Learning From The Cliff
As the Global Pharma Business Changes, NNE Pharmaplan Bridges the Gap Between Countries
Pharma Engineering - While the upheaval in the pharmaceutical industry has brought with it a lot of problems, one sector that is benefiting from the overhaul is pharma engineering. Companies such as NNE Pharmaplan are the ones pharma companies call on when they are looking to expand to new regions, build new facilities or revamp existing ones. Brandi Schuster spoke to Stefan Berg of NNE Pharmaplan, general manager of the Central Europe region, and Gert Mølgaard, corporate vice president of strategic development, about the opportunities ahead and the company's strategy for a worldwide footprint.
CHEManager Europe: What are the biggest challenges facing pharma engineering in 2012?
Stefan Berg: Challenge is probably not the right word. There are a lot of opportunities to be had in pharma engineering; our customers are strong and in the mood to invest. If there is any challenge at all, it is finding skilled workers. But even that is not an issue everywhere, but rather in specific disciplines, such as in supply engineering and project management.
How has the market changed over the last decade?
Gert Mølgaard: If I had to pick one element that has led to significant changes over the last decade, then I would pick the patent cliff. This cliff has been building up over the last 10 years; we've been through megamergers that transpired so companies could have access to yet another blockbuster. Now, most companies have realized that this is not the way of the future, and this has been the catalyst for change within the pharma industry. This is truly the end of the blockbuster era, and we need to forget about it and look forward at the opportunities ahead.
How has the patent cliff specifically affected your business?
Stefan Berg: Pharma companies have come to the realization that they have to make some changes - going into mergers or restructuring their own businesses, for example. This in turn creates work for us. Every merger, every restructuring is good news for us. Pharma companies know that their business will be completely different in the future than it is now.
Gert Mølgaard: Pharma companies are diversifying, which is something we like, because it gives us the opportunity to showcase our offerings. We provide services in biotech, sterile manufacturing, medical devices, diagnostics, automation, manufacturing IT, process analytical technology, etc. At the same time, because we focus on pharma and biotech, we have very specific know-how.
Do you think the growth we're currently seeing in biotech is sustainable long term?
Gert Mølgaard: Yes, there is currently a large demand for innovative solutions within biotech, such as single-use technology, prebuilt modular facilities and the ability to revamp and upgrade existing facilities. For us, this underscores the importance of working with our customers long term in order to get to know them well.
Market globalization is another hot trend.
Gert Mølgaard: It's clear that our market is shifting toward increased business in emerging markets, especially India and China. However, there is a solid growth in Central Europe as well. There are many mid-sized companies that aren't affected by patent expiries; these companies are robust and forward-looking, and they are excellent to work with.
Are requirements different in emerging countries?
Gert Mølgaard: Most companies, regardless of location, are looking to upgrade their facilities. These companies have been around for many years, and they know that keeping the status quo won't be enough to remain competitive in the future. For example, China just brought in new GMPs at the beginning of 2011. Looking to Russia, they want to build their own independent pharma industry, and they expect the standards to be the same as in Western Europe. This means that Western knowledge and standards are in high demand there.
We're also seeing a lot of innovation coming out of emerging markets. There is a lot of interest in getting into biosimilars and even the creation of new drugs based on existing drugs.
What regions are becoming more interesting for your customers?
Gert Mølgaard: Besides China and India, there is a lot of interest in Brazil, and that certainly won't be the end of it. We will get into more countries as we see the market needs coming; but we are also careful to not take on too many countries at once.
How much consulting work does NNE Pharmaplan do when it comes to advising companies on location?
Stefan Berg: This is the heart of our business. For us, this can entail evaluation of sites, evaluation of productivity, etc. We also advise on what elements should be maintained and what should be changed as well as the cost of each route. We also provide risk studies and the occasional investment feasibility forecast.
The Russian government is currently pumping a lot of money into its fledgling pharma industry and enticing many Western companies to start greenfield projects there. Do you see this kind of phenomenon elsewhere, too?
Gert Mølgaard: Russia is certainly the country that is the most direct about it. They want companies to do real manufacturing there, not just packaging. And this is starting to spread: Other emerging countries are starting to also request companies to be there locally. On the other hand, some companies prefer to go into emerging countries with their own manufacturing as a way of circumventing counterfeiting.
That's not the case in India, where they are very protective of their domestic pharma industry. Do Western companies who want to get into the Indian market with a facility have more difficulties than in other places?
Gert Mølgaard: In order to get into India, it's easier to enter into partnerships with Indian companies. However, the government there is currently reconsidering its legislation.
Do you also work together with local companies or enter joint ventures?
Stefan Berg: We're not constantly entering joint ventures, but our local partners are extremely important. We need local partners in order to provide local knowledge, information about regulations, etc. Also, sometimes we simply need to be able to provide enough resources locally in order to staff a project. There are manifold reasons to cooperate with local partners on a project basis. At the same time, it is always important for us to be independent. The customers must recognize us as an independent partner who works on their behalf.
Going back to China: It can be very difficult for a Western company to put steel in the ground there. What does NNE Pharmaplan do to make that easier for companies to really get in there with a facility?
Stefan Berg: We want to be where our customers are. Over the last several years, it was clear that there would be a lot of growth in China, so we began to build up our presence there about 20 years ago. We now have four offices in China with a total of 400 employees, most of whom are locals. No matter where we are in the world, our strategy is to be local while using global knowledge.
So you predict where the industry is shifting before it actually moves?
Stefan Berg: Yes. It is not unusual that multinational company investments are launched in Europe or the U.S. with China being the final destination. It is of benefit when we can start with our customers in Europe - creating the basic concept, etc. - then transfer the project to China or India. Therefore, it's good to be in both places, like the customer is or wants to be, and manage this cross-country transfer of the project.
But this doesn't just apply to emerging markets. Our strategy is to be where our customers are; for instance, we recently opened a new office in Belgium, because we see that country as a pharma cluster. We also just opened our first office in Brazil at the end of last year.
What other regions are on the up and up?
Stefan Berg: We have a strong reputation in Korea, for instance. We are also seeing more and more projects in Indonesia. Of course, time will tell if these become booming areas or not.
Some shifts, such as to China, India or Russia, are obvious. But as an engineering company, you always have to be one step ahead of the game. Do you consider this kind of strategy to be something of a gamble?
Stefan Berg: No, it is not a gamble, but we have to be early. The early bird catches the worm, so we obviously strive to be the early bird.
Gert Mølgaard: Exactly. Nowadays, as you said, the shift to the East is obvious. But as I said before, we've been in China and Russia for almost 20 years and in India for 15 years. We are thinking ahead, but I really don't think we are gambling. We typically move into a particular region as a reaction to a customer request. Our offices in Belgium and Brazil are perfect examples of that. Local customers wanted our knowledge locally.
So if we meet up again in 2032, you'll be able to say that NNE Pharmaplan has been in country XY for 20 years, because you recognized the trend in 2012?
Stefan Berg: Yes, absolutely.