It’s been said that everything new has been done before. And while that might be true to some degree, when your startup is one of only a handful of companies in the country doing what it does, it means your business trajectory is different from other startups.
US Specialty Formulations LLC is a contract manufacturer and one of the first 503B Drug Quality and Security Act outsourcing facilities registered with the U.S. Food & Drug Administration. It cost-effectively produces specialty formulations of pharmaceuticals in small batches for larger pharmaceutical and healthcare organizations. USSF focuses on two lines of business: specialty products such as topicals and sterile injectables for both humans and animals, and investigational drugs for clinical trials.
The company can manufacture these critical materials from a recipe provided by a client or can develop a formula and teach the client how to produce it. But it specializes in manufacturing low volumes of a 50,000-unit batch size or smaller. “There aren’t lot of companies doing what we’re doing,” said Dr. Kyle Flanigan, Co-founder and CEO. “We make a little of a lot of things!”
USSF started business in 2013 with $200,000 from investors and loans, and by 2014 it had entered the Ben Franklin Technology Partners business incubation program at Ben Franklin TechVentures in Bethlehem as a resident company where it located its first clean room. Being part of BFTP gave the fledgling company time to test its business model of producing its product in low volumes to determine if it meets Food and Drug Administration guidelines.
Time to expand
Now, six years later, the company is ready for its next expansion, which will be in Allentown. But before settling on a 40,000 sq. ft. building at 101 E. Lexington Street on the city’s south side, Dr. Flanigan and his business partner Dr. Garry Morefield, considered sites in Florida and Arizona, as well as other parts of the Commonwealth.
“It was hard to find a building that met our needs,” explained Flanigan. “We’d been looking for over two years since we outgrew our current startup space and had tried to purchase three other buildings prior to this one. It’s difficult to find move-in-ready space the size we needed in the Lehigh Valley region that is between 5,000 and 20,000 sq. ft. It needed to be able to accommodate large machines, a clean room, and space to segregate materials and for process flows. And it needed to be a flexible space so we can change layout when needed based on client and production needs.”
Flanigan and his business partner considered leasing a space, but it didn’t make financial sense to pay to make improvements to a leased building, especially expensive customizations like building a clean room. So ultimately, they opted to purchase instead.
“There are limits to the modifications you can do to a space when you don’t own it,” explained Flanigan. “And our clients often pay for important machinery and upgrades that will facilitate the production of their contracted specialty formulation. But they won’t pay for those upgrades to be done to a facility that USSF doesn’t own. So, we couldn’t execute contracts with our clients until the building sale was closed, which meant time was of the essence if we wanted to grow the company.”
Financing the purchase
Flanigan had attended a presentation on government contracts that Allentown Economic Development Corporation Program Manager David Dunn did a few years ago. Since then Flanigan and Dunn stayed in touch as the business owner began looking for a property to purchase in the region for the expansion.
In order to not tie up company cash flow for the purchase and build out, Dunn recommended that Flanigan pursue gap financing through the Pennsylvania Minority Business Development Authority Revolving Loan Fund, which is administered in the Lehigh Valley region by AEDC. In order to qualify for a PMBDA loan, businesses must be at least 51 percent owned by borrowers who are socially or economically disadvantaged. This may arise from cultural, racial or chronic economic circumstance, background or similar cause. And since USSF is minority owned, it qualified for the loan.
The loan closed on March 5, followed by the building sale which closed on March 7 with a mortgage from First Commonwealth Federal Credit Union. Build out will begin soon, with the first product is expected to be manufactured there sometime in May or June.
“It’s good for our economy when a high-tech business like US Specialty Formulations grows out of Ben Franklin TechVentures and into ownership of their own building in Allentown,” said Dunn. “Keeping firms like this in the valley says a lot about what we have to offer. USSF’s use of the PMBDA program for gap financing helped make their building acquisition a reality and we are proud to be a part of that. We hope more small businesses consider its competitive rates and flexible structure for their financing needs.”
Big things ahead in Allentown
The company will move into the new building in stages as renovations are completed. A transitional clean room will be put in first, followed by the office, production, support services, and shipping and receiving areas. The entire build-out process is expected to take up to five years based on USSF’s master plan for the site.
The company’s current staff of 12 full-time employees and consultants, will grow to 50 or more in the next five years in the new, expanded building as it begins hiring more skilled professionals for a range of positions.
“From the beginning, we at the Ben Franklin Technology Partners saw strong management, proven execution, and a high-quality product in USSF,” said Wayne Barz, Manager of Ben Franklin TechVentures, the business incubator at which USSF currently resides. “Kyle Flanigan has deep experience in tight-tolerance performance materials, which gives him the perfect background for this highly regulated and FDA-scrutinized industry. There is a strong demand for a quality-first approach to sterile injectables, and USSF is well-postured to be a winner in that industry.”