We speak about depletion of natural resources in terms of oil, natural gas, and coal. Oh yes, water is scarce, too. In recent years, there has been an awareness of these shortages and some “greening” is taking place. We use hybrid cars, fluorescent light bulbs, and put weatherstripping on our windows, but we are over-mining one very important resource: cheap labor.
A recent article in our local newspaper reported that Watson Laboratories is closing its plant in Carmel, New York, putting 200 people on the street. Why? The company says there “isn’t enough room to modernize.” For many management types, modernizing means building larger versions of what we already have. As it is, the industry is running at 3% of capacity or efficiency, on average. So why is the answer always to add more floor space and more equipment? Most pharmaceutical companies don’t think of improving their overall processes, but move it to a source of cheap labor where costs are lower.
Watson’s answer to the capacity crunch was typical: to shut its U.S. plant and build in Goa, India. When costs are reduced, the industry reasoning appears to go, you don’t have to worry your pretty little head about things like process analytical technologies (PAT) and pharmaceutical Quality by Design (QbD). The initial cost savings (i.e., “the next quarter’s profits”) is substantial, but eventually, the “tired and true” manner of production cannot be sustained.
Sure, this strategy will allow companies to make double-digit profits for a while, while ignoring several 800-pound gorillas. First, many of the companies are multinationals and, as a consequence, don’t give a rat’s eyelash for any one country. Thus, if they suck out all the profits from cheap labor in one country, they move to another. For example, I have a friend whose family owns a factory in India. Because of increasing labor costs, they now outsource to China. As with open-pit mining, sucking up cheap labor resources leaves tailings.
In mining, these consist of toxic leavings from the smelting process. In labor pools, the tailings are a little more insidious. They could be the economy of Mexico, messed up by NAFTA restrictions to buy American grains, and companies that moved to China in search of cheapter labor, leaving empty factories and millions of people who want to migrate to the US. Another “tailing” is an improved standard of living. The down side of this is that it is illusory.
As the standard of living rises, as in some parts of India, wages need to keep pace. At some point, multinational companies decide that the “grass is greener” in another country (lower wages) and simply move their operations there. This can continue for some time, owing to the number of developing countries in the world. Eventually, however, industries will run out of “resources” to exploit, just as they’ll run out of natural gas.
At that point they will be faced with a couple of choices: move to PAT/QbD or return to the U.S., which, by that time, may resemble a developing country, itself. Management has to stop thinking short-term in its planning. Pharma managers often talk about ROI (return on investment) in trying to justify PAT. That may not work. ROI is tricky. Since there is a finite market for any drug, there may not be an increase in total return over the life of the patent for that drug.
The money savings will come from keeping the old buildings, keeping the experienced workforce, keeping the supply chain (already approved under cGMP), and not crippling any particular region. Lowering cost of production and time to completion of each lot, not to mention lowering scrap, will bring a larger profit while holding costs level. A few million for PAT equipment has got to be better than tens of millions for new plants. And, of course, all the above ignores the quality of the product, itself. We are still worse than paint, plastics, and potato chips, in terms of QC.
I cannot imagine the outrage of a homeowner buying paint for his living room and having the colors match +/- 10%! Yet, we still make our pharmaceutical products at 2.5σ to sell at 5σ. That means we simply throw away products outside the specs and charge more for the ones we do get to market. Hell of a way to run a ship!