D&MD: Dr. Hoffmann, you have made LTS one of the world's leading designers and manufacturers of transdermal therapeutic systems (TTS). Could you tell us how that came about?

Hoffmann: When I joined the Lohmann Group in 1979, nobody here had transdermal drug delivery in mind—or even drugs, for that matter. In fact, the closest thing to drugs that Lohmann had was wound-care products with impregnated gauzes, which count as drugs under German law; and so they had needed a licensed pharmacist. After a few weeks I realized that all the necessary elements for developing and manufacturing transdermal systems had actually been at our fingertips for quite some time.

D&MD: This does not sound as if getting transdermal development started had been particularly easy?

Hoffmann: It certainly was not. Nobody had pursued this line of thought because, quite plainly, Lohmann avoided drugs because of the liability issues involved. I contacted an old friend of mine who worked at Schwarz Pharma, and together we quickly hammered out a plan to formulate nitroglycerol for congestive heart disease (a field where Schwarz Pharma is Germany's market leader) as a TTS. Lohmann management finally made that a formal development project but put it in the department of technical adhesives where I had no direct control initially. Getting all this on track took time and persistence.

D&MD: But by 1984 you must have ironed things out, since you had been successful enough during those years? Was that the rationale for spinning off LTS as a separate company?

Hoffmann: Yes. The nitro patch had been launched in 1983 and was an instant success. Although formally the transdermal business had not been my primary occupation, Lohmann had struck deals with several pharmaceutical companies by that time. It was clear that significant investments in production facilities had to be made and, as I said before, Lohmann management was wary of the legal liabilities of the drug business. One must not forget that the drugs and medical devices business were further apart at this time than they are today, and it was felt that a separate company was the best way to account for that.

D&MD: Today LTS is a highly regarded innovative TTS developer but has kept away from marketing and distribution. How does LTS structure its deals?

Hoffmann: Before LTS was spun off we had just one basic pattern: In a strategic alliance with a pharmaceutical company Lohmann would develop the TTS product at its own cost and build the composition-of-matter part of the regulatory file. The partner would conduct all clinical testing at his cost. If a marketable product resulted, Lohmann would get exclusive manufacturing rights and the partner would market the product. The newly founded independent LTS had to focus on a cash flow that is more evenly distributed over the product life cycle, and so we adopted a policy in 1988 under which we charge the partner for our out-of-pocket development costs.

D&MD: And today, 13 years later, do you see a reason to modify your strategy again? LTS has an impressive intellectual property portfolio consisting of over 200 issued US patents, and many more European patents and PCT disclosures. Surely that would be a solid basis for developing TTS products on your own?

Hoffmann: Initiating such projects, alone or with small corporate specialists, with the objective of licensing out a working TTS, is certainly an option that we are considering if conditions warrant it. There is already an example for that strategy: The galanthamine patch for alcohol abuse, which we are investigating with HF Arzneimittelforschung GmbH, a highly innovative semi-virtual German company. We are also co-investigating another, [as] yet undisclosed compound for addiction and other CNS indications, and preclinical results have been extremely promising. Transdermal products for alcohol abuse, cognitive problems, or depression could have blockbuster potential—so far nothing exists in that way. And we have most interesting projects going on in virtually every major indication group.

D&MD: Speaking of market sizes—at about $2.5 billion on the ex-pharma level in 2001, isn't transdermal systems an awfully small market for a company to live off? In addition, published figures seem to indicate that analgesics is the only expanding subsegment, while the applications of hormone supplementation, smoking, and motion sickness stagnate or even contract.

Hoffmann: Certainly the TTS market is a niche within the drug delivery market, which is itself a niche market. But some of your examples can actually illustrate why we believe that the TTS market will in fact show stronger growth than the drug market as a whole during the next five years. For instance, the recent expansion of the transdermal pain market is almost exclusively due to a single, superbly successful product: Duragesic™, Johnson & Johnson's fentanyl patch. Within months, if not weeks, they can be expected to launch Ortho Evra™ which, as the first transdermal contraceptive, will totally revamp the hormone TTS market. That's how this niche has been developing for many years—single successful innovations can totally turn the tables within one or two years. The industry has finally realized that transdermal delivery is not just so much shoeshine polish for old drugs but rather an ideal line extension for molecules that are physically suited for this route, and this is where we see great possibilities.

D&MD: What was your rationale in establishing LTS Lohmann Therapy Systems Corp. in 1994?

Hoffmann: When LTS was spun off from Lohmann, we had already determined that a duplicate production site somewhere at the US east coast was a mid-term necessity, for several obvious reasons—about half of our partners were American, the US market for TTS was larger and more expansive than any other one, and besides we would have needed additional capacity anyway. So it was almost natural to establish LTS Corp in New Jersey. It is true that the collapse of the US market for nicotine TTS precipitated questions whether to continue that venture, but we decided to support it further and today LTS is already contributing hugely to our success.

D&MD: Novartis holds a strong minority stake in LTS. Do you see any imminent change there in the near future, especially considering that you are apparently planning to take LTS public?

Hoffmann: Novartis has been a strong and reliable stockholder who has always supported us, and I have no indications that this could change in the foreseeable future. That's a quite general take-home message I want to give here: It is always with people that you are conducting business, and it is this personal trust that ultimately leads to success. Nevertheless, our plans for the future require more capital and for this we consider taking LTS public by 2004 or later. Though the Frankfurt Stock Exchange always enjoys preference for a German company, we are also considering London and, obviously, also the NASDAQ since a US listing would go along well with our subsidiary's increasing importance for the Group.

D&MD: Dr. Hoffmann, thank you very much for your candid insights.

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