When Contract Pharmaceuticals Ltd. announced plans in May 2010 to shut down its plant on the West Side and move this work to Ontario, CPL officials invited Stephen A. Panaro to move from Buffalo to a new job in Mississauga.

Panaro considered making the cross-border move before deciding to stay in the Buffalo region and launch his own contract drug testing and manufacturing company.

So Panaro, and CPL colleagues Ryan Downey and Leanne Kisicki, raised capital and produced a business model for QuaDPharma, which they started 2½ years ago and now employ 11 full-time workers at its Newstead headquarters.

“If I fail again, it will be my own fault,” Panaro, QuaDPharma’s president and CEO, said of his entrepreneurial endeavor.

The company focuses on winning small- to mid-scale contracts from smaller, or startup firms, an approach Panaro first explored while at CPL.

QuaDPharma is part of the region’s growing pharma industry, whose ranks soon will include Albany Molecular Research Inc., a contract drug manufacturer that’s getting a subsidy to open a lab here.

QuaDPharma executives can only imagine what they could have done with millions in state incentives, but they say they aren’t worried about the competition and they hope to explore some form of partnership with AMRI.

“It hasn’t changed our strategic direction at all,” said Downey, QuaDPharma’s director of quality assurance.

Panaro, Ryan and Kisicki, who serves as the company’s director of quality control, are Buffalo area natives with extensive experience in the pharmaceutical industry, on the factory floor and in the lab.

Panaro worked for Starks Associates and APP Pharmaceuticals before joining CPL, at the former Bristol-Myers Squibb factory, where he worked as senior manager of laboratory relations. Panaro, Downey and Kisicki joined CPL in 2005.

CPL was a large-scale contract manufacturer – making creams, lotions and “anything that went into a jar,” Panaro said – but the company struggled to win enough business for its Buffalo and Mississauga facilities.

A smaller idea

In late 2009, Panaro pitched to his superiors the idea of trying to win more business from smaller, younger companies – work that provided a larger profit margin because these companies needed more CPL services than the bigger, more established firms. “ ‘I bet you this could single-handedly save the site,’ ” Panaro recalled telling his bosses.

At the least, the smaller contracts provided more innovative and challenging work, and required CPL employees to develop better relationships with these clients and to be more flexible in their approach. “For us, it was just more fun,” said Downey, who at the time oversaw laboratory compliance.

Despite Panaro’s optimism, the facility was running at just 25 percent of capacity when CPL in May 2010 announced its intention to close the 260-employee factory and lab, shifting work to Mississauga.

Panaro had suggested to his Canadian bosses that they close the Ontario facility and move its work to Buffalo – “I almost got killed,” he quipped – but he was asked to bring his small-bore model to the Mississauga plant.

As Panaro discussed this with CPL officials, he also talked to a business adviser at SUNY Buffalo State’s Small Business Development Center. Panaro said the decision to start his own business ended up being an easy one.

He approached Downey and Kisicki and proposed doing on their own the same work they were doing for CPL. “I said, ‘Yes.’ I didn’t even need to think about it,” Downey recalled.

The three employees, along with Panaro’s father and another CPL co-worker, invested in the company, and at the end of 2010 they received a commitment letter for a $1.1 million, Small Business Administration-backed loan. QuaDPharma used the money for working capital and equipment.

As they finished up their time at CPL in late 2010, the three entrepreneurs had “back-of-the-napkin” discussions about the culture of the new company and the customers they planned to go after, Downey said, with a focus on local firms.

They held business meetings, after starting the company in January 2011, in Clarence’s Goodrich Coffee & Tea.

The partners looked around for space in downtown Buffalo, the Town of Tonawanda and in the Clarence area.

They ended up moving into leased space on Main Street, just over the Clarence border in Newstead, in an 18,000-square-foot facility that boasted a sauna, car showroom and ballroom – from which workers removed the carpeting, chandeliers and oak wainscotting to make way for a warehouse.

Doubling sales

QuaDPharma – the first part of the name derives from “quality” and “delivery” – tests raw materials and finished products for companies to confirm, for example, that a compound contains the appropriate amount of its active drug ingredient.

The company also does some manufacturing for its clients, including designing and making blister packs that hold one customer’s capsules. QuaDPharma has a permit from the State Liquor Authority because ethanol is used in some products.

The company has to meet stringent client requirements. There’s an aseptic clean room for sterile manufacturing, pests are rigorously controlled and the company purifies its own water. (“We actually use it to make our coffee,” Panaro said.)

Its clients include Empire Genomics, a life-sciences startup, and QuaDPharma has collaborated with scientists at Hauptman-Woodward Medical Research Institute. “We have national, international clients, but local is big,” Downey said.

QuaDPharma’s 11 employees have worked at a host of local pharma companies, including Life Technologies, Fujisawa and Bristol-Myers Squibb. “There’s a talent pool,” Panaro said.

QuaDPharma received an investment from Rand Capital last year, when cash flow was tight, a commitment that came with Rand business expertise.

“We can’t do everything,” Downey said.

QuaDPharma reported gross customer sales of $300,000 in 2011, its first year, and $600,000 in 2012. Revenues are expected to double again this year, according to the company, with the partners expecting to break even or make their first profit in 2014. They say their goal is to grow to 60 employees within the next five years.

The company doesn’t have local competition, but the contract pharmaceutical industry includes bigger players such as DPT and AMRI, which is moving into a state-funded, $50 million innovation center on the downtown medical campus.

There is “a little bit of overlap” between what QuaDPharma does and what AMRI does, Downey said, but the partners aren’t too worried about AMRI’s arrival in the market.

“We’re already here and established,” Panaro said.

“There’s plenty of room,” Downey added.