Chronimed Inc.

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Chronimed Inc.

10900 Red Circle Drive
Minnetonka, Minnesota 55343
U.S.A.
(612) 979-3600
(800) 444-5951
Fax: (612) 979-3969
Web site: http://www.chronimed.com

Public Company
Incorporated: 1984
Employees: 330
Sales: $140.7 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: CHMD
SICs: 8099 Health & Allied Services, Not Elsewhere Classified; 5047 Medical & Hospital Equipment

Chronimed Inc. is a leading integrated healthcare company specializing in diagnostic products, specialty pharmacy services, and disease management for people with chronic health conditions. The company develops, manufactures, markets, and distributes Pharmaceuticals and medical diagnostic products, and provides specialized patient management services for people with chronic conditions such as HIV/AIDS, diabetes, organ failure, and diseases treated with injectable medications. Chronimed works directly with patients, providers, and payers in a concerted effort to improve clinical and cost-of-care outcomes, and to enhance the quality of life for the chronically ill.

From Cranes to Chronic Diseases, 1970s-80s

Chronimed Inc. was founded by Maurice R. Taylor II in 1985, a year after Taylor took over the drug, supply, and marketing division of the International Diabetes Center. Taylor came from a varied background which included starting a crane manufacturing company, an international trading company, and a fast-foods products company. Taylor’s position immediately before founding Chronimed was as executive vice-president and chief operating officer of Summit Gear, a manufacturer of precision instruments for the aerospace industry. His broad knowledge of manufacturing and distribution positioned him well to succeed in this new venture. Though his background in healthcare and chronic diseases was minimal, Maurice Taylor recognized the burgeoning need for information and products in this market and the inevitable growth of the industry. Taylor knew that he could bring to the company the medical expertise it would need. What he brought to the table was his unique ability to read the trends and shifts in consumer needs and carve out a vision for Chronimed’s role in the emerging healthcare market.

Since the early 1970s, the International Diabetes Center had been acting as an advocate and clearinghouse for research and information used primarily by professionals in the care of chronic (Type I and Type II) diabetes. This gave them widespread recognition as a reliable source for medical information. In January 1986 Steven Crees joined Chronimed. His background was as a marketing representative with the Baxter Travenol Corporation, a healthcare products distributing company. He brought to Chronimed added marketing expertise specifically in the healthcare arena.

Under Taylor’s leadership, now assisted by Steven Crees, Chronimed broadened the emphasis of making diabetes information available to the growing number of professionals and patients as well.

From the start, business was brisk for Taylor and Crees. Even though diabetes had been around for several thousand years, insulin was only discovered in 1922. Moreover, insulin was not systematically manufactured until 1978, when advances in the field of biotechnology made it possible. By the time Chronimed emerged, the new treatment of diabetes was spreading fast. Other advances in medical science were making organ transplantation more and more possible. Successes were still scattered, yet there was a very hopeful attitude among professionals, and researchers were making great strides forward. New antiviral drugs were being developed as transplants became more and more a reality. Add to this the emergence of HIV/AIDS. The first cases of this new virus were reported in patients in New York and San Francisco in June 1981. By 1983, medical scientists announced they had isolated what they now called the HIV virus. There was evidence that this new disease was growing to epidemic proportions and there was a serious outcry for funding and research to meet the challenge. As the 1990s approached, the demand for information, drugs, and supply gave the impetus for Chronimed to broaden its strategy to include other chronic diseases.

Organ Transplant Specialty Pharmacies

In 1990, the company opened an organ transplant specialty pharmacy to serve patients who had undergone solid organ and bone marrow transplants. The company realized the unique nature of the organ transplant patient who is faced with intensive, high-cost drug therapies that could continue over a long period of time. It became clear that the traditional drug distribution systems in existence at the time may not be able to serve these chronic patients adequately due to the precise monitoring and personal tailoring required in the scheduling and administering of drugs to transplant recipients. Chronimed’s specialty pharmacies continued to grow, becoming an important aspect of their work in later years.

The 1990s: Accelerated Growth

The early 1990s saw remarkable, steady growth for Chronimed as market demands for their products and services compounded year after year. Nearing the end of the decade, the company reported nearly a 45 percent growth rate overall in all their business units.

The company began serving HIV/AIDS patients through its mail-order pharmacy in 1994. Also by that time, materials on chronic diseases had been translated into 12 foreign languages and the company was considered the largest publisher of chronic-disease literature in the world. In this year, Chronimed also began its Orphan Medical Division to develop pharmaceu-ticals for the treatment of rare diseases. Through this division the company began distributing Cystadane for patients with the rare disorder called Homocystinuria. They also became the exclusive distributor of Cystagon, a drug used for Nephropathic Cystinosis, another rare genetic disorder.

In 1995, Chronimed extended its distribution channels to begin working with large insurers. After a very successful pilot program, Prudential Insurance Company started offering Chronimed pharmaceutical s through its nationwide HMOs. In February of that same year Norman A. Cocke came to Chronimed as senior vice-president and chief financial officer and secretary of the board of directors. Cocke came from a background in computer information systems The following year Patrick L. Taffe joined the Chronimed management team as vice-president of information systems, a position he formerly had with MedPower Systems. The combined expertise of Cocke and Taffe proved to be a valuable asset as the company upgraded its internal information handling and storage systems and took steps to meet the market demands for information and resources.

Chronimed acquired the assets of StatScript Management Services and its nine specialty pharmacies in July 1996. StatScript was providing drug therapy services primarily to the HIV/AIDS market. This gave Chronimed a major presence in the HIV/AIDS marketplace from which to expand. The company quickly moved to expand drug therapies in existing outlets resulting in increased patient intake and vigorously open new pharmacies. By the fall of 1998, there were 24 StatScript Specialty Pharmacies in operation. Supervising this expansion was Perry L. Anderson, formerly vice-president at StatScript, who came to Chronimed as the divisional vice-president of StatScript Pharmacy. Dr. Henry Blissenbach joined the Chronimed team as president and COO in May 1997 from a background in management with Diversified Pharmaceutical Services, Inc. His leadership helped continue the momentum and further establish Chronimed as a leader in the healthcare industry.

Chronimed, the Publisher

Over time the publishing division of the company continued to grow as well. By 1998, it published or distributed more than 80 books and educational pamphlets for patients, families, and caregivers of patients with chronic diseases. The range of topics included nutrition, stress management, and the physical, psychological, and sociological needs of patients with chronic conditions. Chronimed continued its main goal of helping chronically ill people and their families to better care for themselves. Through its commitment, Chronimed had become one of the largest publishers of diabetes-related materials in the United States.

By its 13th year of operation, Chronimed had organized its business into three main segments: Diagnostic Products, Specialty Pharmacy Services, and Disease Management. To build and energize its employees and strengthen overall leadership, the company added a human resources person and increased the number of board members to seven.

Company Perspectives:

Chronimed is ideally positioned to take advantage of new product and information technologies and the continued evolution in the healthcare marketplace in ultimately helping to improve the quality of patient care, satisfaction, and outcomes, while reducing the total cost of care for the chronically ill

Diagnostic Products

A major National Institute of Health study in 1993 concluded that frequent monitoring of blood glucose levels and more frequent insulin injections along with a regimen of diet and exercise could reduce complications of diabetes, such as blindness, loss of nerve sensation, and amputation, by as much as 60 percent. The study also reported that about 16 million Americans at that time had diabetes, yet only about five million had been diagnosed correctly. Chronimed took very seriously the relationship between proper diagnostics and disease management. Its diagnostic tools were designed for use in both the institutional setting by long-term care facilities, clinics, and hospitals and by customers themselves. They expanded their diagnostic products in 1998 with the acquisition of Dia-Screen, a medical diagnostics products maker. The Dia-Screen brand also brought to Chronimed a test strip for leukocytes and specific gravity bringing the number of reagent strips it carried to 14. The use of a single test strip was then able to give the physician 10 different clinical markers in a patient’s urine. Already in use was its Supreme II blood glucose monitor system which provided long term care facilities a way to monitor more than one patient at a time. The same year, it also introduced a new meter that used electrochemical biosensor technology to measure blood glucose called the Assure Blood Glucose Monitoring System. The new system proved to be more accurate than existing glucose meters and was easier and more convenient for patients to use. The company also extended its distribution channels into Mexico, Germany, and Brazil, bringing the total number of outlets to 11 countries with goal being to be in 30 countries covering all continents by the end of 1999.

In November 1998, under contract with Cell Robotics, Chronimed began marketing the Lasette extraction device to diabetics, a nearly painless tool to extract capillary blood for testing glucose levels. The Lasette was designed to use a laser beam to penetrate the skin to obtain a capillary blood sample, instead of the traditional lancets that tear the skin. Use of the Lasette also eliminated accidental needle sticks, reduced cross contamination, and eliminated residual pain. The company also had begun exploring HIV genotyping and phenotyping of DNA to help in the battle against AIDS and the development of more effective antiretro viral drugs.

Specialty Pharmacy Services

By 1998, through it specialty pharmacy services, Chronimed was distributing over 2,700 prescription drugs, 10 percent of which were immunosuppressive drugs for the prevention of organ and marrow rejection. The company was dedicated to serving patients with the following needs: Diabetes, HIV/AIDS, Multiple Sclerosis, Hemophilia, Growth Hormone Deficiency, Infertility, Hepatitis B and C, Oncology, and Organ Transplants. Patients with chronic diseases were increasingly requiring very personalized programs of drug therapy, so the company included in its protocol ways to monitor compliance with patient regimen established by the patient’s whole healthcare team. Through this, Chronimed became a leader in developing a strong network of healthcare agencies and coordinating the services of physicians, nursing services, payers like HMOs, and major health insurers. Specific programs were set up just for patients requiring injectable medications for chronic diseases, solid organ and bone marrow transplant recipients, and a Diabetes Care System tailored to the diabetics needs.

The company became known for its ability to handle large volumes of patients and produce consistent, personal outcomes at a lower cost. To support the massive volume of transactions efficiently, the company combined state-of-the-art scanning and filing computer technology for forms and records handling. They also adopted the use of an intranet, web-based system to coordinate billings between multiple payors, reducing costs and saving time. At that time, Chronimed was one of the few companies that had ventured into this technology.

Disease Management

In the area of disease management, Chronimed truly became a leader. Patients with chronic disease must learn to live with a long-term, life-altering or life-threatening condition. By its commitment to the patient’s total care and ability to work together with the entire healthcare team, Chronimed set itself above the competition. This gave rise to the third business segment of Chronimed, that of disease management. In June 1998, the company acquired Clinical Partners, Inc., a provider of medical case management to HIV/AIDS patients. This brought the whole aspect of data analysis, case management, and clinical protocol to Chronimed. The company hired highly distinguished clinicians in the field of HIV/AIDS to develop its guidelines and supervise its follow-through. The case management protocols were implemented through its growing number of StatScript Pharmacies and also through its well established direct mail-order channel. The company realized that the management of drug therapies for this disease was most critical. In 1998, surveys found that nearly 26 percent of HIV patients admitted to failing to take their medications properly. With the chronic patient in need of ongoing drug therapy, the pharmacy was the logical place to manage the care for the patient.

A Company Above the Rest

There was a steady increase in the number of Chronimed employees, with the number reaching 330 by 1998. In that year alone, employee growth increased 13.8 percent from the previous year. Company representatives were located throughout the country, working closely with distributors and networking with healthcare teams to provide the best possible care to patients and customers. To do this most effectively, all employees received extensive training and competency testing.

Revenue growth for Chronimed was no less spectacular. In 1997 and 1998, Chronimed was listed as one of “America’s Top 100 Fastest-Growing Companies” by Fortune magazine. In 1998, growth was announced at 20.1 percent with total revenues amounting to $140.7 million. Projected revenue for fiscal 1999 was $196 million, which was up 39 percent from the previous year.

Integrated Healthcare

For the future, Chronimed saw itself becoming an increasingly vital partner with those committed to the improved health of chronic persons. It planned to further increase its distribution of prescription drugs and proprietary medical products by increasing the number of patients served through its programs, and by increasing sales of proprietary and licensed products to new patients and institutions. Through the year 2002, the company anticipated a 55-70 percent increase in the demand for early intervention (HIV) oral medication therapy alone! Chronimed also plans to apply its successful disease management model to other selected chronic conditions in the future. With the expansion of its leadership team in late 1998, the company has a strong infrastructure, well-positioned for cost containment and improved outcomes into the next millennium.