Maligned Rust-Belt City Shows Economic Life with Pharmaceutical IPO

Paul Dykewicz

[blue capsules spilling out of a bottle]

Flint, Michigan–Flint’s Diplomat Pharmacy (NYSE: DPLO) gained the spotlight when it completed a successful public stock offering (IPO) on Oct. 10 to raise funds to expand its operations, despite its home base in a place that naysayers have characterized as something akin to a hell hole.

The City of Flint, which operates under an emergency manager appointed by the state, has been disparaged as an economically depressed, crime-plagued excuse of a community for years due largely to the financial tailspin of General Motors (NYSE: GM), which once served as the engine that drove the local economy. But Diplomat Pharmacy has shown that the city can develop a world-class, home-grown business outside of the auto industry with the company’s focus on providing pharmaceutical products to people across the country who are afflicted with complex, chronic diseases that require special medications or treatment.

People who have complicated medical needs involving oncology, immunology, hepatitis, multiple sclerosis, HIV, specialized infusion therapy and others increasingly have turned to specialty pharmacies to ensure their essential prescriptions are filled, stored, shipped and dosed properly. The Flint-based company now ranks as the nation’s largest independent specialty pharmacy and it aims to use proceeds from its IPO to support future growth.

If the world’s view of Flint stemmed solely from media coverage, dire descriptions calling it the “world’s most apocalyptic, violent city” might suggest that the community had descended into a modern-day Dante’s Inferno. But compared to war-torn communities or locales elsewhere in which organized crime syndicates or terrorist organizations run amok, Flint is a place where its residents are looking to bounce back from decades of economic decline.

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If GM-based employment in the Flint area is an indicator of economic health, the automaker’s dramatic workforce reduction in the area left the medium-sized city reeling. Once employing as many as 82,186 Flint-area workers in 1955, GM’s total of local employees had slipped to 5,516 as of June 2014, with 2,950 at an assembly plant, 862 at an engine operation, 1,396 at a metal center and 308 at a processing center.

I have a unique, first-hand view of Flint’s Diplomat Pharmacy from my boyhood years when it opened its first store within a short bicycle ride of my family’s house. The father-and-son co-founders, Dale and Philip Hagerman, launched the pharmacy in 1975 with the basic tenet of taking “good care of patients.”

My late father, a family physician whose medical office was less than two miles away on the same road as the pharmacy, also put the interests of his patients first. To that end, my father performed “house calls” early during his medical practice before the demands of having four young children prevented him from treating sick people at their homes if they had trouble getting to his medical office.

The emphasis on keeping the needs of patients first and foremost seems to have been lost in the intervening years industry-wide, with the policies of third-party payers, increasingly voluminous paperwork and calls to rein in rising health-care costs changing the way medicine is practiced in America.

Diplomat Pharmacy has sought to adapt to those changes by helping its patients work with their insurance providers to fulfill pre-authorization requirements that must be met before treatment begins, as well as to refer people to available funding sources to help cover out-of-pocket expenses. In 2013, the company reported that the latter effort helped its patients obtain more than $24 million in financial help to pay for costly medications.

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The once-neighborhood pharmacy has grown into a now-public company that raised $173 million in an IPO led by Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. LLC through the sale of 13.3 million shares of stock at $13 a share, slightly below the expected range of $14 to $16 a share. The stock price closed up 23 percent at $16.02, after its first day on trading on Oct. 10.

CEO Philip Hagerman also has talked about the company’s IPO potentially helping it to gain new business partners and attract future employees to work in Flint, where he said Diplomat Pharmacy will remain. Loyalty to its community is nothing new since the days when the CEO’s father headed the company, nor is its support for employees to participate in civic-minded activities.

I remember accompanying my mother into the pharmacy as a boy when she served on the board of directors for the Flint Area Science Fair and heard her ask then-CEO Dale Hagerman for a donation to support the effort. He paused briefly and then reached into a display case to pull out a handheld calculator that he thought might be a coveted prize for some of the area’s top science students who entered projects in the competition.

Now, his son likely will have a chance to offer jobs to some of the top graduates in the area without them needing to leave home when they finish their university studies. In the days of continuing GM job cuts and scant opportunities from other area employers, new graduates often moved to other states to start their careers.

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It certainly will take much more than one IPO to transform a community economically. But the successful financing and the opportunities that may follow could go a long way toward demonstrating that Flint is not as hopeless a place as it once was portrayed during a Rush Limbaugh radio program in 2009 when the topic became whether at least 40 percent of the city should be razed by a bulldozer.

Paul Dykewicz is the editorial director of Eagle Financial Publications, a columnist for Townhall and Townhall Finance, and the author of a new book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain.”

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