From Old to New

From Old to New

COMPANIES by Janet Leiser | Senior Editor

AnazaoHealth Corp. Chairman and CEO Jake Beckel gambled on something he couldn't see, smell or feel - at the insistence of an employee who wouldn't take no for an answer.

"I didn't know the first thing about radioactive isotopes," Beckel says. "He badgered me for a couple months. I said, 'I'll tell you what, go find me a customer, and we'll open up a nuclear division.' "

Obtaining a license to dispense nuclear medicine and finding a customer were only part of the problem for the Tampa startup as it struggled to establish its niche in the custom mail order pharmaceutical industry.

None of the companies that sold isotopes in the United States would sell to AnazaoHealth, then called Custom Care Pharmacy. They controlled the supply chain and didn't want competition.

"It's a vertically integrated industry," says Beckel, 51. "The manufacturer is the wholesaler is the retailer. They don't allow you into markets they don't want you in. If you can't get product, you can't sell product."

AnazaoHealth found a Vancouver company that supplies customers around the world with radioisotopes. He says that company was familiar with the U.S. Robinson-Patman Act, which bars companies from selectively selling or jacking up prices to hamper competition.

"The Canadian company knew the rules," Beckel says. "The American companies break the rules all the time. The big guys kick the snot out of the little guys."

Now that AnazaoHealth had a source for isotopes, the persistent employee, pharmacist Bob McKenzie, found a customer.

And then the licensing process began.

Five months after the company was licensed, the would-be customer in Boston shut down. It took awhile, but Custom Care Pharmacy persuaded two large firms, C.R. Bard Inc. and Mentor Corp., to buy its products. The first order was filled in January 1999. This was more than a year after Beckel started the company he initially thought would specialize in natural hormone replacement.

Today, seven years later, AnazaoHealth is a $17.4 million (annual revenues), 110-employee firm averaging about 33% sales growth a year. Much of that is because of its nuclear division, which had two employees when it started.

With about 35 employees working in its nuclear laboratory, the company sells 30 nuclear products, including its first one, a customized dosage of radioactive iodine that kills thyroid cancer.

This year, revenue is expected to hit $25 million. Most of the growth is organic, although AnazaoHealth purchased $2 million (annual revenues) Plum Creek Pharmaceuticals, an Amarillo, Texas, company about two months ago. And Beckel is looking for other acquisitions, especially on the West Coast.

Anazao's technology

AnazaoHealth is a mail-order nuclear medicine and pain management specialty pharmacy that applies today's technology to older drugs.

For instance, for years the iodine capsule used to kill thyroid cancer was so large it looked like a horse pill, he says. Cancer patients had to ingest as many as six of the capsules. AnazaoHealth found a way to make smaller capsules - less than half as big. The company obtained a more radioactive product so less iodine was needed, and it could fit into an easy-to-swallow capsule. Now a cancer patient only takes one or two of the small pills, depending on the prescription.

"You would have thought we were killing people because the drug manufacturers started screaming to the regulators, 'They can't do that. It's not FDA approved.' Of course it's not," he says. "It's a custom compound pursuant to a physician's prescription. For two years we really tore up the market. Then, of course, the market isn't stupid. They started copying us."

Competitors began buying iodine from the same Canadian company and making smaller capsules. The nuclear division's competitors include giant companies such as GE Amersham, Tyco Mallinckrodt and Cardinal Health.

The firm held trials for Accentia Biopharmaceutical on a medicine licensed from the Mayo Foundation that prevents chronic rhinosinusitis. AnazaoHealth now makes the anti-fungal drug, which is another example of an older drug reworked for a new use.

In addition to the nuclear division, the company has two other divisions: brachytherapy, which fills prescriptions for radiation seeds that are surgically implanted to kill prostate cancer; and liquid pain medications, which are injected through a catheter into the spinal column of patients with chronic inoperable pain.

The company developed its own software to track the powder narcotics that are turned into a sterile liquid for injection. Every microgram of the drug must be tracked.

Plus, the company makes drugs to treat people exposed to radiation through so-called dirty bombs. Although the military signed contracts with two German companies to buy Prussian blue from them, the Veteran's Administration hospitals have bought some homeland security drugs from AnazaoHealth.

Prussian blue has been around for more than 50 years, Beckel says. But it wasn't compounded to be effective for the removal of radiation until recently because there wasn't a market for it.

The company, licensed to sell pharmaceuticals in all 50 states, sells around the world to hospitals and clinics.

From losses to profits

In 2001, Chris Arnette, a former executive with IBM and PricewaterhouseCoopers, joined the company as a consultant to help develop a strategic business plan.

After six months, Beckel asked him to join full time.

"He told me, 'Jake, I've never worked for a company that has been less than a billion dollars,' " the CEO says. At the time, Anazao's revenues were $4 million a year.

"The company was real small," Arnette says, "and it wasn't making any money, and I didn't want to be part of anything that wasn't going to succeed."

But as months passed, the financials improved, Arnette says, adding, "Some of the things I did put it on much stronger footing."

At Arnette's direction, the company developed new customized software systems for each division, the sales people were given laptops and an in-house marketing person was hired.

Then Beckel pushed the right buttons: He talked to Arnette about the satisfaction of building a company from the ground up, and he agreed to make him part owner. Beckel owns 70% of the stock; Arnette is the company's second-largest shareholder. He declined to say what percentage he owns, although he says he recently invested his own cash. There was an angel investor in the beginning, but Beckel bought him out long ago.

"This is the guy who makes my life easy," Beckel says of Arnette. "I really try to stay out of his way." Arnette calls Beckel the visionary, the entrepreneur who doesn't want to be bothered with the day-to-day running of the company.

With sales growing 30% a year, AnazaoHealth bought a 46,000-square-foot building near Tampa International Airport in 2002 for $3 million. The former Bank of America customer service center contained fiber optics and a back-up generator, but the company spent another $3 million retrofitting the building.

It changed its name to AnazaoHealth Corp. in 2004.

Both Beckel and Arnette choked when their new marketing director announced the new name to them. "We asked what our second choice was," Beckel says. "There wasn't one."

But the name made sense for the company, Beckel says. In Greek (anna-zay-o) means to recover life; to come to life again. And that's what the firm is doing.

"We take old drugs, and with today's technology, make them new again," Beckel says. "Plus it's a unique name so you have to explain the name, and people remember it."

The old name, Custom Care Pharmacy, brought to mind a mom-and-pop pharmacy, he says, adding, "We don't want to be a little, unique pharmacy. We wanted to be looked at as a health care company that will create innovation."

For the first time, the company is considering mezzanine financing. But it comes with an interest rate of 12% to 14%. For obvious reasons, the firm is proceeding cautiously, Arnette says, adding, "You'd better know what you're doing with that money, and what your return will be."

Neither Beckel nor Arnette is interested in selling part of the company to venture capitalists or going public to raise capital.

"Too many good things are going on," Arnette says.

In September, the company has an agreement with a larger company to start shipping prostate seeds to hospitals in 27 countries in Europe, plus Australia and New Zealand.

And if Beckel doesn't find the right pharmaceutical company to buy in California, the company plans to open a new location there.

ANAZAO

Year Total Revenues % Chg.

2003 $10.3 million -

2004 $13.5 million 31.0%

2005 $17.4 million 28.8%

2006 $25 million* 43.6%

* Projected Source: AnazaoHealth Corp.