Sweetening the pill

Sweetening the pill

The entire pharmaceuticals industry is in deep uncertainty. But that might be no bad thing for firms in the North East, reports Brian Nicholls.

To pedagogues of business it might appear a textbook case of ‘managing change’. A compelling one too. Downsizing usually indicates ordered retreat, but Morpeth’s Piramal Healthcare, while slimming a workforce once 650 strong down to 335, has sights on profit growth of up to 25 per cent annually over the next five years.

Hardly a business struggling to survive then, but in today’s volatile sector of pharmaceuticals, no company - from world number one Pfizer (which sold the Morpeth operation to Piramal), down to the smallest operator - can expect to stay snug. Some fortunes are rising while others plunge in a business where some profits and chief executive pays have previously been deemed near obscene. But now these companies compete in what GlaxoSmithKline, the world number two, calls ‘a rapidly changing and challenging environment’.

It is nearly 40 years since the Morpeth plant which is now Piramal Healthcare’s home first opened. Owners have come and gone while many staff have stayed. One or two - like Aidan Walker, now vice-president operations (Morpeth) and Richard Packer, director new business and programme management - have worked their way to the top. Morpeth was US giant Searle’s major international operation until Searle succumbed to Monsanto in the mid-1980s.

But by then, Morpeth had a valuable asset – a legacy of experience in worldwide markets. Even so, when Monsanto itself hit difficulties the Morpeth operation was targeted. It became part of Pharmacia from 2000 and was a successful launch pad for products, with something like 300 to its credit. That was when about 650 worked there.

In 2002, however, Pfizer showed interest in Pharmacia and acquired it the following year. Richard Packer recalls: “We tried to position ourselves within an even bigger organisation, but our fit was unclear, especially as Pfizer had acquired other firms in quick succession, giving excess capacity.” Morpeth already made API – active pharmaceutical ingredient; the substance within a drug that is pharmaceutically active, as distinct from the substance of the tablet or liquid the API is suspended in - and drugs are chosen mainly for their active ingredients.

But divestment hung in the air. “We were lucky. We were among those put up for sale. Other plants were marked for closure,” Richard says. That was in January 2005. In June 2006 Nicholas Piramal, a leading Indian drug group which is still only 20 years old now, bought the Morpeth site lock, stock and barrel, and with it the vendor’s agreement to continue using it for certain products. It was an international entry Piramal eagerly wanted, for it favours relations with other major companies it can work with.

Since last March, Morpeth has come under the name of Piramal Healthcare. Though still part of a big group, gone is the luxury in adversity of taking refuge under a mother company’s wing. Morpeth now must be self sufficient.

It is no cause for regret within the management. Up to 100 jobs had to be shed initially, some while Pfizer still held the reins. As Aidan puts it: “We did a major stock take on costs and what we could afford to be in a different environment.” Last November, 56 positions went and the workforce is now nearer the 335 or so deemed about right for purpose. But it has not all been pay-off, as Aidan explains.

“We have also brought in special skills where the needs of today’s customers have to be met. So we have put heads back into the business too. And we have a lot of side business with Pfizer.” Like many drug firms, Piramal Healthcare is coy about naming its products publicly, such is the poaching of work that goes on. But Richard does venture that Morpeth now produces and supplies, in trade terms, ‘stock-keeping units’. A major achievement for the North East, as well as its own revenue stream, is its 95 per cent export performance: 40 per cent for European Union states, 22 per cent for Asia, and 25 per cent for Latin America.

Japan figures particularly. Now Morpeth, besides providing the API (up to 90 tons a year), supplies inert aspects, or the entire tablet, (about 1.5 billion of them a year), plus packaging. It trades and transfers chemicals and provides ‘end-to-end’, from API to formulation, and then on to packaging and delivery.

Aidan has worked at the site for 16 years in eight different jobs, initially as a plant chemist. He was made site leader in mid-2006 before his present appointment. Richard has been there 18 years, initially as a plant chemist supporting API, and has done about 12 different jobs, mainly in product development, before turning to his present, more customerorientated role 12 months ago. A major benefit of entering Piramal’s fold has been the access to expertise of its international business team.

Aidan says: “We are well placed now to capitalise on the many changes, as for example the pressures that Western governments are putting on health care budgets for the good of their people.” Many giants of the industry – Astra Zeneca, GlaxoSmithKline (GSK) and Pfizer, for example - are sensitive now to competition from generic drugs flourishing when patents expire. The giants are cost cutting and re-evaluating their research and development and their sales and marketing. Besides having to seek cheaper production, they find fewer products approved. Another dynamic to Aidan and Richard is the closure of many facilities through mega-mergers.

“As their R&D becomes costlier, many majors realise they need not to do everything themselves. Many are contracting to suppliers like us. We are picking up in API and in formulation things we had not expected.” So niche tracking is for Richard a prime quest.

Competition, though, is tough here too, even from developing industries in China and India, despite a preference among Western buyers to continue buying Western product. Morpeth’s executives recognise this preference may not always continue.

“Again, we are up against other contract manufacturers in Europe and the United States,” Aidan points out. Piramal must continue getting the cost base down to be strongly placed when re-bidding for contracts. It must also secure new contracts. On all this, Aidan says, management has to bring employees aboard with everything to ensure full support.

He admits: “It has taken a lot of time to bring people with us on the transformation. We have to make clear why a fast culture change is necessary. As in any business, some people adapt faster than others. On graphs of change, you will see some up and some down.

But I think we have tried and succeeded in being supportive. We are still willing to learn in that respect.” The financial challenge is clear: in the current five-year plan, a 20-25 per cent profit growth annually is the aspiration, a minimum 15 per cent a must.

“We believe the markets are there,” Aidan says. “And we have clear sight of some of the markets.”