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Small businesses can flourish when they fill overlooked niches in the marketplace. And if that niche starts to expand, the growth can be fantastic. So it is with TNH Pharmacy II, which distributes drugs not available at retail drug stores, typically for patients with serious health problems such as cancer, multiple sclerosis, HIV/AIDS and rejection issues after organ transplants. The Van Nuys company’s revenue hit $37.4 million last year, a 580 percent growth rate since 2010, making it No. 1 on the Business Journal’s list of fastest growing private companies. So what’s generating all that cash? Well, it’s not a steady stream of refills for asthma inhalers, Viagra or cholesterol drugs. Instead, its low-volume but high-cost drugs that are priced $5,000 on average and as much as $100,000 or more. For example, a bottle of Sutent, an oncology pill, costs between $8,000 and $11,000. TNH is also unlike a typical retail pharmacy as it doesn’t have a storefront. All its products are distributed by mail or private courier services. In addition, TNH provides counseling on how to take the medication and will arrange for a nurse to administer it intravenously, if necessary. “We basically provide a therapy treatment, whereas a regular pharmacy just gives people the drug,” said Chief Executive Avetis “Avo” Minasyan. “Once they use our pharmacy, they are with us throughout the therapy. In many cases, they require treatments for the rest of their life.” The company gets its customers from doctors who recommend TNH when they diagnose a condition and set up treatment. A force of 20 salespeople visit doctor’s offices and explain TNH’s offerings. The company currently has more than 4,000 active patients in 37 states. Dan Steiber, editor-in-chief of trade publication Specialty Pharmacy Times in Plainsboro, N.J., said the growth of specialty pharmacies is driven by the big pharmaceutical companies. As mass-appeal drugs such as cholesterol treatment Lipitor lose their patent protection and compete with generic substitutes, pharma manufacturers see more profit potential in high-cost specialty drugs. “Most of the new drugs approved by the FDA are for higher-end disease states,” he said. The manufacturers also have found that the traditional distribution model of wholesale warehouses and regional suppliers selling to mass market chains doesn’t work for these high-priced, rare medications. As a result, they restrict access and sell these drugs directly to a few specialty pharmacies. Still, the big money in specialty drugs has attracted competition. Glenda Owens, president of GO Rx Consulting Inc. in Rancho Palos Verdes, noted that CVS Caremark Corp. and Walgreen Co. have opened specialty operations. And many insurance companies have in-house or outsourced pharmacy benefit managers who perform services similar to TNH. “We are in an environment in which special pharmacies have skyrocketed,” Owens said. “In the last five years we’ve seen tremendous growth, whereas for traditional drugs the growth is almost negative. The projection is that in another five years, these specialty products will be 50 percent of the pharmacy marketplace; right now they are about 20 percent.” Personal savings TNH has its roots in Minaysan’s family Hollywood pharmacy. In 2009, he decided to go in business for himself, buying two Valley pharmacies with childhood friend Raymond Shirvanyan. They kept the previous owner’s brand name TNH, which stands for “The Nation’s Health.” For about a year they ran the business as a regular pharmacy, but when the back-office specialty operation took off, they closed their doors to the public. Shirvanyan serves as vice president of the company. The high cost of medications makes TNH’s business fundamentally different from most pharmacies. Insurance companies, which pay for the vast majority of these prescriptions, want to make sure patients properly use the medicine – hence the need for phone consultations, email reminders to take the pills and arrangements for in-home nurses or visits to clinics for IV therapy. The drugs often have strict regimens and conditions. For example, if a female patient becomes pregnant while taking the cancer drug Tarceva, it would harm the unborn child. As a result, TNH verifies the patient’s birth control practices or lifestyle to avoid the possibility of pregnancy. “We have to make sure all these things are in place before we dispense the medication,” Minasyan said. “If they walk into Sav-On, they aren’t going to get all this.” Also, TNH arranges financial help. Pharmaceutical manufacturers, non-profit foundations and state governments have programs to help people pay for life-saving drugs, but patients need help to navigate this system. Even for patients with insurance, co-pays can run into the hundreds of dollars or more. While Minosyan emphasized that TNH is not an online pharmacy – it doesn’t sell discount drugs from Canada with credit-card transactions – he ironically pointed to his company’s website as a major advantage over competitors. The portal allows patients to post updates on whether they took their medication, side effects and other feedback. More importantly from a sales perspective, doctors can monitor their cases easily online. “Our growth is basically because of our portal’s communication program that allows doctors and patients to interact with the pharmacy on a real-time basis,” he said. “The doctors like it. It gives them peace of mind that they can see all their patients and their status.” Laura Garcia, office manager for cancer specialist Dr. Philip Chatham in Van Nuys, has worked with TNH for four years because of what she said was its superior service. Nearly all cancer drugs require prior authorization from insurance companies. Garcia’s office doesn’t handle prior authorizations, but she knows TNH will get it done. “When our patients can’t afford a drug, they find a way to take care of it,” she said. “They deliver drugs in a timely fashion and bend over backwards for the patient.” Big competition Steiber, the trade publication editor, said specialty pharmacies should get a boost from federal health care reform, which is expected to bring another 40 million people into the insurance system. While their insurance may not cover the entire cost of specialty drugs, he believes reform should expand utilization of the products. Owens, the pharmacy consultant, noted that health reform includes incentives for drug companies to develop treatments for so-called rare and orphan diseases that might impact only 500 people in the nation. Those treatments will clearly boost specialty pharmacies. “These rare diseases are going to be huge money – we’re talking $200,000 a year for one course of therapy,” Owens said. “The cost is so phenomenal you almost can’t imagine it can keep going, but there appears to be no end in sight.” But there are significant challenges for specialty pharmacists. Owens said there is a big push to drive down the cost of medications, especially with biotech drugs. The near-term answer is so-called bio-similar drugs, which have molecules that are similar, but not identical, to brand-name drugs, such as Epogen, the anemia medication that has funneled billions in revenue to Amgen Inc. of Thousand Oaks. Lawmakers are currently working on regulations to allow biosimilars on the market, while the pharmaceutical lobby is working to stop them, citing safety concerns. If biosimilars enter the market, Owens believes it would pose a challenge to operations such as TNH. “Specialty pharmacies that buy these (brand-name) drugs at high rates and sell them at higher rates would get squeezed on their profit margins as the price comes down,” she said. “The price of drugs will continue to increase until specialty drugs become more like generics, and that could happen in 2014.” And Steiber said big pharmacy chains are starting to increase their focus on specialty drugs. In September, Walgreen paid an undisclosed sum to buy 76 retail stores and the special pharmacy operation of Kerr Drug in North Carolina. “There is strong interest in a successful specialty pharmacy – entities are looking at buying those up,” he said. However, for now, small operations like TNH have a place in the market, since they provide a “level of hand-holding” that is not currently rivaled, Steiber said. “These larger organizations can become just high-touch mail order operations. Meanwhile, under the iceberg local and regional companies can work with physicians and do something different,” he added. Indeed, Minasyan said his focus in the face of the competition and industry changes is simply maintaining the quality of individualized care. “The bigger we get, the bigger the obstacle becomes,” he said. “But our service and the account portal is the difference. That’s why people choose us over them.” Download the 2013 VALLEY’S FASTEST-GROWING PRIVATE COs list (pdf)

Joel Russel
Joel Russel
Joel Russell joined the Los Angeles Business Journal in 2006 as a reporter. He transferred to sister publication San Fernando Valley Business Journal in 2012 as managing editor. Since he assumed the position of editor in 2015, the Business Journal has been recognized four times as the best small-circulation tabloid business publication in the country by the Alliance of Area Business Publishers. Previously, he worked as senior editor at Hispanic Business magazine and editor of Business Mexico.

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