Cranberry firm Aesynt poised to boom as hospitals cut costs

| Monday, Jan. 6, 2014, 11:15 p.m.

Aesynt Inc. is on the hunt for acquisitions to expand its business of automating drug supply systems and help hospitals cut costs.

“The average hospital has a 2 percent profit margin now,” said Aesynt CEO and President Kraig McEwen. As the health care overhaul evolves, cost pressures will increase, and “they will have to take out 15 to 20 percent of their costs to stay above water.”

That's a big opportunity for Aesynt — a new name for a well-established Pittsburgh company — one of the region's first big successes as a spinoff from Carnegie Mellon University.

It was founded in 1990 as Automated Healthcare, based on robotic technology to track drugs in hospital pharmacies. Founder Sean McDonald sold it for $65 million in 1996 to drug distribution giant McKesson Corp., where it became known as McKesson Automation.

The Cranberry-based company was purchased by private equity firm Francisco Partners of San Francisco in November and renamed Aesynt (pronounced ascent), a name chosen to highlight its success in manufacturing and software.

A growth strategy was behind McKesson's decision to sell the company, McEwen said.

Aesynt's technology originally was based on the idea of placing bar codes on medications and using a robotic sorting machine called Robot-Rx to retrieve coded medicines, delivered in a package to patient bedsides. “It took a process that was done manually and automated it,” McEwen said.

Under McKesson's ownership, the business grew as part its wholesale drug supply business, with the parent offering Robot-Rx to customers as an add-on benefit. “Where we had one of those, McKesson never lost a contract,” McEwen said.

Smart software added to the system to enhance capabilities prompted parent McKesson to move McKesson Automation from its wholesale drug unit to its information technology division, where growth slowed. “That piece of their strategy did not work out as well,” McEwen said.

Last year, McKesson faced a choice: expand investment in McKesson Automation's hardware and software, or sell it to someone more willing to invest in growth opportunities.

That main opportunity, said McEwen, the development of a new software suite — called Insyte — will allow entire hospital systems, such as UPMC's 20-hospital group, to integrate drug management across all of them. It is being tested at Intermountain Healthcare in Salt Lake City, a system with 22 hospitals. McEwen said the software can cut costs by 30 percent or more by eliminating duplicate purchases, reducing inventory, expired drugs and shortages, and freeing staff to serve patients.

Hospitals are consolidating, and in five years, 70 percent will be owned in a hospital group, up from about half now, he said. “That's our opportunity to help them cut costs.”

Also, “we have the ability to integrate our software with any wholesaler, not just McKesson. But we will continue to work with McKesson,” said McEwen, who has been president and CEO since November 2011.

“In the last 12 months, we've launched more new products than in the last five years. That was a core rationale why Francisco Partners was interested, and why we were interested in Francisco. It's had a track record of investing in health care. This region is truly lucky to have them invest in us. The business stays in Pittsburgh and grows in Pittsburgh.”

In addition to its headquarters in Cranberry, where management, sales and marketing, a call center and more than 100 software programmers work, Aesynt's manufacturing plant in Marshall employs about 100.

“Our theme is to sustain software development, manufacturing and employees across the country that sell our products,” he said, “and leverage our history in this area, and the relationship we have with CMU, where we have been able to attract talent.” Staff turnover is at a nine-year low, he said.

McEwen declined to give sales and profit numbers. “We're profitable and self-funding,” he said.

Chris Adams, a principal at Francisco Partners said, “We are increasingly excited about Aesynt's potential. The company is known for its deep knowledge of the medication delivery process, and we support Aesynt's leadership team and its strategy to develop solutions for medication management.”

McEwen said its owner will provide money for acquisitions, and Aesynt has introduced products that will fuel internal growth.

Aesynt is “actively engaged” in looking for acquisitions where it can take advantage of its ability to manufacture electro-mechanical devices and sell complex systems.

In November, Aesynt introduced the latest version of Robot-Rx, with 30 percent higher capacity, a futuristic stainless steel look and sound reduction enhancements, said Preeti Churbock, product manager.

Other new products add anesthesia-dispensing carts for operating rooms, automated dispensing cabinets for smaller hospitals and medicine packaging systems to Aesynt's systems.

Under founder McDonald, the company sold its first machine to St. Clair Hospital.

About 1,200 hospitals worldwide use Aesynt's technology, McEwen said.

There is room for growth in a market that has 4,500 to 5,000 hospitals with more than 250 beds, and that is large enough to benefit from Aesynt's technology.

John D. Oravecz is a staff writer for Trib Total Media.

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