Older and Wiser

Though not yet four years old, Quantum Health Resources expects1991 sales of $77 million, has more than 250 employees, and has alreadydone an initial public offering. CEO Doug Stickney's secret? A management team with years of experience in the industry

"They managed to identify a niche within a niche and get their business going, and they've been profitable. Given the strength of the management, it seems to be they'll be able to grow beyond that niche." -- Jim Koch

*

Up on the fourth floor of a sleek office-park building outside Los Angeles, Doug Stickney paces. In fact, there's an area of carpet that's more worn than the rest because when Stickney is on the phone, he tramps back and forth, working out his nervous energy as he works out his ideas and plans.

Stickney, the 35-year-old founder and CEO of Quantum Health Resources Inc., hasn't wreaked too much havoc on the carpeting yet, though. For despite the magnitude of his responsibilities -- a business on track to do $77 million for 1991, a work force of 254 full-time and 88 part-time employees, and as of this past April, public ownership -- Quantum is only three and a half years old.

What the Orange, Calif., company does is this: for hemophiliacs and others with immune deficiencies it delivers drugs directly to homes or treatment centers. Revenues come solely from the pharmaceuticals, which, after being bought by the company at wholesale, are resold to end-users. Included for "free" -- that is, bundled into the drug cost -- are such services as nursing care, help finding additional insurance, assistance in personal matters such as financial record keeping, and emotional support.

"It's hard even for me to remember that the company still is only 40 months old," says Stickney. "It's just stunning. When you look at it in terms of infrastructure, in terms of critical mass, you can build a pretty strong case that the four cofounders accomplished far more than they expected to, in a far shorter time."

What have they accomplished? Here's a checklist:

The service. Quantum positions itself as a better option than hospitals, where clients have traditionally received their drugs and care. Customers pay 35% to 50% less through home care, says Stickney, which means savings both for insurers and for patients who copay. And the auxiliary services help make the difficult lives of customers easier.

Geographic growth. The company has 14 field offices nationwide. Each operates as an autonomous unit, with responsibility for profit and loss, marketing strategies, and sales efforts.

Corporate alliances. Two major pharmaceutical suppliers, Miles Inc. and Armour Pharmaceutical Co., are principal stockholders and have director positions with Quantum. The company was a customer with both before either bought in, but now is in an even more secure position with its suppliers.

Extraordinary financing. Between August 1988, when a private investor seeded the company with $300,000, and early 1991, Quantum raised $10 million in private and venture capital. Last spring it raised another $31 million in an over-the-counter offering. Some $3 million went to pay off bank debt, and another $2 million was earmarked to open four more branches by the end of 1992.

Savvy acquisition. In a stock swap with no cash payments, Quantum acquired a similar home-care company this past July. The purchase of $9-million Comprehensive Home Services gave Quantum a larger profile in California and more employees experienced in the industry.

All that in three years. Along the way Stickney managed to get married -- to Kim Mehl, general manager of the company's first branch office, in Indianapolis -- and to become stepfather to two young boys. He indulged one of his passions, baseball, by buying the Class A San Bernardino Spirits with his father. And he watched as Quantum's stature among customers and the investment community rose steadily. It's enough to keep him pacing for days on end.

If there is one key to Quantum's success, it isn't the alliances or the ability to raise money or even the quality of the company's service. What really distinguishes Quantum is the experience of its management team. It is an example of the extraordinary advantage a company has when it's started by players with complete command of their industry.

Stickney himself -- tall and lanky, with an easy grin and thinning hair unaffected by gravitational pull -- will talk half-jokingly about how naive he was when starting up. How, in retrospect, if it had been his money, he probably wouldn't have funded himself. But self-depreciation notwithstanding, the truth is that Stickney had the kind of background that seduces investors and intrigues customers.

For one thing, he came to the endeavor with something of a family legacy in the industry. Back in 1978, at the suggestion of a relative who was a hematologist, Stickney's father, Henry, cofounded Western Medical Specialty Corp., the company that discovered the niche of providing home delivery of drugs to hemophiliacs.

Doug had joined Western Medical in late 1983, in large part for the chance to be near his family again. (Hank Stickney's Air Force career had taken them all overseas in the 1970s, and Doug had left them in 1973 to go to college in North Carolina.) Joining his father was a good experience, says Stickney, and Western Medical was a good company.

The company's sales were about $1 million, and Doug's arrival marked a push into the national arena with more professional management. A statistician by training, the younger Stickney loves poring over numbers. ("This is one of my favorite folders," he'll confide, holding a manila file with charts on receivables, daily cash balances, payroll payouts, and branch revenues. "Doug," says one colleague, "can sift through pages of numbers and pluck out significant ratios faster than anyone I've seen.") By 1986 revenues at Western Medical topped $12 million, and in search of liquidity, the family sold the business to a general home-care organization, Caremark Corp.

The Western Medical staff was kept on until early 1988, when Baxter International acquired Caremark. A group of Western Medical managers suddenly found there was no room for them in the newly coupled operation. Stickney was among them.

"It was a shock, no longer being employed," he says. "The possibility had never really occurred to me that if there was a merger, I wouldn't be one of the survivors."

He and three others who'd been together before the first acquisition -- Mike Tront, Mary Ann Barth, and Steve Yamaguchi -- toyed with the idea of consulting, but decided to launch their own business when their first job fell through. "We didn't have jobs. That's a big reason this company was founded," says Stickney. Adds Barth, "We were too stupid to know what it was like to start a company, and we thought, This will be pretty easy."

Of course, miscalculating the difficulty of starting a company didn't make Quantum's founders much different from anyone else lurching into a first venture. But while the team may have been short on nuts-and-bolts information on getting licensed or opening site offices, it did have extensive operating experience. Stickney handled financing and overall direction, Tront operations, Barth marketing, and Yamaguchi sales. Moreover, they had developed a set of strategic approaches to the marketplace.

For one thing, they knew the time was right to start the business. The merger of Caremark and Western Medical had left a gaping hole in the marketplace, says Barth. "There was really only one company, which had 60% to 70% of the home-care business." Quantum's line was that it was The Alternative, that customers had a choice, and that they'd get much more personalized service. Tront says that at around the time of the company's launch, there was a shortage of antihemophilic factor -- the plasma protein missing in the systems of hemophiliacs and necessary for blood to clot. "If anybody could secure product in a short market," he says, "we thought we could." Why? They were convinced drug companies would welcome a chance to sell to Quantum over Caremark. Caremark, after all, was owned by Baxter, a pharmaceutical company that was competing directly against the other drug companies. And Quantum's managers already had connections in the industry.