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CEOCFO CEOCFO Monthly Analyst |
Meeting
ALL
the needs in the pharmaceutical industry.
Healthcare
Jugal K. Taneja,
Chairman/CEO William L. LaGamba,
President /COO Ceocfo Interviewer: Bio of Chairman & CEO, Mr. Jugal K. Taneja serves as Chairman of the Board and since
October 2000 has served as Chief Executive Officer. He also served as Chief Executive
Officer from inception through April 1995, and again from January 1996 until August 1999.
Further, he served at various times over the years as President and Secretary. In addition
to his service to DrugMax, Mr. Taneja operates several other companies. He is presently
the Chairman of the Board of Dynamic Health Products, Inc., a position he has held since
Dynamic’s inception in 1991. Through its wholly owned subsidiaries, which include
Go2Pharmacy, Inc. (formerly known as Innovative Health Products, Inc.), Dynamic
manufactures and distributes nutritional and health products. Mr. Taneja also serves as a
director of Go2Pharmacy. Mr. Taneja holds degrees in Petroleum Engineering, Mechanical
Engineering, and a Masters in Business Administration from Rutgers University. Mr.
William L. LaGamba is a member of the board of directors and has served as
President and Chief Operating Officer since October 2000. From March 2000 to October 2000,
he served as Chief Executive Officer. From November 1999 to October 2000, he also served
as Secretary and Treasurer. From November 1999 to March 2000, he served as Chief Operating
Officer and Vice President. From June 1998 until joining DrugMax in November 1999, Mr.
LaGamba had served as Chief Executive Officer of Dynamic. He was also a founder and
President of Becan from its inception in January 1997 until Becan was acquired by Dynamic
in June 1998. For 14 years prior to January 1997, Mr. LaGamba served in various capacities
for McKesson Drug Company, a large distributor of pharmaceuticals; health and beauty care
products and services, and FoxMeyer Drug Company. Ceocfointerviews:
Please explain to my readers what your company is all about and what your purpose is. Mr. LaGamba: We sell pharmaceuticals, health and
beauty aids and nutritional supplements to the pharmacy community. The pharmacy community being, independent
pharmacies, regional chains, national chains and BCS counters. That is our customer base. We provide them with the top marquee items, fast
moving products, as well as generic products or vitamins that have specialties associated
with them. Again, we sell them to the
pharmacy trade class. The reason we changed
our name from DrugMax.com is that, initially, we set out as a business-to-business
platform via the Internet and we learned, as we have evolved over the past year and a
half, DrugMax traditional infrastructure was driving our revenues. Our inside sales force and our outside sales force
have been very instrumental in our growth. We
thought it was prudent to drop the “dot-com” from our name. As a name, DrugMax is a better reflection of our
corporate capabilities as a full-line pharmaceutical wholesaler. Mr. Taneja: Actually,
we are very pleased with our e-commerce operations.
About one fourth of our business is done through online transactions and the
rest comes through traditional means like inside and outside sales. We still use the Internet to attract and retain
more customers. It also increases
DrugMax presence nationwide, so no community pharmacy is out of our reach. There are DrugMax members in 49 states. We are using the Internet the way it should be
used, to compliment your business efforts. Ceocfointerviews:
So, you are like the middle company between the drug companies and the pharmaceutical
companies, is that correct? Mr. Taneja: We
are not the middle-man. DrugMax takes
possession of the product. We own it and
resell it to the pharmacies. Mr. LaGamba: In the pharmaceutical industry, most of the
major pharmaceutical companies will not sell directly to a pharmacy. They utilize a pharmaceutical wholesaler, an
authorized distributor if you will. We are
one of those authorized distributors. We
actually, as Jay has mentioned, we take possession of the product and we inventory and
then sell the product. Ceocfointerviews:
You’re not just a distributor of pharmaceutical products; you sell pet products and
batteries as well. Mr. LaGamba: We
carry 20,000 stock keeping units in our inventory at any given time. So everything that you can imagine when you
walk into a pharmacy, DrugMax can supply. It's
the suntan lotion, or anything they have on display.
It's the sunglasses on the counter and it's the Prozac and Prilosec they
have behind the counter and everything in between. Ceocfointerviews:
So, it is more than just drugs. Mr. LaGamba: That
is correct. We supply everything pharmacies
carry with the exception of tobacco, candy and greeting cards. Ceocfointerviews:
So, how did you get your name? Mr. LaGamba: The
Internet has been extremely helpful in getting our name out there. With the advent of the Internet, people are out
there looking for our services. Sometimes
they find us just because we are out there on the Internet.
We are one of the only companies that have a true infrastructure to support
our e-commerce efforts. DrugMax does actually
take possession of the product and not act as a broker.
So, the Internet has allowed us to go from a regional distributor to a
national distributor. Mr. Taneja: In
the beginning when we started the company, we went after the independent pharmacies and we
branded the company as DrugMax.com. We gave
them certain freebies and certain benefits, such as discounted inventory and retained them
as our customers. DrugMax has 9,400
pharmacies that are apart of that group. They
have come aboard with us. Their pharmacy
licenses are with us and we have a mutually beneficial relationship with them. Lots of companies can provide the product, but we
are providing the product and the services to support the products. Customers buy our products and they like the way
we treat them. They like the next day
delivery discounted prices. These same
customers get increasingly active and continue buying from us and our sales keep climbing
every month. Ceocfointerviews:
You are working with the smaller independent pharmacies.
How about the larger chains such as CVS, RiteAid and such? Mr. LaGamba: We
sell to those chains on a limited basis when we do a deal of some type. We will approach them and sell to them. A lot of those chains buy direct because they are
in a different trade class. But there are a
few that we sell to as well. Ceocfointerviews:
How about Wal Mart? I know Wal-Mart is
hitting everyone pretty hard. Mr. LaGamba: We
do not sell to them at this point. We are
always working on them. Our biggest growth
has been coming from the independent pharmacies. There
are over 25,000 independent pharmacies out there. The
average independent pharmacy does between one million and four million dollars per year in
revenue. It's a big universe for us. The 9,400 that we have signed up are not all doing
consistent business with us; we still have a big piece of the pie to go after. I think our numbers are showing a phenomenal
growth rate in the industry. So, it's not
slowing down at all. Ceocfointerviews:
I noticed you have four locations for the company. Are
you able to service all 49 states from these four locations? Mr. LaGamba: We
ship next day air throughout the continental US; Hawaii takes a little bit longer. Ceocfointerviews:
You sell to 49 states; there are 50 states, what happened to the last state? Mr. LaGamba: We
have not been in Alaska as of yet. I think
there are about 22 pharmacies there. We're
working on it. We just haven't gotten there
yet. Ceocfointerviews:
There is a lot of inventory involved. Is this all controlled from one location? And how do
you keep track of this inventory? Mr. LaGamba: We
have it in three of our four locations. Our
fourth location is our corporate headquarters and there is no inventory at that location. We manage inventories at different levels. We also, because of the type of business we are
in, we have a higher turn in inventory than most other industries. Ceocfointerviews:
So it turns around very quickly for you then? Mr. LaGamba: Correct,
correct. We focus on the products that do
turn very fast. Mr. Taneja: Those
products come in the morning and go out in the evening.
We turn inventory eight times in one month.
We get a big shipment in the morning and by the time it is 5:00pm, our
shipment is broken into smaller shipments. The
trucks come in for the overnight delivery and the next day it is delivered. Ceocfointerviews:
Lets talk a little bit about growth. You
acquired Valley Drug, what does this bring to your table at Drug Max? Mr. LaGamba: Valley Drug was a
major company that we acquired. We made that
acquisition about a year ago. The biggest
thing that it brought to the table was the ability to be an authorized distributor to
every manufacturer. For example, Eli
distributor is not shipped to everyone. They
have certain clientele they ship products to; Valley Drug was one of them. So now we are direct with Eli. That was a big plus for us. This allows us to control our own destiny being
direct with every vendor. A lot of the
smaller companies do not have that luxury, but that is what Valley Drug is. It has delivered many things to us. It has been our biggest acquisition. Ceocfointerviews:
Do you see any additional acquisitions for the future? Mr. LaGamba: We
are always looking at the proverbial two and two make five.
We are always in discussions with other companies to see if there are bids,
but we wait and see and take one day at a time in that area. We do not need an acquisition for our growth. But if one came along that satisfies our need for
additional bottom-line products, then we will take a look at it. However, DrugMax
does not need any additional acquisitions at this time. Ceocfointerviews:
If additional companies were to become available to you for acquisitions, will Drug Max
have the cash/finances to purchase them? Mr. LaGamba: Yes,
we have excellent relationships with our banks so that is not an issue. Mr. Taneja: We
have access to cash and a line of credit from Mellon Bank.
We have enough cash at our disposal to make prudent acquisition. Ceocfointerviews:
I was looking at some of your numbers, which were good, but there was a statement
mentioned that you weren't sure it was going to remain that way. Mr. LaGamba: The
only thing I can think of is obviously in our year-end statements; the numbers always
mention what the future holds. Mr. Taneja: Our numbers are not out for the quarter. In order to stay compliant with the SEC’s
reg. FD, we can’t disclose or give guidance because that would be selective
disclosure. Ceocfointerviews:
What makes your company different and unique over other companies? Mr. LaGamba: Well,
I think there are some smaller companies out there trying to do business. Again, a couple of them are authorized
distributors with the actual manufacturers. A
lot of the smaller companies do not have that opportunity or that availability. So, I think that is the biggest thing. Also, these smaller companies will come in and try
to gain additional capital. I have been in the industry since 1985. I have numerous wholesalers that want to capture
some of our success. Mr. Taneja: The
other thing is, we offer services to pharmacies. We
provide products to pharmacies but we provide services as well. It’s about what we
can do for you. We are a service that builds
from our experiences with our customers. Mr. Taneja: DrugMax also strives to build and maintain
mutually beneficial relationships with our customers, other companies that are rich in
experience, as well as our employees. Mr. LaGamba: We
have people from the retail side, like Walgreens, to wholesale side. They all compete with experience. Mr. Taneja: Everyone
has a stake in the company. Employees
are equity share- holders. That was the key
to my concerns starting these ventures. We
always offer the employees a stake in the company so they have ownership in a company that
is theirs. This practice fosters maximum
effort and maximum return. Ceocfointerviews: Is this something you can grow to the
international arena? Or, since it involves drugs, you can't? Mr. LaGamba: Actually,
there are some laws changing, so we are looking into that as we speak. Ceocfointerviews: How about Canada? Mr. LaGamba: There
are lots of opportunities out there and we are exploring laws to take this
internationally. Ceocfointerviews:
I think the closest country to start with would be Canada. Mr. LaGamba: Some
of the other countries may not have access to some drugs when they first hit the market. Mr. Taneja: We
are exploring other ways to distribute the genetic drugs.
Mr. LaGamba: We
have seen some tremendous opportunities and we have been partnering with some of these
generic companies. That is one thing we think
will make us very unique in the market place. We
will be able to have that product as an overflow process. Mr. Taneja: Again,
we come from the merry band of men who founded the company and we always look at our goals and adjusting our strategy to
meet or exceed those goals. Ceocfointerviews:
What would you day to a potential investor looking at your company for the first time? Mr. LaGamba: I
can go on for hours to tell you why we are a good company to invest in, but I just look at
our opportunities for growth and the upside of our growth is the generics. We have just started to scratch the surface in
those areas. There are huge opportunities for
growth. Ceocfointerviews:
How long has this company been around? I know
you mentioned earlier about two years? Mr.
LaGamba: Yes,
since November
of 1999. Ceocfointerviews:
You have come a long way since then. Mr. LaGamba: Literally
went from zero to where we are right now. Ceocfointerviews:
Since you are expanding so rapidly, and I know people are trying to get into the high tech
arena, how do you keep your employees from leaving? Mr. LaGamba: We
make sure our key people are significant equity holders in the company and we make sure
all of our employees are equity holders with options.
We make sure they are choosing us for all of the right reasons. We really focus on our people. We continually go through training and as part of
our mission statement; we honor our mission to our employees by investing in their
careers. Ceocfointerviews:
Any last words? Mr.
Taneja: Our employees are very
dedicated. We are on the right path……..that
will give you a living testimony. Mr. LaGamba: We have almost doubled our business.
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