Quality, Capacity And Job Security In A CMO Industry Merger -- Part 2 Of Our Interview With CEO Of Newly Formed DPx Holdings B.V.

By Louis Garguilo, Chief Editor, Outsourced Pharma

This spring Jim Mullen became CEO of DPx Holdings B.V., formed in a $2.65 billion transaction combining JLL Partners’ assets Patheon and Banner Life Sciences, with Royal DSM’s Pharmaceuticals business. In an interview with Outsourced Pharma, Mullen discusses three key components in a merger: quality, capacity and job security.

With a merger nearing completion and the integration plans underway, Mullen says you have to start with the fundamental ABCs of business. “There are three fundamental questions to get to day one: Do you have the right financial controls? Can you reliably continue to pay your suppliers? Can you receive cash and can you make payroll?

“It gets down to the real basics: food, heat, and lights. If those three things work, you can start to power through all other considerations and details.”

Quality: “Corporate Line”

What Mullen focuses on immediately after these essentials might be instructive to any company in the pharmaceutical industry taking on an M&A integration. He turns a good deal of his attention to quality throughout the organization.

Jim Mullen, CEO,  DPx Holdings B.V.

“We quickly started to put together teams on both sides to effectuate the integration. There was a leader appointed on our side and one on theirs, working together on all these different work streams required to get us to day one. Then there's the usual list of staff functions. Particularly the quality heads, which I call ‘corporate line’ – it's a new term I coined.”

“Corporate line,” Mullen elaborated, “because these quality professionals are directly involved in the day-to-day business of the factories and our customers.[1] They need to have a direct line to executive management. We have a key senior leader who receives all the quality and operational excellence information and analysis, and oversees the engineering and capacity management. These are front-line, factory floor operations, as opposed to the more traditional staffing considerations, such as finance, HR, legal, and other business requirements.”

Mullen and DPx Holdings appear to be on the right track. A recent survey conducted by CPhI Pharma Insights of a broad cross-section of industry participants in pharmaceutical manufacturing showed that product quality is the primary concern and objective. Moreover, we’ve all read the recent and consistent news about quality issues at both CMOs and pharmaceutical companies themselves.

Mullen is adamant that quality at any level cannot be impacted negatively during a merger or acquisition. The adaption of best quality policies from all companies involved is a good place to start. There should also be plans in place to ensure consistent application of these best practices to all facilities across the new organization. Quality, according to Mullen, is intertwined and in fact a key to the entire success of the merger.

Capacity: Tied to Capabilities, and Jobs

Once quality is assured, Mullen quickly turns his attention to the subject of capacity. Most important is how to handle the subject internally, as well as with customers and investors, and particularly how to correctly measure it.  

“Capacity is an interesting story and is, in fact, tied to capabilities and job security. In my experience, whenever we strategically develop our capabilities, I get a lot of questions, particularly from investors. ‘What's your capacity? What was it, what is it and what do you see it being in the future?’ The answers can be complicated, specifically because what we thought in terms of our capacity utilization at one time can be very different now.”

Mullen continued, “Years ago management at my organization was convinced we were more or less full. But even though we have fewer factories than in the past, because of all the work we've done on the operational excellence and the quality sides, the capacity that has been released to run more and bigger projects for our customers is enormous.”

Mullen believes DPx Holdings can add well over a billion dollars in customer projects to his current production network.

Capacity can depend on the eye of the beholder, as they say. It is certainly not uncommon at any production facility in any industry to have project managers and floor workers look at capacity through different shades than executive management. To determine the “truth” about capacity at its plants, DPx Holdings have “excellence programs” that are implemented factory-by-factory, according to Mullen.

“We start to focus the factories on a constellation of core capabilities. We got them to think more strategically about capacity applied to capabilities. On the one hand we narrow the factory focus, but on the other we are not reliant on a single product.”

Mullen says sometimes it can be as simple as an example he gives investors about a single tablet press operation that underwent a re-engineering process.  His team focused on relatively minor items like utilizing a separate set of toolings, better understanding what operations needed to be done in the same lab, and thinking through and organizing room sampling and clean-up.

“You can help your employees gain capacity. We've gone over ten hours of downtime for changeover on that equipment to a couple of hours.” This adds up when factories are running 24/7 all year round. And, according to Mullen, quality improves as well.

This doesn’t mean that at times there isn’t a need for capital expenditures, new equipment and retooling. But according to Mullen, the difference is any new investment comes “under the roofline of the factories we own.”

Improved Employee Morale And Job Security

Mullen says the sum of this focus on quality and capacity is employee morale and job security. While there will always be skeptics, particularly among the ranks of front-line workers and managers, the way to handle that is with communication and results. DPx Holdings brought in external resources to help each production facility re-analyze challenges, ask the right questions and look at things from a variety of vantage points. This skill set then gets transferred and ingrained internally.

Confidence on the front-line, plant-floor level also starts with how employees view their leadership, and according to Mullen, that leadership has its own immediate set of needs.

“I personally worked through the organizational structure of the executive appointments. It is vitally important that virtually every employee, if not all, understand who his or her boss is on day one. Obviously, everybody wants to be sure they have a job, but also know who they're working for. Providing this takes away anxiety and gets people on board.” In turn, all employees experience strong leadership that understands the power of the program being put in place.

A particular concern on the plant floor is when management talks about efficiencies. Mullen understands this can create a lot of anxiety over job security. He says he makes a clear promise to the combined employee base: “If you help with the application of operational performance efficiencies, and stay focused on customer metrics, we will get the business necessary to keep everyone busy.”

According to Mullen, DPx Holdings has already seen an uptick in business in every factory within the new organization. Productivity and profitability are moving in the right direction, and as predicated, head count has remained practically unchanged. In the transition period, Mullen estimates they have already added about $150 million of revenue to a $650 million business.

“People didn't lose their jobs. We are getting more business. With success, the early skeptics turned into our biggest supporters.”

In any merger and/or acquisition, the financials make up the initial headlines and gather the most interest. Internally, though, as Mullen has demonstrated at the new DPx Holdings, it is very much about quality, capacity and job security, and how they relate to each other that makes for a successful integration.