Sept. 03--In a sign of how lucrative and high volume customized medicines have become, a Lake Forest company that produces such drugs has filed plans for an initial public offering.
PharMEDium Healthcare Holdings said in the registration statement filed earlier this week that it would like to raise up to $100 million. The company would not receive any proceeds. Instead the company's largest shareholder, New York private equity firm Clayton, Dubilier Rice, plans to sell some of its stock.
PharMEDium is in the business of compounding: mixing or altering off-the-shelf drugs to create customized medications. Compounding used to be done primarily by neighborhood pharmacists mixing their own remedies for individual patients.
In the last decade or so, the industry has expanded to include companies like PharMEDium that rival drug manufacturers in the scope and scale of their operations. In 2014, PharMEDium had sales of $374.1 million, an increase of 27.6 percent over the previous year.
PharMEDium's growth has been driven by the increasing complexity of the health care system. Hospitals, dealing with rising costs and demands to improve efficiency, are increasingly relying on compounders to supply their pharmacies instead of making special formulations in house. Hospitals require concentrations, dosage forms and delivery systems that are not commercially viable from drug manufacturers.
Compounding was little known and lightly regulated until 2012. That year an outbreak of fungal meningitis, a rare brain infection, killed 64 people in nine states. The infection was linked to a drug mixed by a compounding pharmacy in Massachusetts.
In November 2013, President Barack Obama signed a law aimed at enhancing regulation of compounding pharmacies. In its filing, PharMEDium warned potential investors that increased regulation could hinder growth.
The heightened regulatory risk was underscored last year when the company received a warning letter from the Food and Drug Administration based on an inspection of its facilities in 2013. The letter said PharMEDium violated certain quality requirements. The issues in the warning letter have not been fully resolved, the company said in the filing.
PharMEDium also noted in the filing that, unlike some pharmacy compounders, it uses sterile drugs, dilution agents and containers. Its compounds are typically administered intravenously. The company has voluntarily registered as an outsourcing facility with the FDA.
Another significant risk factor the company cited was its "substantial" debt as a result of last year's leveraged buyout by Clayton, Dubilier Rice. PharMEDium had about $524.5 million of long-term debt as of June 30.
William Spalding, PharMEDium's CEO, said he could not comment on the filing because the company is in a mandatory "quiet period" after making its registration statement.
PharMEDium was started in 2003 when investors bought Deerfield-based Baxter International's compounding business.
The company plans to trade on the New York Stock Exchange under the symbol PMHC.
asachdev@tribpub.com
