Australia’s car industry is faltering and our wine sector is facing increasing competition in Asian markets from its European and American counterparts.
However, there is a good news story out there when it comes to Australian manufacturers, it is our advanced manufacturers and pharmaceutical companies that are holding the torch.
Pharmaceuticals are now firmly established as the number one "substantially transformed" manufacturing export, beating the car industry in 2011-12 with $2.5 billion in exports and the wine sector with $2 billion, according to data published by the Australian Bureau of Statistics (ABS).
Manufacturers’ Monthly recently investigated how Australian manufacturers are overcoming the high Australian dollar and increasing labour costs to take on the world, and it was found that pharmaceutical and advanced manufacturers although dealing with the same pressures, are doing particularly well.
In fact while the majority of other manufacturers were losing ground last year, medicines industry exports actually grew by seven per cent according to the ABS.
“The exception is high end advanced manufactures like ResMed or Cochlear, they are at the peak of the pack there, but they’re also facing price challenges, however because of their market leadership status they can probably handle increases in cost better then others.” Peter Mace general manager at the Australian Institute of Export said.
Recently Manufacturers’ Monthly reported that the pharmaceutical industry looked set for substantial growth to meet the increasing demands of Asian health-care products with exports expected to increase fivefold by 2020.
Asia, with its rapid urbanisation and rising living standards, has pushed pharmaceuticals to a huge extent and serves as a massive market for advanced health-care products and other medicinal drugs.
Speaking to Stuart Anderson, the director of manufacturing and supply at pharmaceutical company AstraZeneca he said changes to regulations in China has opened up a wealth of opportunity for the global prescription medicine based company.
The company’s Australian operations, located on the aptly named ‘Pill Hill” in North Ryde, New South Wales, employs around 1000 people, made up of four hundred in manufacturing and six hundred in sales and marketing.
“In North Ryde we have a very specialised and advanced sterile manufacturing plant, here we use a particular technology that manufactures sterile plastic bottles that are formed, filled, and sealed in a single process.”
AstraZeneca also manufacture their Pulmercort respules at the factory, which consists of a 2mm container that includes a steroid in it to prevent asthma.
“We are the sole supplier to AstraZeneca and we send them into Asia, Europe and even into Canada,” Anderson said.
China came calling
The growth of the Asian market is where AstraZeneca sees the hottest opportunities for their repules, prompting the company to invest approximately $80 million over the next three years to increase capacity and meet the demands of their Asian customer base.
“We export into China and Japan; China is where the growth is for us and to meet the demand in China we’re investing about $80 million over the next three years,” Anderson said.
The opportunity arose in 2009 when the Chinese government announced a broad market strategy, making an investment of US$125 billion to establish a health care network for people that didn’t have access to medicine.
“Of about the 1.3 billion people in China there was about a billion that didn’t have access to regular medicines and this broad market approach was to establish networks of hospitals throughout the western, northern and southern areas of China to start to establish universal healthcare for the Chinese.
“What that has led to is the establishment of respiratory clinics, and in these clinics are nebulisers; this product is used in those,” Anderson said.
Anderson told Manufacturers’ Monthly that it is estimated around 70 million people have asthma in China and because of the government’s healthcare reforms these people are finding it easier to access medicines.
“The numbers of patients that are using these products have dramatically increased and we’re trying to meet that demand.
“I think that now because of the healthcare reforms and the increased access to medicines these people that previously wouldn’t have been treated are now being treated,” Anderson said.
The Australian made respules are targeted at the very young and very old as they are delivered through a nebuliser which creates a mist ultrasonically, allowing the patient to breathe the medicine in through a facemask, Anderson explained.
Homart Pharmaceuticals is another Australian manufacturer operating from Sydney who is taking advantage of the Chinese market. The company’s exports have been growing at a breakneck speed of 850 per cent in the last three financial years since July 2008 due to its export to Greater China Countries project, despite both the GFC and high Australian dollar.
Lack of talent
A downturn in the manufacturing sector has caused a skills shortage within the industry Anderson said.
“In the external environment my biggest concern at the moment is the lack of good manufacturing talent.
“I’m finding it really hard to find good engineering and quality assurance staff, production staff is not so much of an issue.
Anderson is particularly concerned about the experience the industry is losing, this loss has forced the company to cast a wider net when recruiting and look at alternative avenues.
“Because of the general decline in manufacturing in the last five to ten years we’re losing the skills in that area and that’s a little worrying. We’re having to look a little wider then just pharmaceuticals so we’re looking at food and FMCG [Fast Moving Consumer Goods] and then have to try and create the skills internally whereas before we could just buy them. It’s not the case now,” Anderson said.
Anderson added that to overcome such a skill shortage the sector needs to go right back to schools and demonstrate to the next generation the importance of studying science and engineering.
“We can offer a great career in either of those disciplines here. The work that our engineers do, they work with really interesting technologies and good equipment.
“We have an apprenticeship program which we focus at school leavers and mature aged students for retraining,” he said.
AstraZeneca is also making a conscious effort to tap into the graduate market as they begin their expansion plans.
The Australian cog in the global supply chain
Discussing the increasing adoption of global supply chains, Anderson said the company imports a lot of the raw materials including the active pharmaceuticals from Sweden and the plastic from Europe and then fills, packs and exports from Australia.
“We have a goal to source as much as we can within Australia, we work very carefully with the suppliers of packaging materials, in particular the foil that we use to wrap the product in, it’s a very specific specification and we need to have very tight control over the types of inks and adhesives used so we could buy that from Europe as well but we’ve taken the time and effort to meet that specification here in Australia,” he said.
The equipment used to make the respules is a standard form, fill seal machine from a German supplier, all of the vessels and pipe work for the formulation suites are sourced in Australia and New Zealand.
“The packaging equipment is sourced here in Australia, we have a long term relationship with a particular company in Melbourne called ADBE and they make this equipment for us.
“I’m proud to say that the combination of the way we manufacture these lines makes us the most efficient manufacturer of these in the AstraZeneca network,” Anderson said.
A lasting legacy
ABS figures show that the medicines industry exported more than $4 billion worth of pharmaceutical and medicines products in 2011-12, up from $3.7 billion the year before.
"These numbers underline the significant contribution Australia's medicines industry continues to make to the economy," Brendan Shaw, chief executive of Medicines Australia, stated.
Shaw added "the Australian medicines industry has continued to export more goods around the world than any other hi-tech industries.
"This reaffirms the pharmaceutical sector as one of the unsung heroes of Australian industry. It is a real export success story."
The pharmaceuticals sector currently exports more than wine and motor vehicles combined; however without clever investment and strategies now this could easily change.
“We’ve got a really good base here with good capability and if we don’t continue to nurture and invest in that then we could well lose it,” Anderson said.
AstraZeneca’s plant is located in the outskirts of Sydney’s North West, the location choice is an example of government legacy, Anderson said.
“There are lots of reasons why plants are where they are and sometimes plants are where they are because of good fortune. I guess the reason we are still here in Australia goes back to the Factor F scheme in the late 80s early 90s.”
Anderson is referring to the Factor F scheme implemented in 1987 by Senator John Button who at the time was the Industry minister in the Hawke government.
Factor F was introduced in an effort to boost the level of R&D investment in the pharmaceuticals industry.
According to a spokesperson at the Department of Industry, Innovation, Science, Research and Tertiary Education it was never considered by the Pharmaceutical Benefits Pricing Authority (PBPA) in the pricing of Pharmaceutical Benefits Scheme (PBS) medicines.
In order to establish manufacturing capabilities in Australia, Button subsidised the manufacturing of local products that were previously imported so these companies subsequently became an exporter of those and then in turn engaged in R&D, making big headways in pharmaceutical developments.
“We became part of that program and we developed our facility in North Ryde.
“The scheme only finished 15 to 17 years ago and the local economy is still reaping the benefits of that scheme as we continue to grow and maintain this facility.
At a time when Australia is debating manufacturing’s future Anderson thinks “there’s real opportunity for another scheme like Factor F. If properly run it has such a big multiplier in the environment”.
A spokesperson at the Department of Industry said that evaluations of past pharmaceutical industry support programs indicate that they had little continuing benefit to the Australian taxpayer and that current Government policy and programs are designed to support the whole economy rather than being sector specific.
Discussing the health and medical sciences sector, the spokesperson said the Australian Government strongly supports R&D projects in the health and medical sciences through the Australia Research Council, the National Health and Medical Research Council (NHMRC), CSIRO and the Science and Industry Endowment Fund.
Tanya Plibersek, the minister for health, has also announced $652 million for more than 1000 grants for medical research across Australia. Over $5 million of this funding has been awarded for research on drugs owned by major pharmaceutical companies.
In addition to these economy wide programs, the Australian Government is currently working with industry and other jurisdictions to improve the clinical trials environment, the spokesperson said.
Decision to close reversed
At the end of 2009 it was announced AstraZeneca’s North Ryde facility would close, after they had experienced a drop in demand for the products manufactured there.
“We had too much capacity and we had three sites, we had to reduce that to two.
“The other two sites [in Sweden and the US] were maintained because there was an attractive taxation reason to keep one of them open and by closing the other we couldn’t achieve a lot of benefits because it was on such a big site and the infrastructure still had to be maintained,” Anderson explained.
However, the company reversed the decision to close North Ryde because of the growth of demand for respules in China, a direct result of the broad market approach which came at a very opportunistic time for AstraZeneca.
“We’ve gone from about to be closed to being open a little bit to being fully opened and expanding with this $80 million investment we’re doing currently,” he said.
“I dare say as companies continue to globalise there supply chains, if we didn’t have a good facility here over the last 10 years then we wouldn’t have a facility here at all, it’s not a very logical place to put a global factory,” Anderson said.
Anderson told Manufacturers’ Monthly that compared to its US and Swedish operations, its Australian site is by far the most efficient when it comes to manufacturing respules.
“We are the most efficient, by direct comparison unit cost between ourselves,” he said.
Explaining this efficiency advantage, Anderson attributed it to the “combination of the way we have designed the lines to continuously pack the output that is made from these blow, fill seal machines to describe in very simple terms there’s about 7 minutes between when the product is a liquid and some plastic granules to when its actually been formed, filled, sealed, printed, inspected, foil wrapped and on a pallet”.
“It takes about 7 minutes to get through the whole process and it runs 24 hours a day 7 days a week,” he said.
Being efficient is one thing, maintaining efficiency over time is another. Anderson emphasised just how important it is to have reliable machinery, good infrastructure and dependable suppliers.
“We have a very active continuous improvement program with our top eight suppliers and I think that’s really important to keep us ahead of the game.”
Government pricing pressures
Currently many pharmaceutical multinationals in Australia are dealing with government pricing pressures.
“Primarily due to the lack of market access we’re getting for medicines in Australia and the pricing pressures due to government policy. That has a real impact in the local pharmaceutical industry,” Anderson explained.
The company would like to see government pricing pressures changed to recognise the value of some of new medicines coming through.
“My big fear is that if these medicines are not brought to the market then there will be patients who are not getting optimal health care,” he said.
Although he reiterated that a balance needs to be found that also reflects the budgetary constraints of the government, “we need to find something that works in the middle”.
To achieve higher sales volumes in the Australian market, pharmaceutical companies need to be listed on the Pharmaceutical Benefits Scheme (PBS) which according to Anderson is not an easy feat.
“At the moment the government is not approving many new medicines or new uses for medicines for the PBS. For instance, in our company we had three applications in November and all were rejected and not for quality of medicine reasons, they were purely budgetary.
“If you speak to any pharmaceutical company they’ll say the same,” he said.
The future of exports in Australia’s pharmaceutical industry needs to be played to the sector’s strengths which according to Anderson is in the “complex niche device type manufacturing because we have a good infrastructure to do it very well and that is an area that could be used elsewhere”.
There are lots of different applications where this sort of manufacturing technology can be applied, particularly in biologics.
“In biologics we could use form, fill seal technologies very nicely to package them into devices, for instance we have a nasal flu vaccine which at the moment is in a glass presentation and we’ve been doing some work to evaluate whether that could be done in a plastic presentation.”
Australia has developed a good environment for innovation Anderson added.
“I think there is a good basis for innovation here in Australia, and we have the basis for making complex things very well and very efficiently and I think that’s where our niche should be developed.”
Tim Oldham, president of Hospira Asia Pacific and representing Australia's Generic Medicines Industry Association said Australia's pharmaceutical industry is a high value-add sector and one which other countries look to for its high production standards, innovation and quality assurance.
"We are way ahead in terms of being the leading exporter of elaborately transformed goods but we can't be complacent with intense competition coming from countries such as India, which can produce the same medicines for less," explained Oldham.
He continued to say that "we need to focus on the innovative manufacturing sectors such as pharmaceuticals in order to be less buffeted by the two speed economy".