The MX Q&A: Greg Baldwin, Baxa

Comparing a hospital pharmacy to a kitchen is Greg Baldwin’s rather homespun way of describing his company’s business model. The domestic comparison also suits the fact that Baldwin joined the device manufacturer that his father, Brian Baldwin, cofounded with Ron Baxa in 1975, and where his brother, Jeffrey, now serves as president and COO. Blending in product references to Cuisinart and KitchenAid as further explanation just seems to fit the familial theme for the Englewood, CO–based company, which specializes in oral/enteral, pharmacy admixture, and automated compounding devices for the safe delivery of liquid medications to patients.

Now chairman and CEO, Greg Baldwin joined Baxa in 1993 after serving in sales management positions at AT&T and other high-tech companies. Since then, Baldwin has brought the company along from sales of $26.5 million in 1997 to approximately $170 million in 2011.He accomplished this by expanding Baxa’s international presence begun by his entrepreneurial father, developing a direct sales marketing team, focusing on lean manufacturing, and making strategic acquisitions.

Baxa’s product line includes the ExactaMix Compounder, ExactaMed Oral Syringes, and DoseEdge Pharmacy Workflow Manager. The DoseEdge is a new product that arrived with Baxa’s acquisition of ForHealth Technologies in 2009. Improved by Baxa post-purchase, the software system is designed to eliminate drug preparation errors through features such as barcode tracking to prevent missed doses and remote pharmacist inspections.

A major impetus driving Baxa’s recent growth was a 1999 report by the Institute of Medicine. Based on studies conducted in Utah, Colorado, and New York, the report concluded that between 44,000 and 98,000 patients die annually because of hospital treatment errors, particularly errors in drug delivery.

“If you think of the hospital pharmacy like a kitchen, people can either do it themselves or they buy a ready-to-use, ready-to-mix product, or they can outsource,” Baldwin says. “And we’ve been gratified by the fact that we’re kind of mining the area that was least considered by other major corporations.”

Greg Baldwin received an MBA from Boston University and also holds a BA in economics and philosophy from Bowdoin College. The CEO talks to MX about joining the company where his father is now chairman emeritus, the effects of the financial crisis, acting on customer input, the pitfalls of “churn and burn,” and the business and personal benefits of giving back to the community.

MX: Maybe you’ve heard the expression: “You can pick your friends, but you can’t pick your family.” What issues does an executive have to consider before deciding to join a firm cofounded, in this case, by his father and where his brother also works? You had been working in another industry before then.

Greg Baldwin: That’s right. We started talking about it, I believe, in 1988, and I didn’t join the company until 1993. So obviously my coming into the business was a little different than my brother’s. My brother got out of the Peace Corps in 1991, was going to go to graduate school, came to Colorado to stay rent-free and do a little skiing, and ended up being challenged to write some computer software that got us into the TPN [total parenteral nutrition] multi-ingredient compounding business. He really had been just roped into the business because of his technical prowess.

I was doing sales and marketing in the high-tech business. My father has had an amazing business career, and he had a company that he had founded in 1958 that I was most attached to as a kid growing up. So the idea of working with my dad had been there since I was a small kid, and then his needle business was sold and my dad left there in 1974. Baxa was one of several businesses he started. It was a very small company. It was really in about ’88 or ’89 that Baxa started to get into the electromechanical equipment and into a more complex area of computer software, and all of a sudden it really started to pique my interest.

I had no doubts at the time about working with my dad. I thought that I could help him. It’s interesting; between my brother and my dad and me, we’ve all found that we have very different skills, and we all complement each other. I think that’s the biggest thing for someone to consider in joining the family business. If you’re all trying to be the same thing there are probably going to be some challenges unless somebody’s willing to take a step back. In my case I am not the guy who’s in the R&D lab doing basic inventions. I think I have my name on one patent, which is the result of an idea I had during a whiteboard discussion. But in 20 years here, that’s the extent of my original inventions. I know that’s not what I bring to the company, and at the same time my brother brings something different than my father. So that’s really where I just knew very intuitively that I would be of value, and I would have my own, unique contribution to the company.

Along those lines, you were working in telecom before joining Baxa. What did you bring from that experience that complemented your dad’s and your brother’s talents?

I was [there] in the early days—in the ‘80s when AT&T’s long-distance business was being broken up…and the Internet was just coming into being. I was also with a company called PictureTel. I learned a lot of great things, both from those two companies and also from the many customers that I worked with.

I also learned a number of things not to do. I think at one time in the ‘80s I had 17 salespeople who I hired in rapid-fire succession, and they were on quota, and if they missed their quota they were on warning. I learned while I was there that the turnover is really debilitating and a “churn-and-burn” approach is a terrible way to do business. During that time I was a sales manager—a district manager—for four years, and I think the last couple years that I was doing it we were one of the most successful branches. I credit it because I built a cohesive team that had pretty good tenure. That was three to five years plus. And I’ve taken that a step further, realizing that you want to build people’s commitment for the long haul; that it’s a marathon. One interesting connection between the businesses is that they were both subscription businesses. In a subscription business it’s really critical that the bigger your churn—the more customers you’re losing—the more you have to sell. So that focus on lifetime relationships with customers really hit home for me and resonated when I got to Baxa, because I realized there are 5000 hospitals in the United States, but for the kinds of services that Baxa provides, I think we do business with about 3000. And about 80-plus-percent of our revenue comes from the top 800 to 1000 hospitals.

You know they’re not making many more of those. (Laughs.) People tend to stay in the industry and go from place to place, so you’d better really be focused on doing the right thing and on customer service.

Customer service is a major element in your business philosophy. What have you heard from customers—when you’re visiting, say, hospitals—that have helped you in running the company?

Obviously, [much has come in] the last 10 years-plus since 2000… [after] the Institute of Medicine study came out talking about the issue of medication errors and of hospital-acquired disease and conditions. Medication errors were chief among those [problems.] So we’ve really been talking about safety quite a bit. But it’s in the last three years that the tenor has [changed] and because of the financial crisis we’ve got to do less with more. We’ve seen lean thinking and the lean approach, which comes out of the Toyota production system, coming to hospitals at a tremendous pace. And frankly it’s something that Baxa actually jumped into in 1999-2000 and has been a real boon to us. I don’t know that we would have been able to just fund the business if we had continued in kind of the more bloated ways that we operated in in the mid-90s.

Over the last couple of years it’s been inspiring to me to see our customers worrying about it, getting into it, and it’s caused us to kind of come back and realize that we needed to revitalize our own lean processes and efforts to make sure that we were doing the right thing by people—valuing human talent—and with that [keeping] a relentless focus on eliminating waste and eliminating errors. A big area for our business is the same in a hospital, which is kind of a hidden factory, where when you don’t do something right the first time you have to go back and do it again. Unless you have very onerous activity-based accounting systems, a lot of that effort and expense is hidden. It’s kind of unapplied labor. Sometimes you see it in scrap or in hospitals in drug waste or things like that. Sometimes it’s not very visible. I’ve been really impressed with how our customers are keeping a high degree of focus on patient safety, while at the same time saying [that] the easy money that kind of existed four or five years ago in terms of investment capital and things like that just doesn’t exist. So, they have to allocate resources very, very carefully.

In a related question, what effect has the healthcare reform focus on cost-cutting and efficiency had on your business, generally speaking?

I think so far it’s been more of a psychological state, right? It has people definitely thinking, “Okay, we’ve got to get ready for more people to come into the system.” It’s created some thinking along those lines. Because the bill is going to take a long time to come into effect, I don’t think as yet that it’s actually increased healthcare [activity.] In fact—and I haven’t read enough to understand the reasons—but in 2010 I know that hospitals did experience reduced allocations, whether it was a light cold and flu season or there were other things at work. This is the first economic downturn that has hit bone, hit nerves, that has been very difficult for healthcare in general, for healthcare companies, and also for the providers. I think in the past this industry had been viewed as recession-proof—kind of like my old industry, the telecom industry, used to be back in the day. What we saw is that this recession did have an impact on healthcare. That being said, we see healthcare reform ultimately being necessary, and we’re hoping that if we have the right products…we’ll do very well in that environment.

Of your product lines, is there one in particular –or all three—that you think will do well, given the goals of healthcare reform?

Well, if the goal of healthcare reform is ultimately to provide the best care possible and not to compromise care and to also do it efficiently, then I think that all of Baxa’s product lines are well situated. If it’s a situation where you’re going to move to a nonclinical buyer making catalog-based, instant-auction price decisions, then that’s probably not where Baxa best competes. But we offer systems in each of those areas.

The way I look at it—if you talk about pharmacy admixture and automated compounding—I think of those two areas as the IV room, and we want to be the company for providing the tools and automation necessary to support the running of the IV room. And that includes software, that includes all of the systems for the small-volume IVs, and then that’s the pharma admixture, and those are usually IVs of less than 100 cc or 150 cc; that are one to three ingredients. And then you go to the LVP, or large-volume, parenteral IVs that are traditionally multiple ingredients, often nutritionally based.

Of the three business lines do any face any challenges in the marketplace?

I think they’re doing well. All of them face a challenge, which is, there are always alternatives. If you think of the hospital pharmacy like a kitchen, people can either do it themselves or they buy a ready-to-use, ready-to-mix product, or they can outsource. And we’ve been gratified by the fact that we’re kind of mining the area that was least considered by other major corporations. If you think of it like a kitchen again, we’re the Cuisinart or the KitchenAid. We’re providing those tools, and we’re raising the bar all the time to make it easier to use and easier to ensure that it can be done without mistakes. At the same time, because there are always customers that, because of lack of space or whatever the issue, are electing to move toward an outsourced product or a ready-to-use mix. Then we also have many customers that have been using those and saying, “Geez, we can have a more patient-specific product, a product that would have less fluid, for instance, that would be better for fluid-restricted patients, a product that would be customized for the needs of our neo-nates, a product that would be available more quickly to the floor, and so we’re going to do it ourselves.”

We’re going to have that ebb and flow, and the fact that we’re growing across all our business lines tells me that in fact we’re doing quite well.

I’ve read that you want to grow Baxa’s sales to about $200 million by 2015. And you’ve expanded your facility in Englewood. How is that plan going so far?

It’s really been fantastic. We saw our ability to do on-time-and-complete go up. We had about 15% to 20% improvement in our on-time-and-complete; now we’re well over 90%. By that I mean [we’re] shipping the complete order that the customer has placed within several business days. Kind of in one tranche. That has been wonderful. We’ve got a 50% increase in our warehouse and production capacity from that expansion. We’ll do about $170 million in sales this year, so I feel very comfortable that Baxa has a bright future, and we can continue to grow. Those financial goals are important because they give you mile markers, but what’s really important is the journey and what you can accomplish for your customers and how you can become a valued partner to them and their efforts to treat patients.

Speaking of customers, is there an education process that you have to undertake for pharmacies and nurses to help them buy into the company’s concept of safe drug delivery?

We are always trying to educate people as to why we’re bringing to market some of the things. A good example is our product called DoseEdge, which is pharmacy workflow management software. This is a tool that provides a pedigree or dose tracking from the beginning of the product preparation—doing the simple calculations that were formerly done on a calculator and ensuring that each step of the process is followed and that the ingredients are barcoded and there are pictures taken each step along the way and you have that permanent record.

Traditionally, hospitals have relied on people’s training to do it and then you have a pharmacist check with an empty drawn-back syringe and the bottles or vials that were used. This gives them far more information to actually make sure that it’s done correctly. Additionally, about 3% of the time we find that people will try to scan the wrong drug. Now, you know as human beings every once in a while we open the sock drawer when we meant to open our undershirt drawer. That’s just the nature of humans. We’re trying to bring across to people that actually these kinds of systems and controls are important.

The other aspect of that are the sterile preparation requirements of USP 797. What specific approaches do you have to take to address those concerns?

The main thing that we’ve done is, first, started an education program. We built a 797-compliant cleanroom. We put in a catwalk, so you can go up above the cleanroom and see all the equipment. We partnered with vendors of different kinds of laminar-flow hoods, biological safety cabinets, and other equipment. We also partnered with industry experts to run these training programs. We’ve had hundreds of accounts go through that in the last four or five years. That’s been a big help.

Additionally, all of our products come with a kind of compliance manual that helps customers to make sure, as they put our equipment and systems into service, that they’re complying. Lastly, DoseEdge has a number of features in it that create reminders to do a cleaning process and routine maintenance such as changing out HEPA filters so that they can stay compliant with their USP policies.

Are there big differences in how Baxa operates in Europe as opposed to the United States?

Absolutely. There’s a European approach to hospital pharmacy, there’s a North American approach to hospital pharmacy, and then in Asia and in Latin American we find it to be kind of a hybrid. In Europe they don’t use any ready-to-use, ready-to-mix small-volume IVs, but they allow nurses in many countries to mix them on the floor. We see that as something that’s going to end up transitioning to the pharmacy. The pharmacy in Europe doesn’t run 24 hours a day, 7 days a week; it runs 5 days a week. The hospitals are much larger. They’re typically government-run hospitals with 1000 beds and a much smaller pharmacy staff that’s really stocking the wards of the floors of the hospitals, and the nurses are preparing the doses extemporaneously as needed. Whereas in the United States we’re in a 7-by-24 hospital pharmacy that’s preparing all of the doses, so the North American pharmacy model has different demands than the European.

But we find in Europe that harmonization, I guess, is coming. After 20 years the difference are beginning to erode, and there are things like 797, which in Europe led the way in having cleanrooms and having sterile preparation requirements. Now we see that the U.S. has embraced it as well. We do see that best of both ideas are coming together.

Are the regulations in Europe more onerous than in the U.S.?

Actually, no. I think the European system where you follow the medical device directive, you have a registered notified body that inspects you every six months and that allows you to keep your standing on the ISO requirements, we find that to be very straightforward and in some ways there’s less variation in the European approach to regulation than there is in the U.S. I’ve seen over the 20 years at Baxa kind of an ebb and flow of how FDA looks at medical device companies. Right now, it’s quite rigorous, which is fine, and there were times when it wasn’t as rigorous.

At this point in your history is product development just a matter of making small improvements to existing lines?

(Laughs.) You’re really hitting at the heart of the matter, because you’ve got stewardship, right? We’ve got these product lines that you need to invest substantial money and resources in [in terms of] people and time and continuing to meet customer needs, and make those, as you talked about, incremental improvements. Then, additionally, the company wants to continue to develop whole new areas to go into.

Any you can talk about?

We really can’t at this time. But we’re very proud of our DoseEdge product. We acquired the base of that product, but we made some substantial improvements to it, and it’s really the industry-leading package. We’re making plans to release additional products this year.

What’s the timeframe for those?

Later in the year we’ll be in the market with products that will, I think, be very welcome by our customers.

On that topic, you have OEM customers. What percentage of your revenue comes from this segment?

OEM is really about servicing the needs of pharmaceutical companies that want to include dose preparation tools in their products. Primarily, it’s been oral liquid products, where we provide custom-logo oral dispensers and oral syringes and filling adapters. But we’ve done some other products. Increasingly, there are biotech drugs where the patients might dose themselves and need bioaccess-type devices, and we’ve done some of that. Overall, the OEM business is less than 10% of our business, but it’s certainly a very nice part of our business that we’re very focused on.

You’re going to an innovation conference sponsored by the Young Presidents Organization. What has your experience been with YPO? Is it beneficial to you as an executive?

It is very beneficial. A number of executives also are in Vistage, which is a similar organization of executive education. I think the best part of either of those institutions is that you can meet with a group of your peers in a confidential setting. So I meet with a group of fellow YPOers who run various types of companies on a monthly basis, and we spend a half-day together and go through a process of really talking about our businesses and talking about some of the challenges in a spot where you get complete understanding and complete confidentiality, and that’s fantastic. Additionally, they’ve got some of the best educational programs going. It’s just amazing, and for the one coming up this week I’m able to take some of my executives with me to learn about some of the new thinking in innovation.

Finally, you’re working as a volunteer with Family HomeStead. What drew you to that, and what are the benefits of participating in an organization for the homeless?

I’ve got to be candid. I have not done much for Family HomeStead in the last couple of years, but I grew up in high school and college working for a home remodeling contractor and really enjoyed that type of work. I’m not particularly skilled, but it’s one of my favorite things to get out of the office and spend the day painting.

I worked a summer during college as a sheet-metal worker, which is what my dad did for a living.

Yeah, whatever the job is—pounding nails or pushing a broom; whatever needs to be done. I like that kind of thing, and we have a volunteer program here at Baxa where we ask associates to take a day or two a year and give back to the community. So we had always planned a day as a senior management team, [where] 12 to 15 of us go off site, and we’ve done a number of apartment cleanups for Family HomeStead that provides emergency shelter for families. And certainly that strikes a chord obviously when a family is living in their car or lost their home; the shelters aren’t very good for families [because] they tend to split them up, and this is an organization that keeps families together, puts them in transitional housing, and helps them get back on their feet. It’s a fantastic organization.

We’ve also done some great workdays with Habitat for Humanity. They get out there, and you can pound some nails or do some painting or whatever the case may be. Love that. I wish I had more time to do community-based work; I can’t tell you that I’m doing as much as I should or I want to. But certainly you think about the days when you go to bed and feel good about life and your place in it is when you spend it serving others. I think it’s that spirit that we try to bring to our management team. It’s that really we’re not here to be served, we’re here to serve, and the customer’s the boss, and the people who are closest to the boss are our production workers, our customer service folks, our tech support people, our salespeople, all the people who do bill collection—they’re all the ones who are close to the customer. And if we want to be of service, we’ve got to find out what they need and how to support them and make Baxa the kind of environment that leads to long-term, sustained performance.