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Houston Compounding Pharmacy’s Recipe for Success

For a Houston-based pharmaceutical-compounding business that chalks up its success and growth to microscopic-level precision and planning, its founding depended on an awful lot of fate.

Empower Pharmacy founder and Chief Executive Shaun Noorian, 35, grew up fixing go-carts at his father’s Houston-area go-cart track, and studied mechanical engineering at the University of Texas, Austin, with visions of going to work for Ford or General Motors. But his 2007 graduation came just ahead of the global financial crisis, which left the U.S. auto industry in shambles. So Noorian instead took a job with oilfield-services company Schlumberger, only to injure his back lifting a piece of metal. While in physical therapy, his doctor determined that he had a hormone disorder that reduced his testosterone level.

“I was very skinny, especially for my age. They put me on testosterone-replacement therapy, and I gained 10 pounds overnight,” Noorian said. “I wanted to figure out how all these drugs were made.”

Motivated by the effectiveness of the medication he was provided and coming to understand how much money could be made, Noorian decided to apply his engineering knowledge to mixing medications for prescriptions. With that, he rented a 150-square-foot converted doctor’s examination room, brought on a pharmacist and served as a technician while canvasing doctors in the area for business.

“I hired a pharmacist, used myself as a pharmacy technician, and applied what I learned as an engineer to the compound industry,” he said. “I did that for about three years and saved up enough money to build a 1,500-square-foot facility in a shopping center.”

Fast-forward a decade, and Noorian, who remains the company’s only shareholder, is on the precipice of multiplying the scale of his firm. With a specialty in providing drugs that treat issues like hormone replacement, infertility, skin problems and weight management, Empower is operating in a sweet spot where many of the conditions its drugs treat require expensive medication that has limited or no insurance coverage.

Compounding pharmacies are a hybrid of a retail pharmacy and a pharmaceutical company, custom-producing medications, either directly via prescription or indirectly via batches based on specific orders from hospitals. The meds are similar to patented prescription drugs made by big pharma, but their formulations vary enough not to be subject to royalties.

As a result, Empower, which doesn’t work with insurance companies, prices many of its drugs at or less than the price of a typical patient co-payment. It has an inventory of about 800 drug-compounding formulations and is adding about 150 more each year. It serves about 200,000 patients and physicians.

“If a patient has insurance coverage and a small deductible or co-pay, they can go with a larger pharmacy, but many patients are getting less and less coverage for their medications, and many times, they may respond well to a medication, but the insurance covers a different brand,” said Dr. Mohit Khera, a longtime prescriber/customer of Empower who practices in Houston and is professor of urology at Baylor College of Medicine. “So they have to use a compounder to get the same meds.”

Growing it alone

Empower was licensed to ship its products to patients in all 50 states within its first five years of operations, allowing the company to expand its operations to 15,000 square feet. It doubled that to 30,000 square feet last year, and will move into a new 85,000-square-foot facility near Sam Houston Race Park by the end of next year. Another 70,000-square-foot phase is projected to be added to its facility sometime in 2022.

“I’ve been lucky to grow slowly and surely on my own,” said Noorian, who estimated that the 155,000-square-foot facility, which will sit on a 15-acre campus, will cost about $80 million to build. “We’ll be the largest compounding pharmacy in the world when it opens up.”

The company now employs about 250 people (Noorian declined to disclose annual revenue) and is licensed under U.S. Food & Drug Administration’s Section 503A — which, as with traditional pharmacists, allows for both drug compounding and distribution to individual patients — and Section 503B — which allows compounders to sell product in batches to hospitals without a specific prescription. Fewer than 50 compounders nationwide hold both licenses, according to Noorian.

The 503B designation is valuable, because it provides Empower relationships with hospitals looking to offload much of their drug-formulation operations, said Louis Diorio, president of Wayne, New Jersey-based pharmaceutical consultant LDT Health Solutions Inc.

“If you look at a hospital’s formulary, 80 percent of what they dispense are 25 to 30 concoctions that are repetitive, so if you can get a contract provider to get those to you, you can take that volume out of your compounding rooms and simply buy it,” said Diorio, who has been a pharmacist for more than 30 years. “Nobody bakes bread anymore. You’d rather go to the supermarket and buy Wonder Bread. Wonder Bread is the 503B.”

As a result, both Noorian and Khera said the company has been able to add customers by specializing in areas where treatments either aren’t covered by standard health insurance plans or trigger high deductibles. That’s given Empower the opportunity to undercut larger pharmacy retailers such as CVS and Walgreens when it comes to out-of-pocket patient costs. Its customers can pick prescriptions up at its facility; the company also ships directly to customers in all 50 states

“Couples trying to conceive have very high costs for in vitro, and dealing with the male side is even more costly. Medications can sometimes be as much as $800 a month,” said Khera, who started writing patient prescriptions filled by Empower shortly after the company was founded. “Using a compounder can get that down to $300 a month.”

Upon closer inspection

Empower’s growth comes in a sector that has faced challenges recently.

In 2012, three years after Empower was founded, 793 patients in 20 states were diagnosed with a fungal infection after receiving what were later found to be contaminated steroids produced by New England Compounding Center; 64 of those patients died, according to the FDA. As a result, the Drug Quality and Security Act (DQSA) was signed in 2013 to update the Federal Food, Drug and Cosmetic Act (originally signed in 1938), and, in 2014, the FDA established Section 503B guidelines in which compounding pharmacies can elect to become an outsourcing facility and register with the FDA.

“Since New England Compounding, the FDA has really focused on pharmacy compounding,” said Diorio. “Over the years, there’d been hundreds of fatalities, but there was always one or two at a time because of a rogue compounder. But if you kill 60 or 70 in a clip, people take notice.”

Meanwhile, Empower operates in the country’s most prolific — and most inspected — region when it comes to compounding. Texas is home to nine of the 75 registered U.S. 503B outsourcing facilities — the most of any state — and the FDA’s Dallas office accounts for about 20 percent of 503B inspections, by far the largest of any FDA office.

Oversight is a necessary part of the business, Noorian said. Empower has over the years received a few notices from the FDA following inspections, but has satisfactorily resolved each one. Noorian said that the FDA issues notices with “observations” to almost 99 percent of the compounding companies that sell batches to hospitals in addition to prescriptions to patients the agency inspects.

An FDA inspection in January 2018 resulted in one “non-quality-related” observation, according to Noorian, who said “most facilities receive around seven observations, on average.” A follow-up investigation into the issue was “inconclusive,” and the product in question was destroyed, said Noorian, who added that Empower tests all product batches for sterility and that none of its products have ever been recalled.

Ready for growth

Khera, who said the majority of medications he prescribes to treat issues such as erectile disfunction are filled by Empower, vouched for Empower’s quality control, noting that he’d visited the company’s facility, and found its technology, automation and systems “quite impressive.”

“One of the reasons we decided to build our current facility was to meet the new standards enacted by the FDA and prove our quality by voluntarily registering with the agency,” Noorian said, adding that Empower meets “the same standards that big pharmaceutical companies have to meet when manufacturing their drugs.”

Moving forward, Noorian, who allowed that Empower’s revenue is increasing by about 50 percent a year, said he’s comfortable with the company’s aggressive expansion plans, which includes boosting his work force to as many as 1,200 people across three shifts at the new plants within the next few years. That’s largely because the U.S. healthcare system that both he and Khera describe as largely dysfunctional will force a larger chunk of an aging population to buy much of its medications without the help of insurance companies.

“If you can build a car, you can pretty much build anything,” Noorian says of the engineering pedigree that allowed him to found the company. “But the current model is too corrupt to fix. It’s broken. So we have a different model.”

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