Cure for the no-Roche blues
Miracle drugs roll off the assembly line at Roche Carolina’s plant east of Florence by the thousands every day. The 300,000-square foot facility’s lineup of high-tech drugs includes pills that fight cancer, hepatitis, the flu and even (in the recent past, anyway) unwanted fat.
Too bad there’s nothing for depression.
Local leaders could have used a dose or two that fateful day last month when they learned the international pharmaceutical conglomerate that owns Roche Carolina — the Swiss-based company known simply as Roche — planned to “divest” itself of its lone, but considerable, Pee Dee holding. In one fell, highly unexpected swoop, the gem of Florence’s industrial crown, the linchpin of a nascent “pharmaceutical cluster,” a star among local corporate citizens, was gone.
“It was like, ‘bam!’ and suddenly everything you thought you know about development here had changed,” said Dr. Fred Carter, president of Francis Marion University. “It was quite a blow.”
And yet, all is not lost. The news was, and is, disturbing; the potential of a Roche-less future unsettling.
But in the wake of it all there is some good news amidst the gloom. As it turns out, there may be a cure for the no-Roche blues.
Surprisingly — or perhaps not — the key ingredient in the potential cure is the Florence plant itself. A shiny, high-tech marvel of modern pharmaceutical manufacturing genius, it is, as it turns out, just too useful, too valuable, to disappear into the abyss of corporate profit taking.
No one understands this better than Florence’s Don Herriott, who managed the plant for Roche Carolina from 1996 until 2008 (the plant was his only responsibility until 2004; after then, he managed it along with six other Roche properties). Herriott, the key cog in the three-man task force — which includes Carter — appointed by state Sen. Hugh Leatherman of Florence to help look after community interests while Roche goes through its sale process, said during an extensive interview last week he’s upbeat about prospects for finding what local leaders would call “the right buyer.”
“There’s more reason to be optimistic than not,” Herriott said. “There won’t be a (new) company that’s a 100 percent fit, but there will be some that are close and when you find that you can make a deal. … Will this be easy? No. But is the idea viable? Absolutely.”
More evidence is that in the wake of the big, mid-November announcement, Herriott and company began fielding some calls. Interested buyers, most of whom were alerted by Herriott’s reach out calls to his industry contacts, were on the line wanting to know more.
“We had some inquiries right away,” said Herriott. “We told them, ‘Hold on. You’ve got to wait for Roche to get all of its ducks in a row, wait for what we imagine will be a formal bid process to begin. But we’ll keep you on the list.’ … And, frankly, we had a few other calls that, well, let’s just say we haven’t returned them yet.”
Amongst the latter were investment groups who would eye any distressed, or semi-distressed sale property with the hungry glare of an underfed vulture. To them the Florence plant would be a carcass to be picked over, something that could be bought for the sum of its parts (or, more to the point, the sums a buyer could get by selling off the parts). That might produce some fast cash, but Florence officials want no part of a dismemberment like that.
And, as Herriott executive sees it, neither would Roche.
Roche, theorizes Herriott, probably needs to keep making several of the drugs it makes here for at least the next two or three years. Xeloda, its breast and colo-rectal cancer drug, and Tamiflu, the well-known flu fighter, are too important — and particularly in the case of Xeloda, too profitable — for the company to risk a long-term shut down in the supply line.
“If Roche did something to create a shortage (of Xeloda) that would be a tremendous blow to its reputation and credibility,” Herriott said. “It’s just not something that you would do. And, it’s a $1 billion or so a year sales stream. You’re not going to turn your back on that. Even a short outage of production would be a tremendous blow, a tremendous risk, to Roche. So, there’s really not much risk of Roche wanting to find the quick money.”
Roche would prefer a buyer that would simply continue to operate the plant the way it is being operated. The new company would make the same drugs Roche is making, probably with most of the same people doing the work, and then sell them to Roche for public sale and distribution. This is the scenario Roche spokesman Pete Mazzaroni calls the “badge and logo change.” Roche employees would leave work one day wearing Roche insignia in its trademark blue, then show up the next (figuratively speaking) wearing another logo and color, belonging to a new company doing the same work.
This sort of arrangement, known as contract manufacturing, is a trend with considerable momentum in the pharmaceutical industry. Some estimates suggest that the contract manufacturing business, handled by generally unknown but often-massive companies like Dutch-based DSM, already is a $100 billion a year business. That’s a tenth or more of the global pharmaceutical total. DSM churns out an ever-changing array of pharmaceuticals at its 1.5-million square foot facility in Greenville, N.C.
Herriott said Roche’s decision to divest itself of a valuable asset like the Florence plant makes some sense as a part of a new, strategic direction toward more contract work. That Roche would be changing direction is no surprise to industry observers. The giant multi-national (it’s the third- or fourth-largest pharmaceutical firm in the world) has just gone through a regime change. CEO Dr. Severin Schwan took the reins of the Roche Group in 2008.
Serendipitously, Roche’s transitional need should act as an enticement to several kinds of buyers. A contract manufacturer looking to expand or upgrade its facility inventory could buy Roche’s Florence plant, secure in the knowledge that it had several years’ worth of demand already in place. Similarly, a drug company looking for more future capacity, could buy the plant and produce Roche products for a few years while finishing development of a new line or building sales volumes. Roche would need a minimum of two to three years to transfer its manufacturing to other sites, and might prefer not to move at all. The patents on Xeloda expire in 2013-14. The patents on Tamiflu expire in 2016.
The Florence plant is the only plant Roche plant registered to produce Capecitabine, the active ingredient in Xeloda, although Herriott said Roche had one or two other facilities that could handle it. Roche Carolina is the only U.S. plant registered to produce Oseltamivir Phosphate, the active ingredient in Tamiflu. That’s important for two reasons: Roche has no immediate option for producing that drug, and creating one won’t be easy. Roche’s next-best company-owned production options are overseas and the U.S. government is clear that it wants a secure, U.S. source of the anti-flu medicine, in case of an epidemic.
But while the current specialties of Roche’s Florence plant make it attractive to a buyer, it is technically attractive because of its flexibility. It was designed to minimize re-tooling costs and time. Mazzaroni said various design elements allow Roche to “‘re-plumb’ the plant in a much shorter period than it would take to re-configure a ‘dedicated’ manufacturing plant.”
Said Herriott, “It’s really a beautiful plant, especially to a chemical engineer.”
There also is room for additional expansion at the plant. While the plant appears enormous to the laymen’s eye, looming off in the distance from the public view on Old Marion Highway, it is not especially large for a pharmaceutical plant. And it is small in the overall world of biochemical manufactories. But the land that comes with the site, and the way the plant was sited on that land, would make expansion relatively easy (but not cheap). That’s probably more important to any chemical companies interested in entering the Florence plant sweepstakes. Herriott and others say a chemical buyer does not appear to be the best fit, but because machinery and techniques in the two industries are similar, that’s one additional possibility.
The are other positives to the campaign for a “good” sale. The factors that brought Roche to Florence in the first place — economical labor, location at a transportation nexus — are still in place. So are the tax incentive deals. Roche pays about $2.25 million in total property taxes per year through its fee-in-lieu-of arrangement, some 50 percent less than the amount stipulated in state tax codes. County administrator Richard Starks said all of Roche’s fee-in-lieu of agreements are transferable to a new buyer.
Finally, said Dr. Charles Gould of Florence-Darlington Tech, the third member of the task force, there is the almost too-good-to-be-true availability of Herriott to lead the local interest group. His knowledge of the industry, and specifically of Roche, is unparalleled, his contacts in the industry can, or already have, essentially created a worldwide network of “real estate agents” for the Florence plant, and he was available, having chosen to live in Florence after leaving Roche.
“He (Herriott) is the man, no doubt about it,” Gould said. “Dr. Carter and I know about as much about running pharmaceutical plants as we do about running Division I football programs.”
Neither Florence-Darlington Tech nor FMU have football teams of any kind.
For his part, Herriott admits he’s not exactly plowing new ground. During his Roche days, he sold two others plants: one in Mexico and one in Austria.
“Plants do change hands, so it’s not that big a deal in some ways,” he said. “There will be buyers. We just need to be selective.”
Perhaps Herriott’s considered advice will sound like immediate relief to shell-shocked Florentines in need of some positive Roche. For the time being, most are just grasping at straws and miracle cures.
At the annual Christmas party at Carter’s FMU presidential residence this week, a well-heeled partygoer on her way out wished the host a merry Christmas and extended her hopes for an improved new year.
“I’m just hoping that we’ll wake up one day and you’ll have made this whole Roche thing go away,” she said.
Carter smiled his famous smile and said, “I hope so, too.”