Mike Wright, CEO of Wellpartner, has steered his 105-employee pharmacy business through the downturn by winning new contraccts and expanding into new areas of opportunity.
Most of Oregon's private companies struggled in 2008, but a handful of well-positioned upstarts achieved impressive growth.
By Ben Jacklet/ Photos by Anthony Pidgeon
After leading a high-energy tour of Wellpartner’s Portland headquarters, CEO Mike Wright pauses briefly to point out a huge thank-you note from a key customer that helped turn a $22 million pharmacy business into one worth $75 million.
“After we won that contract, the customer came down here and congratulated us, told us we did a great job, and then they bought lunch for 130 people,” Wright beams. “How many times do you see a customer buying lunch for 130 people? It tells you we must be doing something right.”
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The success stories are few and far between this year. But a handful of hard-charging upstarts are showing vast potential. Strong results from Wellpartner, Tripwire, Fortis Construction and Jive Software — all established within the past dozen years — serve as a powerful reminder that not all is lost within Oregon’s economy. These forward-thinking firms are well positioned to tap markets with great upsides: discount meds, financial compliance, university infrastructure, cloud computing, social software for businesses and health care reform. As Oregon’s traditional economy of timber, heavy manufacturing, home building and auto dealerships continues to shed jobs and sap fortunes, these rapidly expanding businesses and others like them are leading the race to the economy of the future.
Wellpartner (No. 101 on the Private 150) was built on the belief that the pharmacy model is broken, from exorbitant cost increases to insurance companies and consumers. Marketing VP Robert Judge, a veteran IBM executive and a diabetic, saw huge opportunities in delivering medications at lower prices through the mail. “Drugs as a portion of a health plan’s cost used to be 3%,” he says. “Now it’s 35%. So there’s a greater emphasis on controlling these costs. And we’ve been able to do that.”
Wright, a 27-year veteran of Johnson & Johnson, still carries a photo in his wallet of Wellpartner’s first customer, an elderly woman who saved enough money on her medications using Wellpartner to enable her to purchase health insurance.
Wellpartner’s angel investor was Craig Berkman, who has since been dragged into court over various improprieties such as investor fraud. Wright and Judge insist Berkman’s legal and financial troubles don’t impact Wellpartner in any way. “Craig was good when we first started getting the business going,” says Wright. “But then we moved on past that.”
It hasn’t been easy. They hired aggressively and launched ambitiously, and then their money dried up. “We didn’t take any salary in those early years, and we didn’t make payroll often,” says Wright. “If you want to test how committed your employees are, don’t pay them. See how long they hang around. Ours hung around. They busted their bottoms.”
So did the management team. Wright, Judge and Pharmacy VP Larry Cartier say they stuck with the company through hard times because they believed in the mission and they knew it would work eventually. To a certain extent, it has. Wellpartner employs 105 people including 13 pharmacists and has longtime partnerships with Providence Health Plans and the Oregon Health Plan as well as a key contract as the exclusive mail order pharmacy for Washington public employees, the deal that enabled the company to grow exponentially in 2008.
Tripwire COO Dan Shoenbaum says business has picked up as large companies and financial institutions adapt to tighter regulations. he says an IPO "is something we've discussed."
Missy Dolan, administrator of the Oregon Prescription Drug Program, says she expects Wellpartner to continue its upward trajectory: “They are some of the smartest people I’ve ever worked with.”
Another fan is Sol Menashe, retired CEO of the largest health plan in Oregon, now Regence BlueCross BlueShield. Menashe was involved in the original discussions that led to the creation of Wellpartner, and now that he is retired he is an enthusiastic customer. “I think it’s fantastic what they’ve built,” he says.
Wellpartner’s production process is computerized and sophisticated, with each order tracked by bar codes and radio frequency identification chips. The automation improves efficiency and allows Wellpartner to offer steep discounts. Newly hired pharmacist Lynne Frazier says she used to fill about 300 prescriptions per day at a retail pharmacy; now she fills 900 in a four-hour shift for Wellpartner.
For all of its gadgetry, the mail order side of Wellpartner’s business is fairly simple: package and distribute medications at a competitive price for patients and insurers. The emerging portion of Wellpartner’s business, in contrast, is anything but simple. It has to do with an obscure federal health care rule known to policy experts as 340B, which enables qualified health care providers serving vulnerable populations to buy medications at deeply discounted rates. The spread between these discounted rates and the amount reimbursed through insurance can help struggling clinics hire staff and pay for indigent care. “You can imagine how these safety net providers felt when they discovered there was a revenue stream they never even knew existed,” says Wright.
He estimates that only about 15% of the entities that qualify for the program use it. Wellpartner aims to boost that rate and solidify its position as the nation’s largest independent provider of 340B contract pharmacy services. The company recently gained approval from the federal government to set up a demonstration project in Oregon, the first statewide program of its kind.
Judge says there are maybe a dozen people who really understand how the 340B program works, and a quarter of them work for Wellpartner. This could prove valuable expertise if the Obama administration follows through on its stated plans to expand the 340B program as part of national health care reform.
Wright says he expects both sides of the business to expand at a healthy rate, with revenues growing by about 20% in 2009 while the employee count increases by 12%.
“We spent most of 2007 building the infrastructure so we could take on growth, putting Oracle financials in place and building out our automated pharmacy,” he says. “2008 was about building the volume. 2009 will be about launching this new contract business, and becoming more sophisticated in everything we do.”
If there is anything more complex and in flux than health care policy, it is financial policy. The company that can help businesses adapt to the ever-changing plethora of regulations governing accounting standards and monetary systems has a sizable market on its hands. That’s a significant factor behind the continued rise of Tripwire, the Portland-based software company that added 22 jobs in 2008 and boosted revenues to $62 million, a 26% increase over 2007, in the face of an industry trend to spend less on software.
Tripwire (No. 120 on the Private 150) has focused on digital security software since its founding in 1997, but the financial compliance side of its business has outgrown the security side, thanks in part to the strict requirements of the Sarbanes-Oxley Act of 2002 and other more recent moves to improve transparency. Large financial institutions under pressure to become more open have brought significant new business to Tripwire, and the trend is expected to accelerate. “Under Obama we’re going to see even more scrutiny, which is a good thing for Tripwire,” says COO Dan Schoenbaum. “We are the leading provider of software that does that.”
Every time a new regulation or policy comes out of Washington, Tripwire engineers add fresh details to the formula to tweak their software appropriately. As with Wellpartner’s expertise with the 340B program, Tripwire’s institutional knowledge of policy helps it sell its services to companies that need to be compliant and secure but don’t have the tools or expertise to do so cost-effectively. Tripwire’s client list ranges from Netflix and The New York Times to ExxonMobil and Boeing.
Another quality Tripwire shares with Wellpartner is a high-energy management team, led by CEO Jim Johnson, a 27-year veteran of Intel. “We’ve been profitable since the quarter Jim walked in,” says Schoenbaum. “Prior to his arrival the company didn’t make a dime.”
Schoenbaum joined the team three years ago after a stint running mergers and acquisitions for Compuware in Michigan. He predicts strong growth for Tripwire as the company continues to refine its software and also launches a new product to help companies manage virtualization. “Two things that will never go away are security and compliance,” he says. “You can’t afford not to have security, and you must be compliant. And you can’t do either of those manually. So what Tripwire does is automate that process so you can sleep at night.”
The next step for Tripwire involves hiring more engineers and diversifying its product offerings to gear up for an initial public offering. Schoenbaum says an IPO is “something that we’ve discussed as a management team… that we could consider in the immediate future.”
It will be interesting to see which Portland software company breaks Oregon’s IPO drought first, Tripwire or Jive. Jive, which has been developing social business software since 2001, is benefiting from the current craze for anything that has to do with tweeting, linking in and friending. Jive didn’t quite make the cut for the Private 150 list, but if it keeps rising at its current pace it will leapfrog dozens of companies to make its debut next year. Jive’s revenues shot up 51% in 2008 and 100% during the first quarter of 2009.
Jive CEO Dave Hersh says he expects the success to continue and lead eventually to an IPO. “It helps that the space we are in is incredibly hot,” he says. “2008 was the year when social business software really started taking off.”
It was also the year when Jive was persuaded to make significant job cuts in Portland by Silicon Valley VC firm Sequoia Capital, according to The New York Times. Jive eliminated 25 jobs last fall shortly after receiving a stark warning from Sequoia, but has hired back five people and is looking to add another dozen employees, Hersh says.
“2008 was an incredible year from a learning standpoint,” says Hersh. “We learned what was working and what wasn’t.”
Under the category of what’s working: newly released Jive Express, which enables companies to set up social business software within minutes for free, using a cloud computing platform developed by Amazon. This easy and instant access to Jive offerings should help the company to lure more businesses to join a list of clients that already includes Nike, Intel and German software giant SAP.
The crash of 2008 slowed Jive’s progress toward an IPO, but Hersh says going public remains the goal. The company has opened an office in the Bay Area and added several Silicon Valley veterans to its board of directors following Sequoia’s $15 million investment. All of which brings up the question: Will Jive remain in Oregon or shift to the Bay Area?
“The plan is to keep headquarters in Portland,” says Hersh.
Another company benefiting from the rush to cloud computing is Portland-based Fortis Construction (No. 58 on the Private 150). That’s because while cloud computing may seem like so much vapor to the layperson, it requires solid infrastructure: meticulously wired data centers strategically located near inexpensive sources of electricity, such as Google’s complex in The Dalles and Amazon’s coming development in Boardman. Fortis worked on four $100-million-plus data centers for major technology companies in 2008, three in the Northwest and one in Nebraska. Fortis president Jim Kilpatrick says that while he can’t identify the clients due to confidentiality agreements, “they’re names everybody would know.”
Established in 2003 in Portland, Fortis is the youngest company in the Private 150, and one of the fastest rising. Revenues jumped from $78 million in 2007 to $151 million in 2008, a 94% increase. “We’re fortunate in that we are in a couple of markets that haven’t seen the dramatic impacts from the economy that we’ve seen elsewhere,” says Kilpatrick.
In addition to data centers, Fortis has also completed some high-profile public buildings, most notably the recent renovation of the Capitol in Salem, and landed projects at seven institutions of higher education throughout Oregon. These projects should improve the firm’s position within an increasingly crowded field of builders seeking to cash in on stimulus projects.
Still, even with all the successes that enabled Fortis to nearly double its revenues last year, Kilpatrick expects the faltering economy to catch up with Fortis as its 2009 results more accurately reflect the steep drop in construction activity over the past year. “Our expectation for 2009 is a drop of 20% to 30%,” he says.
Even the most solidly positioned of Oregon’s privately held companies will be hard pressed to defy the gravitational pull of the spreading recession. The layoffs and bankruptcies are certain to keep pouring in, and some of the state’s most powerful players will find it difficult to avoid the cruel fate met by retail legend Joe’s and other once-mighty icons.
At the same time, the rebound may be nearer than was thought. Consumer confidence is returning, financial markets are improving and stimulus funds are working their way through the economy and to a certain extent, resuscitating it.
These glimmers of hope could enable some struggling institutions to hang on for another year, which is better than the alternative. But don’t expect big gains in jobs or revenues from the old guard, much less soaring profits.
For the small but growing number of companies that qualify as new guard — the Wellpartners and Tripwires — the outlook is significantly more encouraging.