have been changing for some time, 2017 was a year of reckoning.
Last week, global rival Teva Pharmaceutical Industries Ltd. announced plans to lay off more than a quarter of its work force, or 14,000 people, and also suspended its dividend while cancelling its 2017 bonus program.
Across the generic industry, there is a race to the bottom on price in order to maintain, or win, market share. "My guess is that not only Teva, but other manufacturers, have ended up competing to the bottom where it's not really sustainable or profitable," said Kare Schultz, chief executive officer of Teva, on a conference call outlining the restructuring.
Apotex's finances aren't made public because the company is privately held, but company employees have noted they are grappling with the systemic trends. In recent discussions with Apotex representatives, "it was very, very clear they've been affected as well," said Ronny Gal, an analyst who covers the pharmaceutical industry at Sanford C. Bernstein Ltd.
In the United States, where Apotex is a top-10 generic manufacturer, customers – from wholesale drug distributors such as McKesson Corp. to drugstores such as Walgreens – are consolidating, which gives them more leverage when negotiating prices. Power also continues to concentrate in Canada with grocer Metro Inc. recently buying pharmacy chain Jean Coutu, following McKesson's acquisition of Rexall and Loblaw's purchase of Shoppers Drug Mart.
The U.S. Food and Drug Administration (FDA) is also keen to increase the supply of generic drugs, opening U.S. borders to more Chinese and Indian manufacturers.
Mr. Gal recently calculated that the price for the top 20 U.S. generic drugs has fallen at a compound annual growth rate of negative 8.5 per cent from the first quarter of 2013 to the third quarter of 2017. The drop has hit margins, which were once quite hefty, hovering around 30 per cent.
In Canada, where the government provides health care and Apotex is the biggest player, generic drug makers continue to see price cuts imposed by the provinces. "Margin pressures have certainly impacted the global generic pharmaceutical industry. Apotex is not immune to this phenomenon," Barry Fishman, the former head of Teva's Canadian arm, wrote in an e-mail.
But Mr. Fishman noted Apotex has historically had a strength that helped to offset at least some of the industry dynamics. Mr. Sherman and his team specialized in "first-to-market" entries, meaning they were often the first to develop a generic version of a brand-name drug. Being first often provides for a period of market exclusivity by law, which is why "first-to-market entries are the lifeblood of successful generic companies," he added.
Mr. Sherman had another unique strength: litigation. Within the industry, there was a running joke that he was the best patent lawyer in Canada. Rivals would sometimes even cede the first-to-market exclusivity rights to Apotex because it allowed them to follow Mr. Sherman's legwork without having to get bogged down in lawsuits.
While patent fights are relatively common in the pharmaceutical industry, Apotex took things to a new level, regularly suing governments and rivals.
The company has been a defendant as well, and a recent suit launched by Teva alleges Apotex's chief executive, Jeremy Desai, had a lover at Teva's U.S. office in Philadelphia who regularly sent him confidential company information and Teva trade secrets. Teva became so alarmed by the alleged activity that it called in the FBI to investigate last year.
The case began in 2016 when Teva received a tip that Barinder Sandhu, Teva USA's senior director of regulatory affairs, had been passing secret company information to Mr. Desai for years. According to court filings, Ms. Sandhu and Mr. Desai had a romantic relationship. Teva immediately launched an internal investigation which allegedly found that Ms. Sandhu had sent Mr. Desai confidential information, including 40,000 pages of material on 10 different USB drives.
The FBI dropped the case in May, 2017. Teva filed a civil case two months later and it is still before the court. Lawyers for Ms. Sandhu and Apotex have argued that Teva has failed to demonstrate in detail specifically what trade secrets or confidential information was leaked. Apotex lawyers added that Teva has failed to demonstrate how the Canadian company benefited.
Apotex's succession plan remains unclear. The company declined to comment about its future, but said more information will be provided in the coming days. However, Apotex will undoubtedly have to find a way to move on without one of its most connected leaders. Mr. Sherman had deep relationships with those in power, particularly with Ontario Health Minister Eric Hoskins.
Apotex will also need to sustain the energy and tenacity Mr. Sherman instilled at the company. He was fierce in any negotiation and sources say he always had backup plans, as well as backups for the backup plans.
Looking back on Mr. Sherman's career, even rivals are in awe of his drive. "We had the same vision," said Morris Goodman, founder of Montreal-based Pharmascience, "except he did it better."