Formula for biotech success-Hollister-Stier (Spokane) makes its mark contracting specialized services

Anthony Bonanzino went to Washington, D.C., last week to attend BIO 2003, the country’s largest biotechnology trade show.

Tom Sowa
The Spokesman Review Staff writer

He attends the annual event to stay current on industry trends and to keep track of the competition.

This year he came back feeling like a marked man.

Bonanzino, president and CEO of Hollister-Stier, talked with an executive from Cardinal Health, a large, Ohio-based company that does similar contract biomanufacturing work.

"He told me that Cardinal views us as one of their main competitors," Bonanzino recalled.

"I came away amazed," he said, that one of the leaders in the biotech manufacturing industry would view Hollister-Stier as a challenger.

Four years ago the Spokane company wasn’t even capable of competing against Cardinal Health.

For a privately held company with 300 employees and a $10 million annual payroll, news like that is a positive sign in an otherwise soggy economy.

Hollister-Stier is considered a midsized contract manufacturer, competing against a couple of dozen larger companies for a piece of the $80 billion a year U.S. contract biomanufacturing market.

Companies like Hollister-Stier produce pharmaceutical products in pill, liquid and freeze-dried powder form for larger pharmaceutical firms like Schering Plough and Eli Lilly.

In the past two years the company’s most noted work has been to fill vials with anthrax vaccine for BioPort Corp. That is just one of more than 30 contract manufacturing clients the company is managing this year.

As the contract market continues to grow, Bonanzino expects one day to announce that Hollister-Stier has been acquired by one of those bigger companies.

That news, for once, would be welcome in Spokane, Bonanzino predicted. The work done at Hollister-Stier is so specialized that another company’s purchase could only lead to more growth.

In contrast, other Spokane technology companies haven’t fared as well after being sold to bigger, distant firms.

In 1998, for example, locally based Packet Engines, a developer of network equipment, was acquired by Alcatel. Instead of seeding long-term growth, Alcatel started cutting Spokane jobs. The operation shrank to fewer than 50 workers this year, and will shut down entirely this summer.

Not only is Hollister-Stier likely to be sold in the next several years, but Bonanzino predicts the eventual buyer will be good for local business.

The majority owner of Hollister-Stier is New York-based venture firm Windward Capital Partners, which helped buy the company in 1999 from previous owner Bayer Laboratories.

Windward owns 85 percent of Hollister-Stier, while Bonanzino and three other partners own the balance. The original purchase price has not been disclosed.

Sooner or later, the Windward partners will recoup their investment by selling Hollister-Stier at a profit. But the next buyer won’t be another venture firm; it will be a biotech contractor like Cardinal Health or someone else, Bonanzino said.

"The point of acquiring (Hollister-Stier) would not be to reduce it. It would be expanding and improving growth potential," he said.

The reason, said Bonanzino, is that the company’s North Side production facilities have been upgraded in the past three years and have passed the federal government’s stringent bioproduction and "good manufacturing" standards.

There is no other facility with the same "clean-room" production capacity anywhere in the Northwest, Bonanzino said.

A number of much smaller clean-room facilities are located in the area, including a "wet lab" operated by Spokane firm Biomedex in the basement of the Spokane Intercollegiate Research and Technology Institute (SIRTI).

But no one has the size or capacity to handle Hollister-Stier’s range of projects, said Chris Fee, a spokesman for BOC Edwards, a maker of biotech manufacturing equipment.

Bonanzino said Hollister-Stier gets purchase offers and inquiries on a regular basis, but Windward has no deadline for selling.

Four years ago, Bonanzino was a vice president at the company’s offices at 3525 N. Regal. He was facing an uncertain future.

Bayer Corp., which had acquired the Spokane plant in 1974, announced it wanted to get out of the allergy business — the primary focus for Hollister-Stier since its inception in the 1920s.

Bonanzino decided to gamble on the growing contract-manufacturing sector. As larger pharmaceutical companies introduced new drugs, they realized it was more affordable to hire smaller firms to handle production.

"It was a risk, it was a gamble," said Bonanzino of the shift in emphasis.

He and his four partners helped Windward buy the operation in February 1999. They renamed it Hollister-Stier Laboratories — honoring Guy Hollister, who founded the company in 1922.

Contract manufacturers don’t make the chemicals or raw ingredients that go into drugs or medications. Instead, they mix the ingredients _ in a process called compounding — or they produce sterilized packages of the ingredients and send them back to the drug maker.

Winning contracts for the work requires steady investments in plant upgrades and a commitment to service and quality, Bonanzino said.

Windward has invested about $10 million in plant upgrades at Hollister-Stier since 1999. In the past year it’s spent close to $6.5 million on an automated production system for making freeze-dried drugs for large customers.

Since moving into contract work, the revenue generated by Hollister-Stier has grown significantly, Bonanzino said. He’s seen about 20 percent growth in contract work each year.

Salaries there range from $20,000 to $32,000 for technicians and from $32,000 to $65,000 for professionals and engineers.

Allergy products — kits and extracts that help patients fight off reactions to stinging insect bites, mites, dust and pollen — comprise about 60 percent of Hollister-Stier’s annual revenue, said company Vice President Rick LaPointe. The rest comes from contract manufacturing.

As a private company, Hollister-Stier doesn’t release annual revenue totals.

As the contract manufacturing sector continues to grow, Hollister-Stier is betting on serving two types of customers — giants like Shering Plough, Eli Lilly and even Bayer, and startups hoping to hit the jackpot with a new drug.

Fledgling companies don’t have production facilities and need contractors like Hollister-Stier to take on the initial production that is required for early clinical trials.

Two years ago, a young Boston-based drug company came to Bonanzino and offered to invest more than $1 million to help it produce trial versions of a new cardiovascular-imaging drug. The drug was compounded and filled in Spokane and is now going through federal Food and Drug Administration reviews. The Boston company has asked not to be identified, Bonanzino said.

If the FDA doesn’t approve the drug, the company writes off the costs and looks for another project. If the drug passes clinical trials and gains final approval, the company will come back to Hollister-Stier and expect the Spokane facility to be one of its key manufacturers.

If the drug becomes a major success, Hollister-Stier stands to gain a large chunk of business.

"We haven’t hit a blockbuster yet, " said Bonanzino. "but we’re trying."

Hollister-Stier’s most visible contract is a five-year agreement with Michigan-based BioPort, the company that produces anthrax vaccine for the U.S. government.

BioPort won the contract from the Department of Defense three years ago, but didn’t have capacity at its Lansing, Mich., plant to fill the vaccine into sterile vials.

In late 2000, BioPort signed a deal with Hollister-Stier to take the anthrax vaccine and decant it into sterilized glass vials.

"We picked Hollister-Stier after looking at three different facilities nationwide," said BioPort spokeswoman Kim Brennan-Root. "They had the right mix of skilled workers and a strong regulatory record," she said.

BioPort is asking Hollister-Stier to process more than 4 million doses of the vaccine. Each vial holds 10 doses.

The two companies just signed a renewal that extends the anthrax contract another four years.

About 16 months ago, Bonanzino broke with the old Bayer-imposed tradition of company secrecy to host a press conference announcing the start of the manufacturing process.

"The past practice (at Bayer) was secretive. We wanted to open ourselves up," said Bonanzino.

For a company with a long local history, Hollister-Stier hasn’t been well-known, he added.

"We decided we want to make get in front of people a little bit more. We wanted to be more visible than we have been," he said.

•Business writer Tom Sowa can be reached at (509) 459-5492 or by e-mail at [email protected]

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