Purchase Power Parity

In the globalized world “purchase power parity” is a necessary and an important consideration. However, this is never discussed in most of the printed news.

Reasons for this consideration are very simple. Except for few financially savvy individuals, majority does not understand it. People convert one currency into other, look at the absolute number, and compare them. This is especially true when British pound, dollar, Euro, or other currencies are converted to currencies of supposedly low cost countries.

Normally Press converts the foreign currency to the currency of their readership. Since the readers are not familiar with the purchase power of one currency to the other, reader gets the impression that the people are living in poverty or living like kings. The disparity between the absolute numbers is the reason why the jobs are going to low wage countries.

An example will illustrate the point. In India, a five pack of chewing gum costs about Rs. 5. In US, the same five pack costs about $0.80. At the rounded exchange rate of $1.00 = Rs. 40.00, one can buy about eight five packs for Rs. 40.00 in India. This clearly states that the buying power of the Indian rupee is higher than the buying power of dollar. McKinsey & Co. in its one of its report suggests the purchase power parity of Indian rupee to US dollar to be about 8.5.

Thus, it is relevant that the wages etc be compared on apple-to-apple basis rather than apple to tomato basis, since both happen to be round objects.

“Purchase power parity” can be offset by innovation.

Girish Malhotra

Downsizing

The news of layoffs at pharma companies had been unheard off and were unimaginable. Reasons were simple. Companies made profits, as there was no realistic competition. Generics from India have changed the playing field. The status quo does not exist anymore. Drugs are being commoditized and profits are going to shrink. In addition, the blockbuster model is not working.

This is history repeating itself. We saw this in chemicals, textiles, steel etc. in the developed countries. Toyota changed the playing field and US automobile companies did not react. Did anyone ever imagine GM would seize to the largest auto company? Globalization is bringing new intellectual capital to every aspect. This has resulted in some improvements in manufacturing processes and technologies in every aspect of business in the companies from India. This is not being the case at companies in the developed countries. With the layoffs, the knowledge base will start disappearing.

Established companies have followed the practice of closing plants, reducing R&D and outsourcing everything they can. These are short-term gains to appease the stock markets. Cumulative effect of layoffs is demoralizing on the work force. Why would some one want to put their heart and soul in innovation if he/she might not have a job? Humans pride in innovation. If that road is closed, humans stop putting their best and in the long run, the knowledge base is lost. Recent announcements at major pharma companies are just the start of reduction in knowledge base and intellectual capital.

There may be still opportunities. This is through simplification of the manufacturing technologies and processes, the heart of any manufacturing company. We need to revive the heart before it totally fails. This can only happen if the chemistry, physics and engineering of a chemical reaction and formulation is properly understood and accordingly commercialized. This has not been the case. USFDA clearly states that the current practices are antiquated.

Companies have to step out the box and use every possible resource (inside or outside) to re-invigorate the manufacturing and R&D of their companies. This is necessary to stop the downward spiral.

It is well known in the specialty chemicals businesses that the yield and the on-stream-time have to be high for any business to survive. In pharmaceuticals (specialty chemicals with disease curing value) the yield of active ingredients are low. I have seen yields as low as 5% and “on-stream time” is less than 50%. Yes, one can charge high price for the drug to cover up for inefficiencies and lack of innovation for some time. However, this cannot last forever. One has to improve the processes to reduce overall business costs. If this is not done, history will repeat itself and we are beginning to see this in pharmaceuticals. Is it too late? Again, the answer is NO. Pharma companies need to put an effort to improve manufacturing and process technologies and that is the only way companies will survive.

Girish Malhotra

India's contribution to humanity

Few years ago Pharma companies in India “genericized” drugs for AIDS. Many thought it was a bad business decision. However, others thought this was service to humanity. Many of India’s pharma entrepreneurs have been able to profit and service humanity.

In US, there has been a squabble about use of the stem cell. Others are using the stem cell therapy to serve humanity. Fortune magazine’s October 24, 2007 issue covers the use of stem cell to restore “eye sight.”

This is “WOW” contribution. Interestingly the stem cell procedure for eyes is being done at Hyderabad, an IT hub of India.

Is IT a Catalyst for India’s Drug Industry? http://www.pharmamanufacturing.com/articles/2007/155.html

gives us additional clues.
Girish

Pharmaceutical buzzwords

In the last few years we have been reading about PAT (Process analytical technology), QBD (Quality by design), Kaizen and Six Sigma etc. Kaizen and Six Sigma can improve the development of a process and improve an existing commercial operation. PAT and QBD are not magic wands. In addition, PAT and QBD do not happen by themselves. Their deliver value only after we understand the process before it is commercialized. This can only happen if we follow the following road map and make an effort to get there.

1. If we do not have a thorough knowledge of the chemistry, kinetics, economics and do not know how to translate a lab process to commercial scale, we are not going to able to apply principles of chemical engineering to design an economic process that is going to give us quality product. We will be stuck in post analysis and fixing mode, the current mode of API manufacture.

2. If we have more than one solvent in the process, we have to go back to the lab and justify why. More than one solvent means we need separate storage tanks, recovery and disposal methods. All of these cost money.

3. I do believe that IR, HPLC, Spectroscopy etc. are an excellent process development tools. However, if we use them to monitor the reaction progress and completion of each step, it does not sit well with me. I consider this an expensive way to cover what we did not do “right” from the start. Application of these exotic tools forces us to have a process where we have to analyze the intermediate product to make sure we have the proper compound of desired purity and yield. This is a batch process and capital investment increases. The total business process slows down as the cycle time from raw material to finished product increases. We have to implement methods that reduce the testing time i.e. the resulting cycle time.

4. If the process has multiple steps and the overall yield is anything less than 85%, (I can already hear in the background: is he dreaming?) the process is inefficient. OK 85% may be asking too much, can we settle for 70-75%? We have to figure out how to get to higher yields. Recently I was reading a patent that had an eight-step process. The yield was less than 5%. I come from “old school” where I was taught high yield means less pollution and more money in the bank. I hope when this company commercializes their process, they would have figured out how to get a better yield.

5. Process control technologies that can control the reaction, flow, and stoichiometry exist. I equate our current development and subsequent commercialization processes to “a car running us” rather than “we running the car.” Wouldn’t it be nice if we have developed a process that we can control?

6. Low process yield means that the unconverted raw materials are going in the effluent that has to be treated to meet the effluent water quality standards. Unconverted raw materials have to be disposed in a safe manner. We are loosing money two ways. a) lost raw materials, b) money to dispose them. Thus, it is in our interest to maximize the conversion yields.

I am not criticizing the existing processes or the processes that are in the pipeline. We have to attempt to have the best possible process from the very beginning of the process development. Again, to achieve the highest value from a process we have to have a complete and through understanding of the chemistry and appropriate unit operations, we are developing and want to commercialize.

It is well know that the pharmaceutical processes (glorified specialty chemical) have less than 40% on-stream time. This is poor. A process developed with the above road map when commercialized will have much higher equipment utilization time and should produce quality product requiring minimum in-process analysis.

GM

API (active pharmaceutical ingredient) and specialty chemical costs

Recently there have been write-ups about a significant percentage of API are coming from China and India. These beg a question: Are the Pharma companies importing APIs from non-cGMP complaint companies? The answer is NO.

In 2006, SOCMA (Society of Organic Chemical Manufacturers Association) and EFCG (European Fine Chemicals Group) issued a joint position saying that some countries are “not playing according to rules”. “Patient safety and national security compromise” was the theme of this position paper. This seems to be challenging the very foundations of the buying pharma companies. It is indirectly saying that the Pharma companies are not caring of patient safety and national security. I do not believe that the Pharma companies are going to put anyone in jeopardy intentionally. In addition, India has the highest number of FDA approved facilities outside US. China is striving to get there. If the imported API and the drugs being sold do not meet the regulatory standards, the reputation and credibility of the pharma companies will be lost in an instant. They cannot afford such en event. Unscrupulous business people are always going to be there. We have to stay away from them.

Since the Chinese and Indians are not going to go away, EFCG at the Milan CPhI October 2007 meeting reversed its position. “We are not anti-Asia.”

API are being imported as they meet the desired quality standards and their costs are lower than the comparable product being made in the developed countries. Combination of better technology, lower investment and lower labor cost influence cost and quality. We know this but we should review it again.

If the process technology used by the companies in India and China is simpler than the technology used by the API manufacturers in the industrialized world, then the companies in the developed countries have an opportunity to improve their technology. Simpler technology also means lower investment. Many a times the intermediate products in the synthesis of an API are analyzed before the next step. This is “analysis paralysis.” Technology should be such that the intermediate testing can be minimized. This will reduce cycle time i.e. improve productivity and lower costs. If testing has to be done, the test methods have to be the simplest. Exotic equipment needs high-powered personnel and that adds cost.

With respect to labor costs, they are lower in China and India when compared on a dollar to dollar (converting local currency to dollars) basis. However, this is not the correct comparison, as it does not give a realistic picture. Indian wages are lower but they have a higher buying power. A family of four in US earning poverty level wage is about $20,000 per year ($1666.67 per month). The same dollars converted to the Indian currency translates to about salary of Rupees 66,650 per month. This money could allow the family in India to have a full time house help and a chauffer. Very few can afford such a life style in the developed countries. Another case in point, in US, we pay about one dollar for five sticks of chewing gum. One would pay less than 15 cents for the same five sticks in India.

Since the playing field has changed, the only choice for the companies in the developed countries is to achieve and/or beat the costs from China and India. This can only be done through innovation of process development methods, technologies, and manufacturing practices. We have to simplify (Profitability through simplicity) and remove the redundancies. A new reality is there and we have no choice. It is a “do or die” situation.

Companies in India have to improve their technologies also as China is coming in with lower raw material and labor costs.

GM

Pharmaceuticals

Every pharmaceutical we take has an active pharmaceutical ingredient (API) that is formulated with inert excipients to facilitate dispensation. Significant attention has been given to the formulation manufacturing processes. In the formulation process, the intent is to make sure that the active ingredient is uniformly distributed in the pill or capsule when they are produced. I am sure everyone knows why we have 1 mg (milligram) pill of a certain drug but it looks much bigger. Inert excipients are used to facilitate dispensing. If this was not done, it will be difficult to consume as many of the APIs have bad/poor taste and we could loose the small quantity.

Since a lot of process development work has been done on the formulation, I will skip it and focus on API manufacture. API come in two forms, free flowing solid or liquid. Solids are produced mostly through crystallization, spray drying or grinding and drying of the API. These unit operations can be batch or continuous and are well covered in any chemical engineering curriculum.

Majority of API are organic compounds. Every API is a specialty chemical that has a disease curing and life prolonging value. Thus, the manufacturing practices and philosophies applied for the specialty or fine chemicals can and should be applied to the chemicals that cure disease. Since API cures a disease, this means they are toxic and kill bacteria that make humans as well as animals sick.

Most of the times an API manufacturing process are a batch process. Many a times the commercial process is a scale up of how the process was developed in the lab. The purity after each step is analyzed by high-powered analytical instruments and then the next step is carried out. This is a “risk-averse” approach and can be called “quality by analysis.” We are and should be thankful to the approach, as we have had safe drugs. We cannot imagine not checking quality of the drugs. We do not want fiascos similar to the recent animal feed and lead paint on toys. Nevertheless, I call our current pharma methods “belt, suspenders and harness” approach. This approach has big financial implications on a company. Physical structure and equipment investment, raw material, work-in-process and finished goods inventories go up.

We have not applied the best scientific and engineering methods, principles, and practices we taught the world and have practiced in the manufacture of specialty/fine chemicals to the pharmaceutical manufacturing. USFDA in one of its reports suggests the current manufacturing practices are “inefficient and costly.” they are being polite. Regulatory agencies would like the industry to move from “quality by analysis” to “quality by design” but it takes more than words. Regulatory agencies cannot dictate any company how to manufacture their products.

USFDA in its cGMP guidelines has no mention of “continuous processes.” The word “continuous” does not exist in any of their approved guidelines. Pharmaceutical manufacturing chemists and engineers have two challenges: 1) improve their existing processes 2) figure out how to convert their laboratory developments to a continuous process.

Continuous processes are not “voodoo science.” They are based on sound scientific and engineering principles. They deliver consistent quality product “quality by design” (QBD) and are economic. Continuous process also means continuously converting a starting raw material to an API and then formulating the API to produce a dispensable medicine.

GM

Welcome

Welcome to my blog.

My intent is to write down my experiences and observations as they relate to manufacturing, technology practices and strategy of Pharmaceutical, Chemical and Coating companies.

I will share my experiences in these areas. You are welcome to ask a question and comment on my observations.

With globalization , the world has changed and internet has accelerated this change. It has become 24/7 world. Things happen and they impact the landscape.