Endo Justifies the Means

The original Endo pharmaceutical company, which manufactured painkillers, started on Long Island, New York, in 1920. Bought by DuPont in 1969, it was relegated to the corporate back burner after being absorbed into DuPont-Merck in 1991.
When DuPont-Merck executives Carol Ammon and Mariann MacDonald joined a team asked to examine what should be done with 35 Endo medicines with expired patents and cheaper generic competition, Ammon suggested buying them. She saw a focus on pain medications as the basis for a billion-dollar company, given the increasing number of surgical procedures, changing attitudes toward pain management, and a demographic age shift.
Along with Louis Vollmer (who has since left the company), Ammon and MacDonald raised $277 million to create Endo Pharmaceuticals, Inc., based in Chadds Ford, Pennsylvania, with Ammon as chairman and CEO and MacDonald as executive vice president.
The opioid Percocet Tablets– in both trademark and generic versions – remain the company’s biggest seller, followed by Percodan Tablets and Lidoderm Patch, a patch for the treatment of pain from shingles. However, the company has transformed Percocet Tables, previously sold only in a five-milligram tablet, by introducing 2.5, 7.5, and 10 milligram versions. This flexibility has helped to keep the brand name selling even in the face of Endo’s own generic competition.
At last count, Endo was marketing 17 brand-name products and 27 generics (including morphine sulfate) – over 150 products in all. Last fall, a judge’s ruling was issued which would permit Endo to sell a generic version of OxyContin, a time-release painkiller for cancer patients and chronic-pain sufferers, which had U.S. sales of about $1.5 billion in 2002.
In July 2000, Endo acquired Algos Pharmaceutical Corp. and became a public company. Last year, the Eastern Technology Council named Endo Company of the Year for “progress and achievement in the field of technology”. With 2003 sales of $595.6 million, Endo is fast approaching Ammon’s magic $1 billion projection.

Virtual beginnings

Back in 1997, however, the enterprise required a leap of faith. As a management buy-out, it was a “virtual company” with no infrastructure, according to Eric Bloom, Endo’s vice president of information technology, “We originally contracted with DuPont-Merck to do the manufacturing and looked to Novartis as a backup. Then Bristol-Myers Squibb purchased DuPont-Merck and did not want to continue manufacturing, so we migrated to Novartis with other smaller companies as backup.”
Beyond manufacturing, Endo also needed to quickly develop an infrastructure for customer service, dealer distribution, warehousing, and order-taking. Bloom saw the choice as between going with an inexpensive quick IT fix and trading up later, or building an infrastructure that could grow with them to serve a billion-dollar company. Endo management took the latter route, reasoning that it made long-range sense to avoid changing software horses in mid-stream.
In a fortuitous bit of timing, SAP Business Partner Answerthink, a respected and experienced solution provider presence in the pharmaceutical industry, dropped by to present the merits of SAP R/3 to Bloom. They explained that SAP already had an extensive footprint in pharmaceuticals. Bloom’s team and the co-founders thought it looked good, especially in scalability, so Endo agreed to make the stretch and implement the SAP R/3 solution.

Into the real world

Among Endo’s immediate major concerns were functions for customer service, financials, sales forecasting, conversion of data from the existing DuPont system, and contracts and bids. Areas of special concern to their industry included chargebacks, rebates, Drug Enforcement Agency compliance, and EDI transactions.
Answerthink brought along SAP’s best practices for the pharmaceutical industry, as well as a rebate solution that was customizable to pharmaceutical requirements. “Answerthink has been working with us on a regular basis since we went live in 1999,” notes Bloom. “We have a very close relationship, any time we need answers to difficult questions.”
What was missing at the time from the SAP solution was a chargeback system, but this lapse proved to be something of a blessing in disguise – at least for SAP and Answerthink. In general, drug companies sell their products to wholesalers, so determining retail sales to end customers requires a complicated system of chargebacks and rebates, which form the backbone of the industry’s sales data.
Bloom’s team spent three months creating a chargeback mechanism to fit into SAP R/3. This work later became the core of SAP’s own chargeback system in its vertical manufacturing solution for the pharmaceutical industry. And this year, an Answerthink vertical pharmaceutical solution is being introduced as a mySAP All-in-One solution, based upon this capability.
The initial implementation at Endo took place in three phases. The first covered sales and distribution, financial accounting, controlling, workflow, and part of materials management at a cost of under $2 million. Phase two incorporated Endo’s in-house Medicaid functionality, EDI modifications, and analysis reports, coming to $150,000. The final phase included fixed assets, distribution, and human resources, adding up to $190,000.
Bloom reports that the whole implementation went smoothly and quickly – from the development of a blueprint in September 1998 though March 1999 and testing to go-live that April. “We implemented as it was designed out of the box with very little modifications,” he recalls.

Ready for the future

Recently, Endo has upgraded to SAP R/3 version 4.6c and has added quality management and a new EDI platform (installed last October). Coming up are elements of SAP Advanced Planner and Optimizer (SAP APO) and SAP Business Information Warehouse (SAP BW).
Bloom characterizes the benefits Endo has gained from SAP as straightforward. The company started as a fully outsourcing operation and SAP brought in a system that covered financials, customer views, distribution, and manufacturing. This, he says, provided the firm with control of data, improved business decisions, a real-time view of the business, and excellent customer service.
As the major keys to success he cites the initial drive by Endo executives to move quickly, the broad authority given to the project leaders, the smooth interaction with Answerthink, and the availability of preconfigured business processes.
As examples of Endo’s explosive growth in recent years, the company has expanded from 50 employees in 1999 to the current level of 500. SAP users have gone from 25 to over 100 and transactions have increased from 8,000 a month to 16,000 while EDI transactions are up from 5,800 to 8,500.
“SAP was willing to work with us even though we were a small business,” says Bloom. “As a company that has grown over 400 percent in the few years that our SAP system has been in production, it is always nice to know that there is still plenty of room for our continued growth.
“All of the applications that we implemented back then have had few modifications, though we’ve added new applications like HR and other benefits. But the original FI/CO arena has not really been modified, and it’s been able to handle the growth, including sales expanding from a few states to almost every state.”
Endo has had a fine view of the world as an SMB. Now its ready to pierce the clouds and ride the stratosphere.
For a short video on Endo, please visit the mySAP All-in-One customer success story web site (link to http://www.sap.com/solutions/smb/allinone/customersuccess/).

Derek Davis
Derek Davis