Guardian Pharmacy Services has entangled itself almost exclusively with a highly specialized niche of the pharmaceutical business: providing drugs to America’s estimated 30,000 assisted-living facilities for the elderly.
But within that space, the $750 million company is making hay with organic and acquired growth, labor rationalization and automation, and control of costs. Perhaps most important, Guardian has a perhaps unparalleled understanding of a domain that’s heavily affected by demographics, healthcare finances, and federal agencies and regulations, as well as the problems of inflation and worker shortages that are afflicting nearly every company in the U.S. these days.
“We have the largest presence in the U.S. in the assisted-living community,” says David Morris, who as executive vice president and CFO is an essential figure in a fast-growing company where financial strategies, tactics and parameters are key to success. “We believe we can double the business over the next five to six years with low double-digit growth each year through the tailwinds of an aging population, same-store sales growth and some M&A.”
Formerly head of Central Pharmacy Services and a long-time executive in the pharmaceutical benefit-management industry, Morris co-founded the Atlanta-based outfit in 2004 with president and CEO Fred Burke, and executive vice president of sales and operations Kendall Forbes. They have quadrupled Guardian’s sales over the last eight years, Morris said, encountering a slowdown during Covid but since then returning to previous growth rates.
The long-term-care part of the U.S. pharma industry is about 5% of the business, but Guardian is the biggest distributor in the niche. It services mostly assisted-living centers but also some skilled-nursing facilities, independent-living centers and behavioral-health operations.
“In that continuum, assisted living is the most difficult to serve just because many of the homes and caregivers aren’t equipped to deal with elderly residents, and the average age of the residents now is 85 years old,” Morris explains. “The majority of residents need help with eating and bathing and putting on clothes, and 40% of them have dementia.”
Guardian powered through the pandemic “because this business doesn’t slow down or close.” At the same time, the labor shortage heavily afflicted Guardian during Covid, so the company adapted. “We’ve been competitive in the market from a compensation standpoint, making sure we’re offering the right benefits and looking to see if the position allows some flexibility,” Morris said.
Nevertheless, in recent months Morris has “seen a light at the end of the tunnel” in terms of labor availability as more Americans return to the labor force post-Covid and the economy cools. Economic challenges “are mitigating things a bit,” he said. “Some markets aren’t having as much trouble attracting and retaining people as 12 months ago. If the problem was a ‘10’ last year, it’s an ‘8’ now. We’re seeing some positive signs when we interview people that we’re getting more people for the job.”
Inflation also has been a bugaboo for Guardian because, as Morris explained, “We don’t directly control our pricing. Medicare Part D is what the majority of [assisted-living] residents are on, and the federal government outsources that program to large [pharmacy-benefit managers] like Caremark and Humana. They’re not getting a lot of price increases even now.”
So Guardian is challenged “just to maintain the margins we have,” he said. “Inflation can be very detrimental to our business” overall, Morris said. “It’s tough these days even in a retail environment, but at least a CVS or Walgreen’s has front-end retail business that makes up a lot of their sales, and they can raise prices there. But price increases are limited on prescriptions and back-end products. And all of our revenues are from prescriptions.”
Guardian is “trying to offset that by being more efficient, whether it’s doing more with packaging automation in our pharmacies or being more efficient in delivery. But ongoing inflation is very negative for our business in the long term.”
Guardian began to grow from its founding 18 years ago largely organically with national accounts, and organic growth still accounts for about 70% of the company’s expansion. As Guardian got its start, most of the assisted-living market was serviced by around 1,000 independent pharmacies scattered across the country, Morris said. The remainder of growth has come through what amount to roll-ups of many of these small pharmacies.
“Over the past 15 years we’ve developed relationships with or gotten to know almost all of them,” Morris said. “Each year we bring several to Atlanta. We are looking for partners who maybe have grown their business to a certain level and have recognized that they need help to get it to the next level. They’re not ready to sell the business and retire; they want to keep growing. They’re looking for a like-minded partner that’s collaborative, and the entrepreneur wants additional capital and is excited about what we bring to the table.”
Whether Guardian starts a pharmacy or partners with an existing one, local owners retain 10% to 20% of their operation. “Our interests are aligned, so there’s a true partnership in driving the business to grow, and to grow profitably,” Morris said. “That’s what has led to our success: We have, almost, 40 separate businesses with a separate P&L and balance sheet. That has enabled us to approach markets as a small enterprise company, but we’ve got the sophistication and backbone of a large entrepreneurial organization. The biggest win is for the customer and the resident we’re serving.”
In fact, Guardian is able to bring to bear “a really good system that is in place, and really strong teams that not only got us through Covid but also are managing us through these inflationary times, too. Great people with great tools and systems are the key to managing through this.”