City emerging as drug distribution hub: Medco Health Solutions deal latest boon to growing subsector in Indiana’s life sciences development efforts

  • Comments
  • Print
Listen to this story

Subscriber Benefit

As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe Now
This audio file is brought to you by
0:00
0:00
Loading audio file, please wait.
  • 0.25
  • 0.50
  • 0.75
  • 1.00
  • 1.25
  • 1.50
  • 1.75
  • 2.00

Thanks to a series of major economic development wins, Indianapolis is enjoying a pharmaceutical distribution business hot streak. Life sciences industry leaders hope to keep the sizzle burning in 2008 and beyond.

“It’s not something we’re hoping we can do someday. It’s something we’re already doing now,” said BioCrossroads CEO David Johnson. “We’re simply trying to expand the footprint of what we’re doing.”

Pharmaceutical logistics has become a big business. According to the Arlington, Va.-based Healthcare Distribution Management Association, U.S. distributors provide more than 9.5 million prescription medicines and health care products each day to more than 144,000 pharmacies, hospitals, physicians’ offices, nursing homes and clinics.

It’s a life sciences subsector that the bean counters often track in pieces elsewhere. Walt Plosila, vice president of Columbus, Ohio-based research institute Battelle’s Technology Partnership Practice, said aspects of biotech logistics are usually measured independently as part of the pharmaceutical, transportation or call center industries.

“Everybody owns it, but nobody owns it, which is not a bad place to be in terms of finding new market niches, which often emerge from intersections of older industries,” he said.

Indianapolis, already home to drug giant Eli Lilly and Co. as well as many smaller life sciences firms, is evolving into a life sciences logistics hub. In the last year, three major companies expanded or moved pharmacy-related businesses here. Each wanted to capitalize on the area’s geographic centrality, relatively low cost of business and strong supply of skilled pharmacists.

WellPoint jumpstart

It started in December 2006, when health insurer WellPoint Inc. announced plans to move PrecisionRx Specialty Solutions, its pharmacy subsidiary, here from Mason, Ohio. In October, the company opened its PrecisionRx operations at Indianapolis International Airport, taking over 126,000 square feet of space that once was part of United Airlines’ maintenance hub. WellPoint expects PrecisionRx to have 900 employees by 2010. It handles drugs for 14 diseases, including hemophilia, multiple sclerosis, rheumatoid arthritis, psoriasis, hepatitis C and cancer.

Also in October, home nurse staffing and medical products supplier Arcadia HealthCare announced plans to move its headquarters here from Southfield, Mich. Arcadia is rolling out a new product, DailyMed, a drug packaging system that simplifies patients’ management of their prescription pills. The company’s move is expected to create 400 jobs by 2010.

“We looked at Minneapolis, Detroit and Indianapolis as being the three places to [possibly] move the business,” Arcadia CEO Marvin Richardson told IBJ last month. “[Indiana] state government seemed to be very involved, not only in giving us incentives, but also because they were interested in our product. The Family and Social Services Administration as well as the state showed an interest in Daily-Med as a possible solution to reduce cost. There were synergies on both sides that got us interested.”

Major boost from Medco

Finally, November saw Indiana’s biggest victory: After reviewing 48 states, Franklin Lakes, N.J.-based Medco Health Solutions Inc. chose to build its $140 million, 318,000-square-foot automated pharmacy here. A month later, Medco revealed Allpoints at Anson in Whitestown would be the facility’s home. Medco plans to employ 1,300 there by 2012.

Medco already has automated pharmacies in Las Vegas and New Jersey. But when completed by next year, it will be the company’s-and the world’s-biggest.

Medco Vice President Richard Jones, who will be the Whitestown center’s general manager, has worked for the company 21 years. He remembers when pharmaceutical distribution was done by hand. Today, modern automation makes the process more efficient and less expensive. But he said the focus on safety is more intense than ever.

“Each and every order we’re doing is a prescription going to someone’s house,” Jones said. “If you keep the mind-set that it might be going to your own grandmother, you never have a problem.”

A host of factors contributed to the attraction of each of the three economic development wins. For example, Medco received traditional economic incentives, such as $18.3 million in performancebased tax credits and $450,000 in training grants from the state.

But other issues were just as important. Jones pointed out that, at Anson, Medco will be only 20 minutes from Indianapolis International Airport, a critical question in a business of overnight deliveries. Similarly, Medco liked Boone County’s electrical infrastructure. The distribution facility will be able to plug into two separate grids. When combined with Medco’s own backup generators, that redundancy virtually guarantees it will never be the source of a supply chain hiccup.

Arguably most important of all is Indiana’s work force. Together, Purdue University and Butler University churn out a steady supply of about 300 new pharmacists every year. Meanwhile, Ivy Tech Community College trains the technicians who can work the heavily automated Medco equipment. BioCrossroads’ Johnson pointed out that, while other states are enduring a pharmacist shortage, Indiana is increasing its ranks. In late 2006, Lilly Endowment gave $25 million grants to both Purdue and Butler to grow their pharmacy schools. That fact wasn’t lost on any of the three companies.

Craig K. Svensson, dean of Purdue University School of Pharmacy and Pharmaceutical Sciences, expects Indiana’s pharmaceutical distribution momentum to continue in the days ahead. He said announcements that add up to 2,600 impending jobs here will resonate across the sector.

“People pay attention to where industry is selecting as a base. If nothing else, it’s going to cause people to say, ‘We ought to check into that. If it’s a good environment for them, it might be a good environment for us,'” he said. “It can only help in recruiting additional companies.”

The growth won’t just come from companies directly involved in the distribution or management of drugs. Other companies will likely spring up to support Medco, Arcadia and PrecisionRx, Svensson said, in much the same way parts-makers augment the major automakers in Detroit.

Battelle’s Plosila pointed out that life sciences logistics doesn’t enjoy the huge profit margins available in other biotech sectors, such as drug development or medical-device manufacturing. But the area can still be a major contribution to Indiana’s existing strengths.

“It’s all about building a critical mass of complementary firms in the biosciences,” he said. “You’re building a stronger cluster.”

It’s impossible to say whether Indiana will enjoy any more big pharmaceutical distribution company expansion announcements in 2008, Johnson said. But it’s a good bet that, over time, the sector will continue to grow here, perhaps one day surpassing its other U.S. hubs on the East and West coasts.

“There’s soil here to sustain these kinds of business activities,” Johnson said. “We believe it will be a very active year.”

Please enable JavaScript to view this content.

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our comment policy that will govern how comments are moderated.

Get the best of Indiana business news. ONLY $1/week Subscribe Now

Get the best of Indiana business news. ONLY $1/week Subscribe Now

Get the best of Indiana business news. ONLY $1/week Subscribe Now

Get the best of Indiana business news. ONLY $1/week Subscribe Now

Get the best of Indiana business news.

Limited-time introductory offer for new subscribers

ONLY $1/week

Cancel anytime

Subscribe Now

Already a paid subscriber? Log In

Get the best of Indiana business news.

Limited-time introductory offer for new subscribers

ONLY $1/week

Cancel anytime

Subscribe Now

Already a paid subscriber? Log In

Get the best of Indiana business news.

Limited-time introductory offer for new subscribers

ONLY $1/week

Cancel anytime

Subscribe Now

Already a paid subscriber? Log In

Get the best of Indiana business news.

Limited-time introductory offer for new subscribers

ONLY $1/week

Cancel anytime

Subscribe Now

Already a paid subscriber? Log In