Business History and Description of Operations: The amazing story of Kingston Pharma LLC (“Kingston”) has started in the first capital of New York State, Kingston, where two enthusiastic entrepreneurs, enamored with the opportunity, beauty and people of North Country have decided to invest…
Business History and Description of Operations:
The amazing story of Kingston Pharma LLC (“Kingston”) has started in the first capital of New York State, Kingston, where two enthusiastic entrepreneurs, enamored with the opportunity, beauty and people of North Country have decided to invest, to acquire an existing pharmaceutical manufacturing facility in Massena, NY. To utilize the manufacturing expertise and global market liaisons of 32 dedicated employees of a pharma manufacturing unit and to prevent its slated move close to the NY metropolis, Kingston was formed in August 2016. Kingston is poised to avail the opportunities for economic benefit, by providing the Exporters, Private Label Wholesalers, Distributors & Chain Store Pharmacies, with Liquid & Solid Dose OTC medicines, Natural & Homeopathic remedies and Nutritional Drugs.
This facility has manufactured twenty-four (24) OTC pharmaceuticals drugs and nutraceutical products in 32 SKUs for both domestic and export customers since 2012. In September 2016, the prior operator of the facility assigned the leases of the cGMP facility, all the existing machinery, and inventory to Kingston, as is. As a step-up in implementing the business strategy, Kingston has upgraded the M&E to manufacture pediatric electrolytes, and natural cough & cold remedies, to facilitate manufacturing of niche OTC drugs for its own domestic & worldwide marketing. Kingston has already signed a 5-year, five million unit OTC product supply agreement with a Canadian company and has purchase orders /supply agreements /firm forecasts from several domestic & export customers.
The cGMP manufacturing facility comprises of 32,724 sq.ft of well laid out building on 435 acres of land, which facilitates future expansion. The facility has over $1.31 million worth of production & packaging equipment and lab instruments, installed and validated. Kingston singed the assignment of lease agreements for (i) the facility ($7,500/ mo rent with $900,000 purchase option) and (ii) the M&E with three lessors ($3,800/mo -36mo lease with $1 purchase option; up to $11,768/mo-30mo lease with $200,000 purchase option; & $2,000/mo-36mo lease with $150,000 purchase option). This facility and the installed M&E will provide needed space for production and expansion to meet projected demand up to $18 million in annual revenue and with expansion provides capacities to produce over $32 million revenue. The employees working at this facility are thoroughly trained in manufacturing and packaging of OTC drugs & nutraceuticals and most of the middle management employees and Executives have contributed tremendously for the growth of business operations at this facility during the past 16 months.
Management Ability - Structure and Experience
Under normal circumstances, the built up of the facility and to bring it into commercial production requires $7.0 -$8.0 million investment and 2.5 years time. Kingston’s executive team with the help of local IDA and public servants has devised a win-win-win solution to benefit Kingston’s investors, the prior operators of the facility & the continuing employees.
Kingston’s Core management team consists of a proactive investor, three (3) full time upper management professionals, a regulatory consultant and pharmaceutical legal liaison who
work on per diem basis. Kingston appointed five (5) middle management persons to manage the daily operations, who utilize the skills of another ten (10) full time employees. Rest of the manufacturing and packaging functions are managed by 24 to 33 hourly employees. The backgrounds of the core & middle management team consist of more than 180 years of combined experience in pharmaceutical industry.
Type of Products & Competition:
The liquid dose OTC pharmaceuticals manufactured by Kingston, especially, are an underserved niche. These products are shielded from any imports from low cost countries because of the cost of freight to import, and the stringent FDA requirements for maintaining quality of the products manufactured overseas and during transit. There are only two or three other major domestic manufacturers engaged in the manufacture of each category of liquid OTC pharmaceuticals that Kingston manufactures. Unlike Kingston, there are no domestic small & medium size manufacturers engaged in the direct export of liquid OTC pharmaceuticals. Kingston is utilizing these favorable market conditions to quickly grow its revenues.
Market & Customer Profile:
The private label/ store brand OTC healthcare products market is growing at a rapid rate. The current US domestic market for these products amounted to over US$12 Billion in 2015 (Source: AC Nielsen-PL Market Research Report). Based on numerous customer interactions and trade show responses in both in domestic and overseas markets, Kingston’s existing OTC private labels product line is well developed and well appreciated by the industry Overall Kingston’s existing product line is market specific and demographically defined with feature of smaller packaging like 0.33oz to 4oz, and larger sizes like 16oz to 33oz, and different flavor categories. Kingston’s customers include Drug Retail Chains like CVS, Walgreens, Rite Aid, & Kinneys; Food Distribution Chains like Hannaford, Price-chopper & Krogers; Club Warehouses like BJ’s, Sams & Cosco; Mass Merchandisers like Walmart, Dollar General & Dollar Tree; Private Label Drug Wholesalers like Lil’ Drugs, TOPCO & SHOPCO; Export Distributors & Overseas Importers.
Revenues & Profitability:
Kingston’s facility was inspected by NY State Board of Pharmacy as well as US FDA and Kingston obtained all registrations and licenses by March 2017 to commence commercial manufacturing. Kingston has started delivering products on the contracts and P.O.s. from mostly from August 2017 and achieved a revenue of little under $1.0 million for FY 2017 from 17 customers. Further, Kingston has obtained Vendor numbers from another 10 customers, has participated and won bids in order to ship products, starting from Q1-2018. From the agreements, firm forecasts and won bids Kingston projects to conservatively achieve $9.6 million in annual revenues for FY2018 and realize full value of the won business of $16.8 million revenue in FY2019. The projected EBITDA for the Kingston operations is very conservative, will be starting @10.16% of gross sales for FY2018 and grow to 21.05% of gross sales by FY2020. This EBITDA still provides a DSCR of 4.96 for FY2018. Kingston will achieve a modest 8% ($722,000) net profit for FY2018 and will be able to increase it to 18% ($5.4 million in 2FY020) by operation efficiencies and scale economies in supply chain.
Capital Investment & Loan requirements:
A cash investment of $2.217 million was made into Kingston by a single investor as of November 2017. Current management team will have the opportunity to own and acquire ownership interest in Kingston once certain business milestones are achieved. In March 2017, Kingston obtained $15,000 grant from NY state Work Force Development towards down payment for new M&E. Further grants up to 20% of purchase of tangible assets are available from New York Power Authority.
The FY2017 financials, and the proformas for the periods from FY2018 to FY2020 indicates the experience and confidence of Kingston’s management in achieving its business objectives through an orderly growth strategy. The enclosed files contain:
a) Full Business Plan of Kingston for FY2018 to FY2020
b) FY2017 & Proforma Financials for FY2018 to FY2020
c) FY 2017 detailed P&L, Balance Sheet, AR & AP Aging
d) Owned & Lease to own M&E list
e) Detailed Business by Customer
f) FY2016 Tax returns
g) Certificate of Incorporation
h) Copy of EIN from IRS
In order to implement the business strategy and achieve growth in the ensuing periods at a comfortable pace, to reduce lease expenses, to build equity in the RE and to freely expand the facility for the customer forecasted production demands, Kingston plans to acquire the manufacturing facility as well as buy-out one of the leases for major production & packaging M&E. To meet its cash requirements for these purchases, Kingston is seeking to obtain $1.23 million in Long Term Loans for the purchase of property for $900,000 and major M&E for $330,000. Kingston is also seeking to establish a short-term line of credit facility with the bank for an initial amount of $300,000 against up to 80% Accounts Receivables & up to 50% of Inventory @ Kingston has built equity towards the purchase of M&E by the monthly lease payments, which as of FYE2017 amounted to $320,605, and this amount shall be considered as down payment towards the contemplated purchases with the loan funds. NY SLC IDA expressed interest to participate in any loans to Kingston from commercial banks to an extent of 30% of the total purchases.
The level of safety is high for the requested funding amount as well as the capital investment which was already made into Kingston. The current market value of Kingston’s assets & the business enterprise is over $6.0 million and with the purchase and addition of working capital funds, it will grow to over $16.0 million by FYE 2018. Kingston’s confidence in achieving the attached financial projections within 10% margin is high. Were the situation to arise where the collateral needed to be liquidated, the realizable value of all tangible & intangible collateral would be several multiples higher than the funds advanced, which makes the at risk to extremely minimal for the amount of loans and the invested capital. With projected cumulative revenues of over $55.0 million and cumulative profits of over $8.5 million during the first three years of full commercial production, the extremely minimal risk is highly justified.
