NeighborCare finds success in old-fashioned service

July 31, 1994|By Patricia Meisol | Patricia Meisol,Sun Staff Writer

When Stanton G. Ades and Michael G. Bronfein bought a pharmacy in a shopping center in 1980, their intent was an investment to pay college tuition for their children.

Three years ago, they sold the pharmacy. But not because their partnership failed.

Just the opposite. With 21 pharmacies based near doctors' offices and clinics, as well as a vast network of services to manage and deliver drugs, the original shopping center site just didn't fit into the strategy of the company that grew from it: NeighborCare Pharmacies Inc.

In the past five years, NeighborCare has achieved spectacular growth with a formula that mixed the aura and personal service of a Main Street pharmacy with the prices and sophistication of a large company.

Now, in an era when the neighborhood pharmacy is being virtually run out of town, this private chain of pharmacies and drug services is on its way to becoming a major regional player.

"What we are is the corner pharmacy. We've taken the best of community pharmacy at the operating level and backed it up with the economies of scale and management that a chain would provide," said Mr. Bronfein, who quit banking to join his pharmacist brother-in-law, Mr. Ades, in the business full time in 1991.

Their rapid expansion plans for the next five years, however, are bigger than the Baltimore-based company could finance on its own. For the first time, the pair said, they will look for outside investors, possibly through the public sale of stock. The goal: $250 million in annual revenues.

After the first retail store, NeighborCare focused on a strategy of selling prescription drugs from small rented ground-floor spaces usually only 900 square feet -- in medical professional buildings and health clinics.

And the company bought vans to deliver drugs to homes and offices free of charge.

From there, NeighborCare began to supply drugs to nursing homes and, more recently, entered the infusion drug business, which allows patients needing prolonged treatments to receive them at home.

Drug stores in medical buildings aren't new. But the movement of medical care from hospitals to office complexes and into the home gave this type of business new impetus.

For the year ended June 30, revenues at NeighborCare, which is privately owned, rose 34 percent to $31 million. A 50 percent growth rate projected for 1995 two months ago was bumped to 62 percent recently, thanks to new contracts, including one for the 600-resident Stella Maris Nursing Home and Hospice in Towson.

"They seem to be putting them in the right places, like McDonald's. What made it so successful was their location," said Dennis Gifford, assistant vice president of St. Joseph Hospital. NeighborCare runs a 24-hour pharmacy operation in the Odea Medical Arts Building on the hospital's grounds.

The success of NeighborCare stems from a combination of personalities and strategies.

Mr. Bronfein, 38, president and chief executive officer, is the talker, the accountant and public policy gadfly with an essential belief in the survival of the fittest and the power of the marketplace to sort out the winners. He is in charge of strategic planning.

Mr. Ades, 46, executive vice president and chief operating officer, is the listener, the pharmacist familiar with the industry's front lines. He oversees daily operations at the company's Lee Street headquarters in Baltimore's Inner Harbor.

"If we both agreed on everything there wouldn't be a need for one of us," Mr. Ades said.

Their approach is conservative, even as they aim to stay one step ahead of the market.

For instance, Mr. Bronfein hesitated for years about getting into the home infusion business because he was "weary of the flimflams" in the high-margin industry and he refused to pay doctors for referrals. "So we had to be better or different," he said.

Mr. Ades finally persuaded him it could be done. Instead of paying for referrals, the company expanded its consulting business to include an educational program on how and when to use the more-sophisticated equipment and infusion techniques.

It brought the program to long-term care facilities that were already NeighborCare customers and that wanted to upgrade their nursing skills. The program allows nursing homes to take patients earlier from the hospital and increase their revenues.

At the same time, the strategy created a demand for NeighborCare products without the usual payments to doctors. In short, NeighborCare started in the business with a lower cost structure than competitors, shielding itself from losses when profit margins in the infusion business dropped.

It's a formula they've used again and again.

Rule of thumb

The two men credited NeighborCare's growth rate of 30 percent recent years to a decision to invest in technology rather than bricks and mortar, and a reliance on an old rule of thumb that has been handed down through their two families, both steeped in running their own businesses: find the customer's needs and fill them.

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