Founded in 1998, CutisPharma Inc. was based on the idea that it could reduce errors in compounding, the process of customizing drugs for particular patients. Its solution: kits with pre-measured components that pharmacists could mix by following precise instructions.
It worked. The privately held Wilmington company grew to 38 employees, selling nearly 1 million kits a year to chain, hospital, and independent pharmacies, according to Neal I. Muni, the chief executive. Muni, whose father launched the company, only saw more growth ahead; earlier this year, he planned a $3 million expansion that would add 20 more jobs.
But all of that came to a halt as CutisPharma got caught in the fallout from the scandal surrounding New England Compounding Center and the 2012 meningitis outbreak traced to the Framingham company’s operations. The nation’s largest publisher of drug data, citing a federal law passed in the aftermath of the outbreak, dropped CutisPharma kits from its list of approved products in June, leading to a quick and sharp drop in CutisPharma’s sales. Muni has not only had to put expansion plans on hold but lay off four workers. More job cuts may be coming.
“We’ve been collateral damage,” Muni said. “I don’t think our product is what they were thinking of when they took the decisions they did.”
The plight of CutisPharma is an example of the precariousness of even successful small businesses and their vulnerability to forces beyond their control. It also shows how decisions of powerful industry players make the difference between success and failure.
The drug data publisher, First Databank Inc., of San Francisco, is one of those players. Most pharmacists, large retail chains, hospitals, and insurance companies subscribe to First Databank’s listing service and use First Databank numbers — called NDC for “national drug code” — to order products and bill insurers. If First DataBank drops products from its listings, they become invisible to most of the market.
Alan Sager, a professor of health policy and management at Boston University, said First Databank’s dominance means CutisPharma has few options for listing its products and reaching customers.
“In a competitive free market you have lots of small buyers and sellers, and no one buyer or seller has market leverage,” Sager said. “The company could promote itself and say, ‘Find us with one of the others.’ But it’s not a competitive, free market when one has [most of ] the market.”
First Databank, a subsidiary of the New York media company Hearst Corp., declined to comment.
CutisPharma specializes in kits that make drugs available in liquid forms for children and elderly patients who have difficulty swallowing pills. The kits work like this: A pharmacist opens a kit filled with a pre-measured, pre-weighed, and FDA-approved powdered drug and liquid suspension, mixes the two according to instructions, and dispenses the medicine to the patient.
The kits, by delivering standardized components for select medicines — CutisPharma offers 24 kits — aim to reduce errors, save time, and lower costs. The kits can cut the time it takes to compound a drug to a few minutes from up to an hour, Muni said, and the cost to $25 to $100 from as much as $500.
The privately held company declined to disclose revenue and profit figures.
CutisPharma can trace its problems to the 2013 federal law that gave the Food and Drug Administration oversight over the manufacturing and distribution of compounded medicines, following the fungal meningitis outbreak, which killed 64 people and made more than 700 ill, blamed on unsafe conditions at New England Compounding Center.
Citing the law, First Databank in June stopped listing kits made by CutisPharma and five other companies because the kits are not approved by the FDA and hence lack “sufficient evidence that they can be used safely.”
“The potential consequences when compounding manufacturer products are marketed in the absence of FDA approval were profoundly demonstrated in the case of the New England Compounding Center,” according to a notice sent to the company.
Muni, however, said First DataBank misinterpreted the law, which does not mention kits. CutisPharma, he said, is not a compounding lab because its employees don’t mix components to make drug products. They break batches of FDA-approved drugs and liquid suspensions — bought from FDA-approved manufacturers — into smaller units, which are then packed into kits and later mixed by compounding pharmacists.
CutisPharma’s facilities are FDA-approved and subject to inspections, Muni said.
Muni stressed that CutisPharma has sold kits — and been listed by First Databank — for the better part of two decades, without problems. “Our products are well-known and have well-established safety records,” Muni said.
An FDA spokesman, responding to a Globe inquiry on Sunday, said the agency was reviewing the issue but was unable to comment immediately.
Todd Brown, vice chairman of the Department of Pharmacy and Health Systems Services at Northeastern University, said he is not aware of First Databank or any listing service judging a product and dropping it. Their job is to list the codes, he said.
Sager said the compounding law’s failure to explicitly regulate kits may have left First Databank concerned about legal liability.
Muni has appealed to First Databank, so far without success.
Since the publisher stopped listing CutisPharma kits, sales have plunged 25 to 30 percent, Muni said, and he is preparing to lay off another seven workers, or about 20 percent of his remaining workforce of 34.
But Muni said he’s not giving up. “As long as we focus on providing quality and something that patients need,” he said, “there will always be a way forward.”