Wednesday, September 06, 2017

2016’s Fastest-Growing, Private Specialty Pharmacies (From the Inc. 5000)

Time for our annual review of the latest Inc. 5000 list, the magazine’s annual ranking of the fastest-growing private companies in the United States. The list offers a valuable snapshot of the dynamic specialty pharmacy industry. This marks our sixth annual review of the list.

We have identified 15 specialty pharmacies on the 2017 list, which is based upon revenue growth from 2013 to 2016. Annual revenues range from $6.4 million to $1.3 billion.

The pharmacies and key stats are listed below. For the nine companies returning from last year’s list, median revenues in 2016 sped ahead by 24%—impressive but slightly slower than last year’s figure.

The specialty industry’s growth is creating a set of large independent specialty pharmacies. Will they keep racing ahead or wipe out?

START YOUR SPREADSHEETS!

The 2017 Inc. 5000 list ranks companies based upon percentage revenue growth from 2013 through 2016.
  • To be ranked, companies must be based in the United States and be privately held, for profit, and independent—not subsidiaries or divisions of other companies—as of December 31, 2016. Companies must also have had revenue of no less than $100,000 in 2013 and no less than $2,000,000 in 2016.
  • Some companies have grown by acquisition. The Inc. growth figures do not necessarily reflect organic growth.
  • Companies must apply to Inc. magazine to be considered for the Inc. list, so some fast-growing, private specialty pharmacies may not appear on this list. No need to email me and complain that I omitted your company. Simply click here to review Inc.’s application guide
Here are links to our previous analyses of earlier lists:
FAST 15

The Inc. 5000 “health” category includes hundreds of companies. Based upon the magazine’s company descriptions, we identified 15 firms whose primary business is the dispensing of specialty pharmaceuticals.

[Click to Enlarge]

The chart above updates Exhibit 46 (on page 64) of our 2017 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

For our list of the largest specialty pharmacies, see The Top 15 Specialty Pharmacies of 2016. PBM-owned and insurer-owned central-fill mail pharmacies with substantial specialty operations constitute six of the of the industry's largest 15 specialty pharmacies. Only one company from that list—Avella—made it into our 2016 winner’s circle.

FURIOUS FINDINGS

Here are my key takeaways from the 2017 list:

1) Revenue growth remains high for some companies, but others experienced a slowdown.

Although the Inc. list is a self-selected sample, the revenue growth rates are truly astounding. Average (median) 2016 revenue for these 12 businesses was $191 million ($119 million), and the average 3-year revenue growth rate was 1,969% (238%). The summary stats are skewed upward by the very high growth rates of the smaller companies.

PANTHERx Specialty Pharmacy, which was new to last year’s list, posted another year of astonishing growth. Its 2016 revenues were $240.1 million, up 466% from the 2015 figure of $42.4 million. Check out its story from last year’s list: How a Pharmacy Specializing in Rare Disease Drugs Grew 13,380% in 3 Years. In 2017, PANTHERx won the Specialty Pharmacy Patient Choice Award in the “Non-PBM/Payer Specialty Pharmacy” category.

Nine of the 15 companies appeared on last year’s list. Excluding outlier PANTHERx, the returnees’ average year-over-year revenue growth rate for 2016 was 29% (median=24%). Average year-over-year revenue growth rate for 2015, however, was 63% (median=53%). The 2015 figure also excludes PANTHERx.

For instance, Avella’s annual growth rate has dropped, from 40% in 2014 to a still-impressive 24% in 2016. Curant Health also saw a slower annual growth rate, from 47% in 2014 to 24% in 2016.

2) The list reflects the growing participation of larger independent specialty pharmacies.

Our 2017 list shows a healthy group of mid-size specialty pharmacies. Eight of the companies on the 2017 list had annual revenues of $100 million to $250 million. They are all attractive platform acquisition candidates for financial buyers. Consider Apothecary by Design, which was acquired in 2015 by BelHealth Investment Partners.

We estimate that Independent pharmacies accounted for about 10% of total U.S. specialty dispensing revenues in 2016. These businesses usually differentiate themselves from the largest PBM and payer owned specialty pharmacies by:
  • Emphasizing a geographic niche by partnering with local prescribers and regional insurers
  • Building disease-state expertise for open-distribution specialty products treating such diseases as HIV and hepatitis C
  • Demonstrating the requisite capabilities for inclusion in manufacturer- and payer-defined specialty dispensing networks. These networks also require the business to market its capabilities and services to prescribers, payers, and manufacturers.
  • Developing unique services or technologies
Note that the newcomers are very young companies. Six new specialty pharmacies joined the Inc. list in 2017. Five of these six companies were founded between 2011 and 2013. Their youth makes it easier for them to post sky-high growth rates.

3) Three pharmacies from last year have dropped off the Inc. list.

Diplomat Pharmacy acquired two companies from our 2016 list:
  • TNH Advanced Specialty Pharmacy (2015 revenues = $404 million)
  • Accurate Rx (2015 revenues = $17 million)
For a list of other transactions in 2016, see Specialty Pharmacy M&A: Our Look at 2016’s Deals.

Revenues at BioPlus Pharmacy—one of the top 15 specialty pharmacies—did not increase in 2016, so it did not appear on the 2017 list. The company told me that the slowdown was a strategic choice. For 2016, BioPlus started limiting its participation in Medicare Part D plans that levy very high Direct and Indirect Remuneration (DIR) fees.

The specialty pharmacy market is growing up. The larger companies no longer live life a quarter mile at a time. Tune in next year for the fate of the furious.

P.S. 2017 fun fact: Fast & Furious 6 is PANTHERx CEO Gordon Vanscoy’s favorite movie in the series. Nice choice, Gordon! You may remember from last year that Avella CEO Rebecca Shanahan is partial to Fast Five. Cool.

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