Case Study: Pharm-Rx Chemical Corporation

Business Description: Pharm-Rx Chemical Corporation is a privately-held marketing and distribution company of fine chemicals that focuses on the pharmaceutical and dietary supplement industries.

Theme: Pharm-Rx’s success to date has been strongly based on providing a combination of ingredients and services in a way that integrally supports its customers’ businesses. As the company looks toward the future it must keep finding innovative ways to attract new customers without sacrificing any existing customers or service.

Background: Pharm-Rx was founded in 1991 by David Lemeshow, a former BASF team member, and has grown every year since its founding. Its initial sales focus was regional, targeting small to medium-sized customers primarily in the dietary supplement segment, as well as those in the pharmaceutical market. A key component of its strategy from the onset was to focus on relationships with companies that have strengths in manufacturing, and put its energy into servicing customers. For a variety of reasons, the company was effectively competing as a “niche” player by coupling a strong ability to source material and customer focus, by looking particularly after local customers. A key component of its value proposition was, and continues to be, its ability to work as a liaison between its customers and ingredient manufacturers by helping identify and source new products. Over time, Pharm-Rx has earned a reputation as being a company “who helps businesses grow,” and to a large degree its revenue growth was driven by direct sales efforts and referrals.

Situation Assessment: The company’s competitive landscape is highly fragmented with a range of competitors from manufacturers selling directly, to value-added distributors, to other distributors that are seeking ways to be unique in the market. From an ingredient perspective, Pharm-Rx offers approximately 170 products consisting of pharmaceutical active ingredients, dietary supplements, excipients and specialties. It is not limited by the origin or type of material, as it focuses on the customer’s needs. It is continually working to match new materials with new markets—sometimes it can deal with bringing in new ingredients, while at other times it can provide an existing ingredient in a new form. At the heart of its ingredient sourcing strategy, it leverages the loyalty of its customers who proactively request a new ingredient by using its global network to secure supply. Likewise, the company works directly with manufacturers, who recognize its ability to move material, and will typically bring new technologies to them. This places a significant demand on its ability to identify, locate and source new technologies to ensure that its product portfolio is matching its customers’ needs. Additionally its value proposition varies by segment. On the pharma side of the business the company assists pharmaceutical companies (OTC, generic and brand name) with their needs with API’s as a primary or secondary source. In the dietary supplement market, however, Pharm-Rx helps its customers find new materials and sources. It recently created a new position in business development to look after new opportunities.

Opportunities: Despite many technology improvements in both sourcing and producing ingredients, as well as better systems to support logistics, the supply market is becoming more complex. These improvements do well in helping source the more commodity-like products, but do little to improve the situation of a customer with unique requirements. With this phenomena in-place, it offers a great opportunity for a company that can specifically and proactively look after its customers’ interest. A key challenge to this effort is understanding the volume of customers that can be adequately served. It appears that the real market opportunities have surfaced in three areas: (1) larger manufacturers who want help in servicing smaller to mid-sized accounts; (2) end users of the material who need a company to provide solutions, not just product; (3) foreign manufacturers looking for representation in the U.S. market.

Lessons Learned: The Pharm-Rx story is a great example of the challenges in the distribution business. This case presents several highly connected actions that can be considered in growing its business. (1) Although the company distributes materials, in fact, the key differentiator is its ability to quickly identify and get to market new products. As it moves forward, its growth is highly dependent on effectively finding new products. (2) A critical factor will be Pharm-Rx’s ability to remain true to its competitive strengths as it grows. It will need to continue to focus on meeting the needs of its customers. (3) As it transitions to securing more proprietary ingredients, it will be forced to look at changes in both its organization and its contracting process. Sourcing new, proprietary ingredients requires focus and applying staffing resources to have objectives for how it proactively seeks technologies. Once the technologies are found, it is critical to use new techniques in striking arrangements that offer Pharm-Rx lasting protection, including exclusivity.