Pacific Pharmacy Group Inc. is growing by staying small.
Mission Viejo-based Pacific, which is privately held, buys and runs small community pharmacies and links them together in a network. It has grown from $1 million in revenue in 2007 to a projected $40 million this year.
Pacific owns six small pharmacies spread across Southern California, including in Garden Grove and its newest location, in Orange at the St. Joseph Cancer Center. It employs 110 workers at its pharmacies and at its main office in Mission Viejo.
Like other parts of healthcare, Pacific is in a relatively stable field that hasn’t been ravaged by the slow economy. Its pharmacies primarily fill prescriptions and aren’t larger retail operations.
“People need their meds,” said Tom Pascoe, Pacific’s cofounder and chief executive.
Pascoe and Scott Tyree, the company’s chief operating officer, established Pacific in 2006.
Business Model
Pacific’s business model works like this: It acquires what it calls “high-performing independent community pharmacies” from their longtime pharmacist owners. Once Pacific buys the pharmacy, it generally retains the pharmacy’s existing staff members but brings its own managing pharmacists in to run the day-to-day operations.
Pacific provides services such as billing and collections, buying, marketing, provider relations and regulatory compliance through its main office operation, taking those duties off its pharmacist managers.
Pacific’s also connected to a large drug distributor with local ties. Its pharmacies receive wholesale drugs from AmerisourceBergen Corp., a Pennsylvania-based drug wholesaler that bought Orange’s Bergen Brunswig Corp. in 2001.
Pacific promotes its pharmacies as more personalized alternatives to large chain drugstores such as CVS Caremark Corp., Walgreen Co. and Rite Aid Corp.
“We truly believe that the health of a community is well-served by having independent community pharmacies,” Pascoe said.
Picking potential investments, Pascoe said, is Pacific’s greatest challenge.
“There are a lot of independent pharmacies that were built in Southern California 20 and 30 years ago, and a lot of those individuals are in the retirement zone right now. We have a lot of opportunities and it’s (a matter of) picking the right ones,” he said.
Pacific’s business model is encouraged by some trade groups, including the National Association of Community Pharmacists, an Alexandria, Va.-based association whose members own more than 23,000 pharmacies across the U.S.
“We encourage pharmacist owners to sell to other independents instead of a chain,” said John Norton, the group’s spokesman.
His group’s definition of “independent” includes privately held businesses that own 10 or fewer pharmacies, such as Pacific does.
Pacific isn’t in the business of buying pharmacies that are in need of turnarounds, Pascoe said.
In the future, Pacific plans to expand only in Southern California, which offers an annual retail pharmacy market of $10 billion to $12 billion, according to Pascoe.
About 42% to 46% of that market is held by independent pharmacies, with retail chains such as CVS, Walgreens and Rite Aid making up another 35% of the market, Pascoe said.
Pacific’s recent growth has attracted the eyes of some big investors.
At the end of 2007, San Francisco-based Pacific Community Ventures LLC, a San Francisco private equity firm, invested $3 million into the company. Pacific Community Ventures raises money from several sources, including the California Public Employees’ Retirement System, the biggest U.S. public pension fund, and Bank of America Corp.
