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Executive Summary

KV's FIRST PROPRIETARY Rx PRODUCT TARGETED FOR 1987 LAUNCH, the company's VP-Investor Relations Christina Weltscheff told a recent drug company seminar sponsored by Morgan, Olmstead, Kennedy & Gardner analyst David Saks. Outlining KV's new business strategy, Weltscheff said that beginning next year KV would "play the role that we have always let our customers play as the marketer whose name appears on the label." For competitive reasons, Weltscheff would not disclose the new product but said it would not compete directly with products developed and manufactured for KV customers. "Having successfully completed development on six drug delivery technologies, it is KV's intention to allow these breakthrough technologies to form the foundation of a new profit structure with two important components," Weltscheff said: "(1) agreements have been concluded for royalty as well as manufacturing revenues on new advance technology products developed for others; and (2) KV has held back from licensing a number of products that it plans to directly market to the medical community." Because KV does not currently have a sales force, the company is not ruling out, for the near term, the possibility of setting up joint venture agreements with companies possessing a drug marketing arm. The move to self-marketing and licensing arrangements, first announced in 1983, marks a major strategic shift for the St. Louis, Mo.-based contract manufacturer and developer of controlled release products. Weltscheff said that KV has concluded 12 agreements that "achieve the goal of providing royalties or other profits." Prior to last year, the company had received its revenues from contract manufacturing and the sale of bulk chemicals through its Desmo subsidiary. Weltscheff noted that the company took its first step in adopting this new profit structure with the launch in late 1985 of Burroughs Wellcome's new Actifed. The controlled release cough/cold product was developed, and is produced, by KV, which in return receives royalties. KV indicated in its most recent annual report that it expects to have approvals in fiscal 1987 (ended March 31) for four unnamed cardiovascular products, a one-a-day Rx analgesic product using the firm's KV/24 system, a controlled release cough/cold product, and J&J's Hismanal-D (astemizole combined with a decongestant) in Europe and the Far East. The annual report shows that KV's product flow will peak in fiscal 1989 when the company expects 32 product approvals around the world, including U.S. approvals for Hismanal-D and a Syntex anti-fungal in KV's Site Release system. Weltscheff reported that KV has signed three agreements covering Rx antifungal creams in the Site Release delivery system for use in the treatment of vaginal yeast infections. "The current leading products," Weltscheff noted, "are hampered by dosing schedules that can be as long as 7 to 14 days." KV's Site Release technology, she said, "can potentially reduce to one dose to find cure." The company's annual report shows that KV has one Site Release agreement with Syntex and two agreements with Ortho. Syntex currently has an NDA pending for Sulcosyn (sulconazole) cream. Ortho, at present, markets two antifungals -- miconazole and econazole -- and has a topical antifungal, terconazole, in clinical development.

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