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With a consulting side to
fund and attract customers to their manufacturing side, PharmEng International is
positioned for growth outside of Canada
Healthcare
(PII-TSXV)
PharmEng International Inc.
3760 14th Avenue - Suite 201
Markham, Ontario L3R 3T7
Phone: 905-415-3922
Alan Kwong, P.Eng., M.Sc., M.B.A.
Chief Executive Officer
Edwin Lee
Chief Financial Officer
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
December 29, 2005
BIO:
Alan Kwong, P.Eng., M.Sc., M.B.A.
CEO
Extensive background with over 20 years in the biotechnology and pharmaceutical industry.
Direct experience in all aspects of validation of facility systems, computerized systems,
sterilization processes, dosage form products, biotech products and isolation technology.
Company Profile:
At PharmEng Technology Inc., we are leaders in engineering, validation regulatory affair
and product development services. As a full service consultancy, we go beyond the basics
by providing specialized services in current Good Manufacturing Practices (cGMP), Good
Laboratory Practices (GLP), Project Management, Engineering, Validation, Calibration,
Training, Regulatory affairs and Compliance.
PharmEng Technology's signature is our integrated Project Management Approach in
delivering projects to our clients in the pharmaceutical, biotechnology, nutraceutical,
healthcare, and active pharmaceutical ingredient (API) sectors. Our worldwide offices
enable us to provide the necessary expertise and resources to handle any challenges
expected of us.
Winning formula of working in collaboration with our
clients is demonstrated by the long-term relationships we have developed in the industry.
By consistently meeting and exceeding the expectations of our clients, PharmEng Technology
is an emerging leader in these services worldwide.
CEOCFO: Mr. Kwong, what
is your vision when you started the company and how has it developed?
Mr. Kwong: “The company started in 1997, and at that
time I was employed by a New York based American company to expand the Canadian
operations. I noticed there was not a fully integrated pharmaceutical consulting practice
in Canada and it was a niche market that needed to be filled and that was when I decided
to start the company.”
CEOCFO: Where are you
today?
Mr. Kwong: “It was just me when started in 1997, but
right now we have offices in parts of Canada like Toronto, Winnipeg, Montreal, Vancouver
and Halifax. We are also expanding our operations in China, Taiwan, Europe and United
States. We also have a manufacturing site in Perth, Ontario, which is near Ottawa. We are
building another facility now in Cape Breton, Nova Scotia. It is quite a change from the
beginning with a one-man operation and now with a staff of over 100 in various locations
providing services to consulting, manufacturing and training to the pharmaceutical and
biotechnology industry.”
CEOCFO: What kind of
services do you provide?
Mr. Kwong: “Essentially, we are into three streams of
business; when we first started, we started with the pharmaceutical consulting business.
Since then, we have gotten into the manufacturing and also the education and training;
these are the three strains of business. On the consulting side, we provide services to
drug submission, technology transfer, clinical trials, engineering, validation and
training.”
CEOCFO: How much of your
business is in each division?
Mr. Kwong: “Right now, it is mostly consulting. We have
about 80% of the business in the area of consulting, about 10 or 15% from manufacturing
and about 5% or so in education. We can see that the manufacturing side will pick up quite
rapidly, especially in 2006 and the same with the training.”
Mr. Lee: “I will
also add that our manufacturing division Keata Pharma, started off in April of 2004. We
obtained the establishment license approval from Health Canada on our site in Perth; that
site had a $30 million capacity. Our new facility that is being built in Cape Breton,
which will be ready approximately a year from now, has $50 million manufacturing capacity.
Our consulting side really puts a foot in the door with our big pharmaceutical companies
that we are consulting with. All the name brands that you see; those are well-known
pharmaceuticals. This allows us to expand on the bigger growth in manufacturing, which
allows us with large contracts and that is where we see a huge opportunity for us.”
CEOCFO: Why are these
companies coming to you?
Mr. Kwong: “What we bring to the table is the
organization; we have the talent in different areas of the pharmaceutical business. As I
said before, we provide services from clinical to engineering and validation. The addition
of the manufacturing facility enabled us to provide project support services on
manufacturing and laboratory testing, and this is further enhanced by training and
education programs. There is not another similar vertical integrated association like
PharmEng in Canada that I am aware of.”
Mr. Lee: “We also
have quality people on our staff. We have ex-Health Canada employees, who were directors.
We have ex-executives from big pharma companies who have ten to twenty years of experience
on our team. This type of expertise, allows us to show that we have quality people on our
staff.”
Mr. Kwong: “For
example, we just did a project recently for a client on the design of a facility and the
comment I got from the president of the organization was, ‘what you have done in a
week is what we have been trying to put together in the last six months’. These are
the kinds of results that we like to see and these are the type of values that we bring to
the table. They can come to us and have either short-term or long-term requirements and we
can help them at various stages. We can bring in large number of consultants for a short
time to help the company to achieve the objectives and goals where they need help. Hiring
full-time staff is quite sensitive for many multinational companies. Hiring short term
experts is not easy either and that is where we bring value to our clients.”
CEOCFO: Is word-of-mouth
very important in your industry?
Mr. Kwong: “Absolutely! This is a very small industry,
it may take ten years to build up your reputation, and word-of-mouth is extremely
important in the process. We have long term continuous clients and repeat clients all the
time.”
CEOCFO: You are building
up the international side of your business; will you tell us about that?
Mr. Kwong: “We are pretty much everywhere in Canada in
terms of our presence, and there are not too many places we can go in terms of expansion
in Canada. We started doing business in Africa and Asia a couple of years ago. We won an
open international bidding contract from Kenya, Africa, and one for Taiwan. The one in Taiwan
is a three-year project and the project is over $35 million. Those are the types of
projects where we demonstrate our capability not just to compete locally, but ready to
compete globally. We have the strength to be able to compete anywhere. When we started our
first American office, we noticed that the business generated revenue and profit
immediately. We started to focus on the US market at the end of last year and we did more
business in Q1 this year than we did in the whole year of last year. We noticed that once
we focused on a region that our strength and expertise really shine and that give us the
ability to compete and expand globally. I think our vision is looking at other parts of
the world to repeat what we have done in Canada.”
CEOCFO: Do you need to
continue to add staff as you grow, and how do you find the quality people you need?
Mr. Kwong: “There are various ways. This is a small
industry and recruitment through networking and advertising is important. We also
implement a vertical integration strategy on our resource requirement. We started a
training program in April of this year in Nova Scotia and it is a one-year program with 21
students that all have a minimum of B.Sc. in science or engineering and we train them to
be professionals in this business. They would be junior staff in the beginning and
intermediate staff in five years and senior staff in ten years. This is a self-proficient
approach in term of replenishing the resources.”
Mr. Lee: “For
example, out in Cape Breton we are building a manufacturing facility out there, and a year
from now it will be ready. We do the training program in cooperation with the University
of Cape Breton. That allows the training of the university graduates to acquire the
necessary skills to work in the biotechnology and pharmaceutical industry. Once the
graduates have completed the program, we have the first opportunity to make offers to them
to join the company. We can employ them in the manufacturing facility in their hometown or
we can take them to our expansion plant outside of Cape Breton to the U.S, Asia or
wherever.”
CEOCFO: What has changed
since you have become a public company?
Mr. Kwong: “It has given us the resources to fulfill our
vision and our expansion to happen in a short time frame, so we can do more and accomplish
more with the public vehicle. I think that is the major impact that we can see right away,
because we could have continued the organic growth of the organization, which is what we
have done for the last seven years. The process will be slow. I think the company has
grown to a stage that it gets all the critical pieces to put together the puzzle in a
short time. It is a tremendous help on the capital side, being a public company rather
than a private company.”
Mr. Lee: “As we
grow internationally, the public company gives us more credibility and visibility to our
information of the company in terms of financials or the background of our company. People
can check up on us with the stock exchange and that gives us a lot of credibility when we
talk about the company internationally.”
CEOCFO: Will you tell us
about the financial picture of the company?
Mr. Lee: “About a month ago, we released our Q-2
numbers. We have the PharmEng International Inc., which is our consulting side, and it has
had record quarters the first two quarters of this year; $1.7 million dollars in gross
revenues in the first quarter, $2.2 million in the second quarter. What the cash flow on
the consulting side does, and it was part of our original strategy, was to allow us to
fund the growth of Keata Pharma, which is our manufacturing side. It takes time for us to
build it out and have the facilities to meet Health Canada standards and then try to
develop business to capture manufacturing projects for ourselves. During that build-out of
Keata, it has cost us a lot of our cash flow. We do see many potential opportunities in
our pipeline that allow us to continue to fund the consultant side and we see that the
upside potential on the manufacturing side is great. We are running on a net loss, but we
see a tremendous long term opportunity for the manufacturing side as we continue to build
up that portion of our business. The consulting side has been doing well; we are on
strategy of what we want to do and we are looking forward to seeing the harvest on the
Keata manufacturing side.”
CEOCFO: In closing, why
should potential investors be interested?
Mr. Lee: “We see a lot of manufacturing companies fail
because of their cash flow issues. If we continue on our current track, we can probably
fund the build-up on the manufacturing side. Outside of this, we have lots of
opportunities to expand and if there are potential opportunities to acquire different
companies or a market that we see that is worth spending money on, that will not stop us
from going back to the market to raise additional funds for the opportunity. People should
be looking at us because we have the established consulting business to fund the
manufacturing side, which has great margins and great growth. The manufacturing business
can attain big contracts that allows for shareholder value growth on a per share basis.”
Mr. Kwong: “If you look at the difference between the different streams of
business that we have, there is tremendous synergy between consulting and manufacturing.
We are a unique organization in North America that provide a one stop project support
services to consulting, manufacturing and training. I truly believe that everyone will see
the success of this vertical integrated strategy in the very near future.”
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