22 May 2012
They're respected by politicians, adored by the public and a top career choice with kids. GSK's Ian McCubbin meets Max Gosney to discuss the UK pharma giants – the mavericks of the UK manufacturing family
Seen as trendy places to work, cherished by Joe Public and the darlings of Downing Street. It's time for a DNA test to determine whether the pharmaceutical sector can really be part of the same UK manufacturing family. "I think we are a little bit different," reflects GSK chief, Ian McCubbin. "There's something unique about our products and the regulatory side. But after you get past that there's an awful lot we have in common with automotive, electronics, aerospace and others."
Frustrations with industrial policy for starters. "One of the things the UK could do better is create a supply base around its big pharmaceutical manufacturers," says the man behind manufacturing and supply chain strategy for GSK. McCubbin's complaint is as poignant to sites making farmyard machinery as pharmaceuticals. "We do buy the majority of our components and ingredients outside the UK," he adds.
It's a sobering thought for the government marketers who laud the stellar contribution of big pharma to UK plc. Yes, we are a significant base for drug giants, but we're siphoning a chunk of the profits abroad thanks to splintered domestic supply chains. GSK's recent manufacturing expansion provides a case in point.
The company has announced a £500 million investment in UK manufacturing sites, including a new factory in Cumbria and 1,000 jobs. The expansion is a fantastic boost for the national economy.
Yet it could be so much bigger if the company making the moulds for the antibiotics being made at the new plant hailed from Manchester not Minsk. "Isn't there an overlap here?," asks McCubbin on the possibility of greater local sourcing. "Which injection moulders could supply the pharmaceutical industry? Why do we go to France or Germany for components?"
A manufacturing blueprint is critical to fix the leak, according to the GSK chief. A long-term strategy developed by government and industry can help bolster the wider manufacturing community that underpins a global name like GSK. "[We need] a little bit of thought about what we have already anchored in the UK from a manufacturing point of view and what opportunities we have to build on that anchor."
GSK's altruism can be traced to the company's roots. As that rare specimen – a British-owned manufacturing giant – it has a deeper tie than most to the domestic front. McCubbin says: "We have a disproportionately big proportion of our global footprint in the UK, something like 25% of our total manufacturing employees are in the UK... Being a British company, we're here for the long haul."
But patriotism doesn't pay the shareholders. "There's nothing stopping us," responds McCubbin when asked what's keeping GSK from moving operations to lower cost manufacturing countries.
"In fact there's quite a lot encouraging us. If you look around the world and compare UK policy to say Singapore or Ireland, there's a tax incentive to be in other parts of the world."
The UK has hit back with a patent box arriving from April 2013. The windfall will allow GSK and others to claim a vastly reduced tax rate of 10% on profits from patented products. UK manufacturing take note. Westminster has delivered a valuable business incentive to stop a valued industry migrating overseas.
Whether the patent box can stem the tide remains to be seen. Sanofi will shut manufacturing plants in Dagenham and Fawdon over the next three years. Pfizer cut over 400 jobs after ceasing
manufacturing in Sandwich three years ago. And GSK itself pulled the plug on its Dartford manufacturing facility in 2008. The exodus is a result of stiffening headwinds for big pharma. New blockbuster drugs are growing rarer while the pool of generic firms poised to copy existing ones deepens. Key customers like the NHS are also pulling the purse strings in a bid to trim £20 billion from healthcare costs.
It's led many pharma companies to regard in-house manufacturing as increasingly superfluous, explains McCubbin. "On this topic there's a bit of a divide. There are some who view manufacturing as something that can be outsourced. We tend to be of a view that it's a core capability." And one that GSK intends to hone as a competitive advantage, adds McCubbin. The company operates an intensive continuous improvement culture to fine-tune manufacturing operations, he reveals.
"We call it operational excellence," explains McCubbin who swapped a career in clinical pharmacology for manufacturing after being inspired by the "energy and buzz" of the shopfloor during a placement at a pharma factory in his student days. "It's loosely modelled on what you'd call the Toyota system. There are some real fundamentals around team working, visible performance management and tiered accountability."
The latter involves shopfloor teams escalating kaizen events up the GSK chain of command. "Every week we have a global call around our manufacturing organisation on the peak of escalated issues that may need a company focus to resolve."
Employees are also encouraged to go to gemba. Site leaders are sent out to Toyota factories in Japan and apply learning back at GSK. The explosion in CI activity, notes McCubbin, is the outstanding development in his lifetime in manufacturing. "The people element has upskilled from basically moving stuff to a much more thoughtful, scientific manufacturing professional environment... The people that we have in our factories now are really active in CI, which wouldn't have existed years ago."
The kaizen revolution has catapulted GSK's nine UK sites (10 when the new Ulverston site opens) up the company's productivity table, reveals McCubbin. "We've actually moved the manufacture of product from India to the UK because the overall package of reliability, quality, environment and cost is much more positive. I think there's a really interesting dynamic for the future: let's imagine a world where tax is equal then I think the UK has big advantages."
Skilled labour for example. But the attribute may only be fleeting unless we can entice more bright young talent into the sector. GSK is bombarded with applicants for a 40-strong apprenticeship scheme and graduate places. Yet no one is immune from an insipid public view of manufacturing, he adds. "We've gone through an era where the brightest young graduates have seen their future in the City. They wouldn't have thought 'I can have a fantastic future in pharmaceutical manufacture'."
McCubbin applauds initiatives to convince kids otherwise. GSK hosts factory tours for local schools. And McCubbin has just signed up as an industry champion for Westminster's Make it in Great Britain campaign to showcase manufacturing during London 2012. However, the commitment must stretch beyond the closing ceremony, he says. "I'm encouraged that the government are now talking about these things, they are putting energy in. But it will need to be more than a one shot wonder... What do you read in the newspapers? What do you see on the TV? Where do you ever see good exciting innovative PR around a manufacturing environment?"
It's a statement bound to resonate in factory floors across the land. Proof perhaps that pharmaceutical firms, for all their special status, are very much chips of the manufacturing block.
Remedy: how big pharma can help other manufacturers
- Strength in numbers GSK's new factory in Cumbria won't just have local pharmaceutical suppliers whooping with joy. The investment will be cheered by manufacturers all and sundry in the region. Contemporaries will benefit from an influx of skilled workers to the area. There's also the possibility of sharing best practice and an uplift in the local economy. The symbiotic relationship is highlighted in areas where major plants have closed, as with Pfizer in Sandwich. Some Kent manufacturers complain of a skills drain from the region and difficulties attracting workers without the pull of Pfizer.
- Lobbying power Tapping into big pharma's lobbying power could send manufacturing's political stock soaring with all the efficacy of a pack of Viagra. A notable success is the new patent box, which grants vastly reduced tax rates on profits. The government delivered the incentive after heeding to industry warnings of a migration overseas unless things changed. Sounds an eerily familiar scenario but with a very different result.
- PR Modern, vibrant, even sexy. Such adjectives are a million miles from your average Briton's lips when you mention manufacturing. But they're synonymous with pharma. That's in part down to the nature of products which have a big emotional appeal. However, the sector also teaches the value of strong investment and marketing. Pharma factories are renowned for being high spec and contemporary. Companies also go the extra mile to convey professionalism. Just look at the quality feel to any pharma company's website. These are minor things that can have a major influence on the public mood.
Factory count: how pharma firms line up today
What do they say about UK manufacturing?
GlaxoSmithKline: "The introduction of the patent box has transformed the way in which we view the UK as a location for new investments, ensuring that new medicines of the future will not only be discovered, but can also continue to be made here."
Sanofi: "Despite our recent announcements regarding Dagenham and Fawdon, Sanofi remains committed to manufacturing within the UK and Ireland... We welcome actions being taken by the government to improve the market for pharmaceuticals in the UK."
AstraZeneca: "We are investing £63m in our production capacity at our Macclesfield site over the next three years. The investment in our UK facilities is ongoing... an indication of our ambition. Keeping sites successful opens the door to further expansion."
Novartis: "We continually review our manufacturing infrastructure and capacity, including the number and size of our sites, to ensure we have the right production capacity in place to meet market demand."
Pfizer: Pfizer says its Havant site is a "centre of packaging expertise" and is in discussion with a consortium for sale of the Sandwich facility – called Discovery Park – that would convert it to "an R&D-led, multiple-use campus with Enterprise Zone status".
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