Pharmachem builds brand one ingredient at a time

Starting with adding value to existing materials, contract manufacturer Pharmachem Laboratories diversified by adding companies to move into new market segments.

The story of Pharmachem Laboratories reads like an addition word problem from elementary school. Starting with adding value to existing materials, the company diversified into adding companies to move into new market segments.

Pharmachem was started in 1978 by Dave Holmes and Bruce McAdams. Colin MacIntyre joined the company not long after as a business manager. They had little experience in the vitamin world, but nevertheless built the company up into the global supplier it is today.

"Their vision of the company was an unmet need which was to add value to the vitamins available at that time," said Mitch Skop, senior director product development. "It was their idea to do the tablet processing and offer it in a form that was easy for tableters."

They began shortly thereafter to innovate in powdered drinks. A chief driver of this process has been finance manager Mahesh Desai, who has been with Pharmachem almost from the beginning. That longevity is commonplace.

"Many of the employees have been here for 20 years plus," Skop said. "I'm a relative newcomer at 15 years."

About seven or eight years ago the founders rewarded that longevity with an Employee Stock Ownership Plan (ESOP). Through this ESOP, Pharmachem employees now own a sizable share of the company, Skop said.

Since its inception, Skop said, "Pharmachem has grown from one building, one company to 10 companies and eight factories," Skop said. The company's commitment to employees extends to acquisitions; workers at newly-acquired companies are retained.

Pharmachem views its structure like spokes on a wheel or cylinders in an engine. It adds stability to the company to be able to operate in various market sectors. When one cylinder misfires, another takes up the slack. With headquarters in New Jersey, the company also has operations in California, North Carolina, Texas and Wisconsin.

"Our latest acquisition is Alix Technologies in Dallas, Texas. It's a high-speed bottling facility that specializes in ready-to-drink energy shots," Skop said. Other spokes in the corporate wheel include American Ingredients, Avoca, Avoca Bioprocessing, MPT Delivery Systems and Proprietary Nutritionals.

Along with its broad horizontal diversification, Pharmachem works with raw material suppliers to make sure standards are met. "We exert control over our supply with rigourous questionnaires and on-site quality audits," Skop said. It's just good business practice, he said, but it's also what Pharmachem's customers demand. "Our customers tend to be the biggest, most quality-conscious companies in the world."

Pharmachem offers a number of specialty ingredients, a term that Skop much prefers over the industry jargon: 'branded ingredient.' "Coke is a brand," Skop said.

In the weight-loss category, Pharmachem offers a trio of ingredients, labelled Phase 1, 2 and 3. "Phase 2 is the jewel in the crown jewel of specialty ingredients," Skop said. "We developed it from scratch and it has become a very important part of what we do."

Phase 2, the oldest of the three, is an extract of Phaseolus vulgaris, the white kidney bean. The ingredient inhibits the digestion of complex carbohydrates, thus limiting the caloric load of starchy foods like bread, pasta and potatoes. Early extracts showed poor results, but with patient improvement Pharmachem developed an ingredient that cuts starch absorption by as much as 50 per cent.

The weight-loss category is huge (no pun intended) and getting bigger, Skop said. But the company's devotion to the development of Phase 2 has paid dividends even beyond this big market sector.

"The quality and visibility of Phase 2 brings us business from companies that don't even want that ingredient," he said.

Phase 1, a satiety ingredient that acts through a hormonal pathway, has been shown to reduce appetite by as much as 20 per cent, while Phase 3 inhibits the absorption of calories from sugar by a similar amount.

The three ingredients offer Pharmachem's customers a way to formulate products that can compete effectively with OTC weight-loss solutions, Skop said, and without side effects. This includes ready-to-eat food formulations.

"We've rounded that corner from nutritional supplements to functional foods," Skop said.

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