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Something special

Friday 3 August 2012 9:00

Brian Nicholls

Andrew Scaife’s background is in financial but he also has the chemistry to ensure an increasingly big portion of the medical industry will develop in the North East.

Any day now fast growing Quantum Pharmaceutical will disclose a fourth acquisition in its three years of transformation, and excite the assessors who’d already rated it the UK’s 14th fastest growing company on a Sunday Times listing.

The deal almost sealed follows its third buy which, three months ago, brought a near trebling of staff from 130 to 320. Will there be a fifth and sixth lightning strike from the Burnopfield, County Durham, based manufacturer of specials in medicines? “We won’t grow at the same rate necessarily,” managing director Andrew Scaife replies.

But he sounds optimistic. “The business has doubled in financial terms in three years through both organic and acquisitive growth,” he summarises. “And besides negotiating this fourth acquisition we’ve put up this £4m building as well.”

It’s elegantly modern, the main phase of ongoing site development upon a Derwentside hill. It’s a doubly high point of Burnopfield village, for it’s a living monument also to the determination of North East pharmacists not to let local jobs be siphoned to the South East unnecessarily.

And Andrew – Andy, as he’s popularly known - is clearly hedging bets about a more tempered future. “I don’t have my eye on anything in particular,” he says, referring to more buys. “Who knows though? They always come up.”

“Specials” in prescriptive medicine is a recent term in many minds. Yet there’s always been a need for and a supply of special medicines. He explains: “People are individuals. One size doesn’t fit all.

“Some people can’t take one prescriptive medicine or another, for whatever reason. “It might contain preservatives, additives or an ingredient to which they’re allergic. Maybe they can’t swallow tablets and need a liquid version. So specials represents lots of very good licensed products.

“We service a valuable part of the market. People needing specials are often acutely ill. They tend to be very young or old.”

Anaesthetic lollipops come in various flavours for patients with painful throats unable to swallow freely. And animal product free items are made not only for vegetarians and vegans but also for ethnic markets.

Methadone for drug addicts fighting their habit can be injected into cigarettes, making it easier for them to take. It’s not only humans either. Veterinary requests are growing, particularly equine since the racing fraternity use uncommon medicines to speed the recovery of sick racehorses, whose non-starts can be costly to stables and owners.

The specials market crystallised after a landmark Peppermint Water case 14 years ago. A three-week-old boy had been given medicine of incorrect strength. Specials until then had usually been made by pharmacists in chemist shops, and this one had been made at a branch in a major chain.

In stepped regulatory authorities and insurance groups, hence the prominence of companies now like Quantum, Martindale, IPS Specials of West Molesey in Surrey, and the £4m turnover SCM Pharma which, incidentally, is relocating from Prudhoe to bigger 26,000sq ft accommodation with a new cleanroom at Newburn Riverside.

Andrew says: “It made sense for the manufacture of specials to be centralised into proper laboratories, heavily regulated. The MHRA - Medicines and Healthcare products Regulatory Agency - which regulates also the like of GlaxoSmithKline, Pfizer and other multinationals, also regulates specials providers. So it’s a very safe industry.”

Now Quantum Pharmaceutical is more than a specials provider. He explains: “We’ve positioned ourselves slightly differently. We’re the only true one-stop shop in specials. Pharmacies in practice either buy from their mainline wholesaler or deal with Quantum.

“We’ve meaty contracts because we offer the widest range in the market and our turnround times are fastest. Order by 6pm and you get it by noon tomorrow. If in stock you can order by 9.30pm and have it by noon tomorrow - anywhere in the country. Quantum has changed the market.

“One used to expect three to five day turnround. Today we’ve competitors in specific parts of our business, but no-one competes with us across our entire business.”

The firm has 24,000 product lines and, partly through 35 call centre staff among its 205 employees at Burnopfield, the group meets about 1,500 orders a day. Orders also arrive online, faxed, e-faxed and e-mailed. Last year Quantum processed its millionth order. Now it’s nearing 1.5m.

Andrew says: “Our ethos is not to tell them what you can do for them but ask what they want you to do. Then we deliver accordingly. We deal with all customers differently, designing a service for each. That’s pretty important in any industry.”

Quantum has six sites around the country, whereas eight years ago in its infancy it was camped at Tyne Metropolitan College on North Tyneside, using a former Siemens cleanroom. Martindale (now a Quantum rival) had bought the Newcastle operation of Unichem-owned Eldon Laboratories, and removed the customer base to Brentwood in Essex, and Eldon no longer existed.

Dismayed management and staff from Eldon were determined to keep a specials presence in the North East. Four ex-managers set up Quantum Specials in 2004. From the college the business relocated to Newcastle, then Burnopfield in 2006, where the site was consolidated two years later.

In a £32.5m management buyout in 2009 Andrew Patterson and Phil Richardson exited, as did Phoenix Medical Supplies, which had bought a 30% stake in 2005. Ian Edge and Alison Norman remained. Andrew joined as financial director. His background was chartered accountancy. He studied it, with law, at Newcastle University and got a start with KPMG.

He audited for about two and a half years then, bored, spent around a decade with KPMG’s corporate finance team instead, running the team locally for the last three years. “I was selling Quantum on behalf of the existing shareholders then flipped over when a financial director was needed. Deal-doing’s good background for business, certainly for strategic thought process. “

After nine months he was commercial director then three months later reached the managing director’s chair - 12 months after joining. “you might have expected a bit more of a bedding in period, but it worked all right, I think,” he reflects.

He instigated the name change from Quantum Specials to Quantum Pharmaceutical. “I felt the old brand was a bit tired, and as we were broadening the business it was no longer simply a specials business. We had a lot of argument about whether to be Pharmaceutical, or whether we should be Pharmaceuticals.

“My thought process was pretty straightforward, I think. Pharmaceutical suggests a service business, Pharmaceuticals a product business. I see us very much a service business. I think the rest of the guys have come on aboard with this. We have lots of products but are a service business because we make people’s lives easier.

“you wouldn’t believe there could be such a long debate about an S,” he says, smiling at the memory. A trace of the old logo remains in a new tricolour one - the arc there signifying the Millennium Bridge. Staff were involved in the decision. “I wanted a little of the local heritage kept but not emphasised as we’re now a national business. It’s altogether more modern and befitting.”

Initially Quantum focused entirely on market leadership in specials supply to retail and wholesale pharmacy. Acquisitions since have broadened things: 2010: A stake bought in Protomed Ltd, developer of Biodose, a monitored dosage system for patients in care homes, and in care at home. 2011: Acquired Total Medication Management Services Ltd, distributor of medication in Biodose to various sectors. 2012: Acquired Watford-based UL Medicines (ULM), a leading supplier of unlicensed pharmaceutical imports and batch made specials to hospitals. Quantum also has a joint venture in Ireland, is now selling into Germany, and verging on the Benelux regions too.

The accesses to Biodose, delivery of medicines in a container akin to an egg tray, have driven diversity. Biodose pods, like tiny coffee cream containers, come out of the tray separately, each containing a prescribed dose of medicine. Andrew says: “In my opinion, Biodose is the future of medicine. It’s the only one of its kind that takes liquids.

"Some elderly people with memory problems using bottle and spoon often can’t tell whether they’ve taken their medicine when they should have.” “With Biodose you see if they took it. Each container carries times and dates. A barcode system can be read by i-phone too. So you can remotely monitor them.”

It will help counter more than 62,000 known incidents a year of drug error, helping offset an estimated £300m wasted annually on unused medicines. A chip-on-the-pod version ready later this year will also tell whether or not a pod has been popped.

“If you’ve an elderly relative or if you’re a carer looking after a number of people, a text will tell if the medicine has been taken. So you can keep people at home and out of hospital longer - as the NHS wants. The cost of keeping one patient in hospital for a night is the cost of six years’ worth of medicine.

“So they don’t want people hospitalised unless they need to be. They also don’t want people returning to hospital with the same condition as before. Home care, private care, hospitals, nursing homes – wherever... you can also offer a chip service at home, paying someone to have your relative monitored to ensure they’re taking medicine as prescribed.

“In five or 10 years’ time this will be prevalent hopefully in the UK. The product is going into Germany and the rest of Europe will follow soon. We own a proportion of this business with option to buy the rest that owns the IP. It will be ours.” Gaining access to hospitals through ULM is obviously a major advance. Quantum’s core business from 2005 had always been in retail.

“We struggled to get into hospitals,” Andrew says. “It’s really difficult, very different to retail. Retail is more service focused, hospitals are more product focused. They value service but think of it differently. So you need a different route.

“Our acquisition gave us entry to around 200 live hospital accounts. Whereas 400 lines serviced the hospital market before, we’ve 24,000. So we’re looking to put more lines behind the brand in that market, and will offer hospitals a one-stop-shop for unlicensed pharmaceuticals, whether by our own manufacture or by sourcing.

“It effectively doubles our market availability. Hospitals is about the same size as retail. In terms of our business it’s about a fifth of retail’s size, but market size is double. Once we get penetration up we’ve access to a double market, which should be a fast growing part of our business, whereas retail is relatively mature. Further growth will come in the Bios – home care, hospitals for discharge packs and private pay as well.”

General progress made already brings awards. The MBO itself was recognised as deal of the year at the Insider Dealmakers Awards. Finance director Martin Such has been named Finance Director of the year in North East accountancy awards.

And Andrew, 36, has two awards from the Institute of Directors – for regional Investor Director of the year and national Small and Medium Size Business Director of the year.

Of his own awards Andy chuckles and says: “The world’s gone mad. “But they’re gratefully received. Third party recognition is satisfying, being more a recognition the business is performing well and probably bucking the trend.” Alastair Thomson, the then IoD North East chairman, thought Andy “a dynamic and successful entrepreneur whose company makes a substantial contribution to the region’s economic fabric.”