Legacy Pharmaceutical Reduces Distribution Costs

by HCE Exchange on January 28, 2016

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Legacy Pharmaceutical Packaging, which is headquartered in St. Louis, Miss., is not your typical contract packager, Dave Spence, chief executive officer, will tell you. The company has figured out a way to eliminate several steps from the pharmaceutical distribution model.

Here’s how it works: The pharmaceutical manufacturer sends its products to Legacy in bulk, and the company’s high-speed lines package these pharmaceuticals into unit-of-use bottles or compliance packages. Legacy then ships these pharmaceuticals directly from the manufacturer to the retailers’ distributions centers.

“We’re bringing it in large containers of bulk, so it brings down the product cost,” Spence said. “Instead of having the pharmacist count out 30 or 60 tablets over and over and over like it’s Groundhog Day, we’re prepackaging the high-volume maintenance drugs. It allows the pharmacy to be more efficient and allows the pharmacist to have more time with customer interaction. It also speeds up the process and narrows the window of mistakes.”

Legacy’s business model is fairly original within the pharmaceutical industry, he added, especially with direct-to-retail products. Furthermore, Legacy primarily deals with larger retail customers and pharmaceutical companies who buy or sell for products that are in the four-dollar prescription program.

Bringing business and political experience to Legacy

Spence has been lead investor in Legacy Pharmaceutical for four years. On Jan. 1, 2014, after spending a lifetime in the manufacturing business, he became CEO. However, his first business venture was at the age of 26 when he bought a plastic-bottle company that supplied both nutritional and pharmaceutical companies.

“I wouldn’t say I was an expert, but I had a working knowledge of this industry,” he said.

Spence eventually sold his company to a private equity firm, remaining as CEO until 2010, when he resigned to run for governor of Missouri.

“I didn’t win or I wouldn’t be doing this,” he said with a laugh. “That was an interesting experience. It makes the packaging business look pretty rational.”

Following the election, he became more involved with Legacy and began identifying ways for the company to grow and improve its operations.

Once he became CEO, Spence said it took him a while to master the plethora of pharmaceutical acronyms, but the company began to grow at a rapid rate, from $9 million in his first year to $18 million then $38 million in his second and third years, respectively. This year, Legacy will bring in $42 million, and the company’s growth rate has prompted Spence to make a risky decision.

“We’ve kind of tapped the brakes a little bit on growth to catch up with it,” he said. “I think we took on a ton of growth. We moved into another building, and we finally finished consolidating into this building. We had a lot on our plate, and we’ve just had to get the infrastructure in place to catch up with our growth.”

Becoming best in class

With GDUFA fees receiving increased scrutiny and serialization on the horizon, many companies are teetering on the brink of failure, Spence said. Legacy wants to embrace these changes and become best in class.

“In this industry, there’s a lot of paralysis through analysis,” he said. “We don’t want to be this aircraft carrier that can’t make decisions. You have to obviously make judicious, well-thought-out decisions, but that doesn’t mean they have to take years. And that’s what I’ve found out about this industry. People are very cautious, and rightfully so, but I think that there could be some more entrepreneurial thinking.”

Legacy’s model affords it efficiency in decision-making on capital expenditures. Recently, in anticipation of hydrocodone, a Schedule III drug that was converted to a Schedule II, the company installed a vault. It also added cages for Schedules III through V drugs.

Furthermore, the company added checkweighers, vision systems, and diagnostic machines. It improved tooling for thermal formers, and Legacy also constructed a state-of-the art training facility on its campus.

Exploring the international market

From personal experience, Spence said the lawmakers who are passing regulations on the pharmaceutical industry have never actually worked in it. This factor of inexperience makes it difficult for companies like Legacy to do business, he added, and it leaves competitors overseas with an edge.

“What we’re doing is adding more and more complexity to doing business in the United States, which to me is counterintuitive,” Spence said. “We should be making business easier to do in the United States.”

Spence would like the freedom to expand into the overseas market, where emerging countries are clamoring for FDA-approved pharmaceuticals, especially since many middle- and upper-class citizens lack confidence in local pharmaceuticals and are looking for products that are authentic and not counterfeit.

“Every time I learn more about the business, I see more potential,” he said. “We’re trying to think outside the box more. We know there are regulations and there are protocols. I think people find us refreshing in the fact that we’re enthusiastic. We’re honest.

“We don’t want to take on business that isn’t good for us, or we would be set up for failure. We can make decisions. We’re two-feet-on-the-ground, very commonsense people, and I think people find that engaging and refreshing.”

-by Pete Fernbaugh

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