Recycling Coatings: An Environmental and Business Opportunity

In today’s environmental concerns and how to reduce green house gases (GHG)/carbon imprint, an opportunity exists in the coating business areas and that can appease many. This is through recycling of coatings.

Recycling of coatings is a possibility and a challenge. The challenge comes from the perspective of the formulators and the raw material suppliers. Raw materials deliver the desired coating performance. If the raw materials can be used interchangeably to deliver the required performance, we can have the makings of easier recycling and better manufacturing (batch à continuous) technologies. Certain scenarios exist.

Kelly Moore, a California based coatings company, is producing recycled coatings and selling them under the “e-coat ®” brand. Their coatings must contain a minimum of 50% post consumer waste. This suggests that they have made an effort and succeeded in recycling. Thus, there is a distinct possibility for other coating companies to recycle.

Over the last many years, different methods and applications of surplus coating have been considered with sporadic success. Sustained success is needed to reduce environmental impact of the coatings.

If the government mandates coating recycling through EPA regulations, it would be called meddling in the business. However, the government can assist by creating an incentive program for the companies who recycle. This could be through VOC credits. This presents the best opportunity and any company’s effort in recycling should be awarded.

A joint effort will be needed to establish such VOC credit program. Companies should decide how they develop and incorporate the recycled material in their products. Companies have the knowledge base and the creativity to develop coatings that can have significant recycled material as a part of their formulation. Strategic and interchangeable use of different raw materials is the key for recycling. This would be a win-win.

Girish Malhotra

Pharmaceuticals: What is Holding Back Quality By Design?

We come across many TLAs and their number is increasing. What is a TLA? It stands for “three letter acronym”.

In the regulatory world, TLAs keep us on our toes. In the pharmaceutical world two TLAs are in vogue. They are QBA and QBD. Everyone associated with the manufacture of pharmaceuticals is familiar with these acronyms. But just to re-iterate, QBA is product “quality by analysis” and QBD is “quality by design”. QBA is the current tradition of the pharmaceutical manufacturing processes whereas QBD presents what the technology should be or the future.

Level of going on discussion is suggestive of that there is a significant hesitation to improve technology. One has to ask the question, why it is so difficult to move from “A” to “D” and I am sure many have. There has to be a monumental hurdle/roadblock for the pharmaceuticals to move from QBA to QBD.

I do not think there are any hurdles. We are just up against tradition. Since the traditions are entrenched in pharmaceuticals, we have accepted the current manufacturing practices. They have not been challenged. We are also afraid of the “Regulatory Gods”. Move from QBA to QBD is very simple and the roadblock is staring at us. However, it has not been obvious to us. I define the hurdle/roadblock for the move from “A” to “D” to be “the isolation of intermediates of the reaction or the formulation steps”. The mantra for QBD is “stopping isolation of intermediates”.

If we isolate a reaction product after every reaction step or a mix after every formulation step to test the quality and the conversion yield, we are acknowledging that we do not have a complete understanding, control of the process step and its mechanism. If we did have the understanding, we would not be isolating the reaction step and/or blend intermediate and testing them for their quality.

Specialty/Fine chemical industry by and large has a complete understanding and control of the processes. It does not necessitate isolation of the intermediates, as the quality is designed in the products. If we can achieve the same level of proficiency for the pharmaceuticals, we would move from quality by “A” [analysis] to quality by “D” [design].

In the pharmaceutical industry move from “A” → “D”, will be a major accomplishment in simplifying the manufacturing technologies and processes. It will not only improve process efficiencies and but also reduce the carbon footprint of the fine, specialty chemicals and the pharmaceutical manufacturing processes. It will reduce the cycle time for many batch processes and could nudge quite a few products to be manufactured by continuous processes.

Jumping the “A” to “D” hurdle is simple and easy. We just have to set our heart and mind to it. If it happens, my conjecture is the even the “Regulatory Gods” will celebrate.

Girish MALHOTRA, PE
President
EPCOT International

Process of Continuous Improvement and Pharmaceuticals

In every industry, “process of continuous improvement” is a religion as it improves their profitability. A recent article "Drug CEOs Switch Tactics on Reform" in The Wall Street Journal discusses new strategies being developed by the Pharmaceutical companies. Pharmaceutical CEO’s believe that the drug costs do not contribute to the high health-care costs. The following points are mentioned in the article.

1. Prescription drugs account for "just about 10% of the overall (health care) cost".
   
   
2. Reforms shouldn't force doctors and patients to choose a drug based on cost if the more expensive treatment would have a better outcome.
   
   
3. The drug makers have been pushing through hefty price increases. Prices for many drugs were up more than 15% in the first quarter from a year earlier, according to data from Credit Suisse.
   
   
4. Drug industry executives are worried about Medicare’s authority to negotiate the prices for drugs dispensed through its Part D benefit. That could limit the prices pharmaceutical companies can charge.
   
   
5. Pharmaceutical executives argue that such steps (negotiated drug prices) would hamper drug makers' ability to pay for costly research into new treatments. "It would knock our legs out".
   

If the health-care costs are to be reduced, it has to be full court press on every element of the costs and that includes drug costs. Drug costs cannot and should not be excluded even if they are small part of the overall costs. The pharmaceutical companies should make any effort to lower drug prices as part of their continuous business improvement process. Point #5 suggests that the drug companies want to fund the development of new drugs through raising drug prices only. If an effort is made to improve their R&D methods and manufacturing technologies, which is definitely feasible and possible, the pharmaceutical companies will not only have more funds to develop new drugs will also have higher profits.

It is well known that the current drug manufacturing technologies and methods are inefficient. Effort needs to be made to improve the manufacturing technologies. Improvement in API and drug formulation yield e.g. from 60% to 90% might not seem to be major improvement in the cost but every dollar saved adds up. These savings might be in billions of Dollars or Euros and will be more than sufficient to pay for new drug research and development.

We all need to work together to reduce healthcare costs rather than saying problem is some place else. Suggesting that the problem is elsewhere is an indirect acknowledgment by the pharmaceutical industry that we do not believe in “process of continuous improvement” thereby cannot reduce drug costs. With the effort being made by every government to reduce health care costs, I hope the pharmaceutical companies are not saying that we have no room for such improvements and “do not tread on me.”

Based on the fundamentals taught in engineering schools, every student will say that the current manufacturing methods can be improved. The real question is why such effort has not been made and what is blocking the path of “continuous improvement”. It is well known that if manufacturing methods are improved, they will improve profit margins to levels that are much higher than the current levels and some of the savings can be passed on to the customers to make it a win-win.

Question is “can and/or should an effort to reduce drug costs be made?” The answer is we should and if someone says it cannot be done then the question is why not.

Girish Malhotra, PE

President, EPCOT International

Pharmaceuticals in the Water

Every so often we read about how pharmaceuticals are being discharged into global water systems. It’s good that we’re being told and reminded that this is a problem we’ve created for ourselves. Unless these pharmaceuticals are removed from water, they will accumulate to a level that will have ill effects on both our bodies and our ecosystems.

There are two distinct issues here, and they really should be separated. Every article I’ve read combines the two issues – this makes it more difficult to find a real solution to the problem.

The two issues are:

1) Pharmaceuticals in the water due to humans discarding them. There are no laws to control these discharges.

2) Pharmaceuticals from the manufacturing plants leaking into water. Regulatory bodies have guidelines and laws to control BOD (biological oxygen demand), COD (chemical oxygen demand), and suspended and dissolved solids to certain levels. There is no incentive for companies that abide by the rules to cut toxic chemical levels any further.

We can analyze and talk about the toxicity of pharmaceuticals and their ill effects on humans and eco-systems, but if there are no laws to control them, little will be done.

Talk, unfortunately, is cheap. Yes, the manufacturing process efficiencies need to be improved, but if I can make my profit margin and meet the water discharge regulations, there’s no reason for me to spend extra money to ensure water safety. There is simply no prospect of a return on such an investment.

Conscience does matter to a certain extent, but the economics drive these decisions.

Unless we make a concerted effort to fix this problem, we are going to see another Patancheru. The ball is in our court.

Nano and Paradigm shift

Nano car, when conceived was the joke of the night shows and most of the news broadcasters. Earlier this week reporters wanted to touch and feel “Oh my God” no radio, no air-conditioning and it is a tin can. May be it is. It might be bottom of the rug but it illustrates what is feasible. We have a new point to go forward from.

It is a HUGE paradigm shift not only for the automobile industry but also for every manufacturing industry. Gives 55 miles per gallon and gets you from point A to point B. Yes, it has its deficiencies but still we all talk about it over a drink.

Nano shows us that “Element Human Hu” can do unique things. It can go to point “x” which is out there, beyond our imagination, if we put our mind to it. Is it new iPod of the manufacturing industry? May be.

At the turn of the twentieth century, the four-wheel gasoline buggy fascinated us. Did we ever think in nineteen eighties that we will have laptop that can launch a missile? Most of us will say NO. We have driven film photography to a Technology Museum.

We are now looking at the next generation of adventure. Human creativity is beyond control and Nano is a rendition of possibilities of manufacturing and technology innovation. It should be celebrated. Hats off to the Human element.

Can we do anything? Yes we can!

Pharmaceuticals and Return on Investment (ROI)

Every reader is an investor. Investors know that there has to be a good return on their investment irrespective of the place of investment.

We have all been taught that different risks necessitate different ROI. For “low risk investments,” ROI of 10-24% is suggested, 24% being in Pharmaceuticals. The ROI range for “average risk” is about 15-40%. Again, 40% is for pharmaceuticals. ROI for high-risk investments should be 24-56% with 56% for Pharmaceuticals (1).

In the past few weeks, three major pharmaceutical mergers have been announced. Total investment is about $156 billion U.S. dollars. If the total investment is equally distributed between the three companies and each would like to have a “Five years ROI”, then [due to high risk] one should expect “before tax” return of about $20 billion dollars per year per deal. Another way to look at earning $20 billion/year is that the each company will have to have 10-20 blockbuster drugs on the market beginning in 2010. Based on each company’s pipeline, I just do not see such a gusher. Unless the acquiring players know something we do not know, I believe these are risky investments considering that less than 5% of drugs become blockbusters and past acquisitions and their assimilation have not been stellar.

I would like the readers to opine on the recent pharmaceutical investments, share their thoughts and what they think are the short and long-term options for pharmaceutical companies?

(1) J. Frank Valle-Riestra, Project evaluation in the chemical process industries, McGraw Hill 1983 p 433.

Global Fine/Specialty Chemical industry and its challenges:

Current situation:

Global chemical industry is going through multiple transformations under the current economic environment is not helping either. It needs to address the following.

1. How to react to the current slow down?

2. What are their long-term prospects?

Companies in Europe and US innovated and developed many unique molecules that have improved our quality of life and life style. Products include pharmaceuticals, polymers, additives, flavors and fragrances, fertilizers and list goes on.

Some of the old giants have disappeared. Recent re-factoring of the European companies to rationalize their businesses has caused more turmoil than solved as the companies are still loosing money. Some are trying to find themselves and some have given themselves new names after reorganization. Some of the new entities have not found equilibrium.

Lack of growth (i.e. growth equal to GDP growth is no growth) has been a challenge [some segments have had higher than GDP growth but many are lower]. On the other hand growth better than plan has been exhilarating. These have impacted their profitability.

As the world grapples with the current slow down, more so in the developed countries than the developing countries, the future looks murky. To conserve profits companies have selectively shuttered their plants. This might be prudent for the short-term but mothballing plants might not solve the long-term ills.

Impact of expiration of the pharmaceutical patents and lack of new drugs in the pipeline will reposition the global fine chemical industry. We will begin to see a sea change in the second half of 2010.

What is the recourse for the future?

Current markets for the chemical products can be categorized as follows.

• Slow or no growth [growth equal to or less than GDP]

• Growth [growth greater than GDP]

In the current economic down turn, the human and social impact of shutting down and/or moving R&D and manufacturing from the slow and/no growth countries to the growth countries can have significant negative connotations. However, such moves might be necessary for the multinational companies. In the slowing global economy, due to political sensitivity moving from developed countries and investing in growth markets is a going to take longer than normal time and effort. Lack of rapid decision-making might further complicate strategy development.

Until few years ago growth in the under-developed countries was slow and these markets could be supplied from the developed countries. However, with much higher growth in these under-developed countries, it has become necessary for the multinationals to fulfill the market needs either by opening R&D and manufacturing sites or collaborate with local partners. This poses an interesting dilemma for the multinationals. Should they consolidate their plants and supply the needs of the developed countries, if possible, from the plants in the developing countries and shutter their operations is the developed countries? This option has its own challenges. How to explain to its shareholders including its employees of such moves and how to blend in the local culture and nuances.

Multinationals face another challenge in the developing countries. It comes from the local enterprises that have served the local and global markets. These enterprises might not be technologically strong but is a matter of time when they could become fierce competitors.

More than 50 percent of the global population lives outside the developed countries. In the next few years, growth is going to come from these markets. They might not require the technologies currently used in the developed countries. Technologies to suit the local market preferences and environment might have to be developed. A joint collaboration between the local companies and multinationals can be a fast track option. Go alone could be an option also. However, it would require understanding of the local markets. In addition, multinational companies will have to invest in technologies and capacities that are economic and can meet the market needs from fewer plants. This could be a challenge but is necessary for the survival.

Manufacturing of commodity (slow or no growth) products will move to the lowest wage countries. India and China could benefit from such moves. Only offset to such moves is the development of better manufacturing technologies for commodity products e.g. plastic additives, flame-retardants, corrosion inhibitors, rubber chemicals to name a few. They have to be such that they offset the lower labor cost advantage offered by low cost countries.

The newest technology (growth better than GDP) products will be developed in the labs in the developed countries and could be manufactured anywhere to serve their respective needs.

World is changing faster than we can strategize and implement.