Newsmakers: Marcelo Morales

By Gil Y. Roth | October 11, 2011

The CEO of Jubilant HollisterStier talks about integration

Marcelo Morales joined Jubilant HollisterStier (JHS) in 2008 from Deloitte & Touche, and has shepherded the integration of HollisterStier Contract Manufacturing and the CMO business of Draxis Specialty Pharmaceuticals. Now that the integration is complete and the company’s new brand has rolled out, I spoke with Mr. Morales about that process, as well as his impressions of the parenteral marketplace, expansion plans, and how the exit of a competitor may impact strategy going forward.


Contract Pharma: How’s the integration going?

Marcelo Morales: We acquired Draxis in 2008. Our parent company, Jubilant Life Sciences, had acquired a series of companies in North America, but they were all operating somewhat independently of each other. Legacy management teams and business practices and processes were still in place. In 2009, we started a comprehensive integration strategy that included bringing the Spokane (HollisterStier) and Montreal (Draxis) facilities under a common business vision, with shared processes and a single management team. Other Jubilant businesses would also be integrated into our contract manufacturing network, including two oral dosage form facilities that we share with another Jubilant business unit, one in Maryland and one in India.

That strategy was implemented over 2009 and 2010, bringing those businesses together while simultaneously growing them. We were very careful not to allow this process to distract our day to day operations. We didn’t want to focus on our internal activities at the expense of our clients. And in fact, this activity was unknown to them until we made our name change to Jubilant HollisterStier.

It’s almost one year since the formal integration was completed. We have a consistency in operating practices. We’re essentially integrated across North America. We serve our customers out of each of our sites. We have contract manufacturing in three sites across the region: tablet facility in Salisbury, parenteral and multi-dose facilities in Montreal and Spokane. We’ve taken key elements of our quality systems and incorporated them through the business.

CP: What was that process like?

MM: As an example, about 18 months ago I formed a North America Quality Council within Jubilant Life Sciences. It was an aggregation of internal quality leaders across all of our facilities in North America. The objective was to make sure we built on all of our internal leading practices and stay ahead of regulatory requirements globally. That council helped drive the direction of keeping our facilities ahead of the curve. We’ve taken the recommendations of the council and put them into our long-term plan, including long-term capital investments and other reorganizations and activities. It’s served as a template for how to integrate other functions within our operations.

CP: Where do you go from here?

MM: With the first phase of the integration complete, we’re moving on to building back office business capabilities. This includes a common ERP platform, which we’ll implement across all our facilities. This platform will go deep into all areas of the companies, including manufacturing, where it’ll yield electronic batch records, quality systems and LIMS, and all other fundamental operations in business management and financials. We are targeting for completion in early 2012.

We now have a common brand, a common view, leveraging our parent’s brand as well as our unique facets. That platform and our new brand awareness will help us as we launch new capabilities at upcoming industry events.

We’ve solidified our growth, after a small dip last year. A lot of our customer base was consolidating and a lot of outsourcing conversations were put on hold for a while. During that span, we made an effort to build up market share. We grew ahead of what our competitors did (as best as we can gather) and we’re now in a very healthy position, providing a comprehensive set of services to our customers.

We’re evaluating both organic and inorganic growth options. Organically by expansion within our existing facilities, and balancing that with client needs.

CP: What sort of inorganic growth are you considering?

MM: We’re not actively looking, but we’re aware of capabilities on the market. We don’t have a manufacturing presence in Europe, but we have a number of clients from Europe. There are some dosage forms we don’t have that might be interesting. That said, there’s a tremendous amount of capacity in the market right now. A lot of our customer base is shedding facilities, as are some of our competitors. We’re talking to people as opportunities arise.

We need to grow, and provide more solutions to our customers over time. Where we grow may be in India, Europe, or North America, or a combination thereof.

CP: Given that capacity glut, how do you keep from falling into a commoditization trap?

MM: Part of our capability is a commodity. We offer a service that is clearly available across other companies and internally among some of our customer base. We recognize that, but there are two distinctions in how we service our customers.

Firstly is our focus on quality and customer service. Where we differentiate is in our high quality and in our robust quality system, which gives our customers comfort that production is in good hands. We have implemented programs targeted at addressing causes for human error in production; we have implemented extensive lean, kaizen and design-for-six-sigma programs across both our internal processes and our customer processes, aimed at continuously improving our product quality.

Secondly, our technical expertise is a key differentiator to assisting our customer find scientific solutions to their complex problems. We differentiate through our technical expertise and product development expertise. We offer a comprehensive capability of science solutions for our innovative in-house products (under the Jubilant umbrella), and we do extensive work refining and developing them, and we apply that skill set to many customers on a contract basis, whether it be a biotech in the clinical space that’s trying to refine a process or a commercial client that wants to do a broader scale-up. Those are driven by the requirements as they arise.

CP: What’s your take on the parenteral CMO market overall?

MM: We see outsourcing trends growing, but in increasingly specialized areas. The business will require much more flexibility, going forward. There’s opportunity for us, if we can offer unique solutions to our customers. That may be a unique dosage form, or a technology platform, or supply chain flexibility.

Europe, Japan and the U.S. will all be growing outsourcing markets. We also see opportunity in India. We have a facility in India that is expanding in utilization. Our ability to bring both North American and Indian solutions is a real differentiator for us.

I think we’ll experience a lot of growth in the next three years, We believe we will be successful by bringing unique solutions that will involve tech transfers and scale-up. The more we can put ourselves in the shoes of our customers, in terms of flexibility and COGS management, the more successful we’ll be.

We’re very bullish right now. We’ve spent a lot of time developing operational efficiency and fundamental manufacturing ability, so we could deliver product effectively. We’re at the point of scaling that up. We’re proud of the Six Sigma / Lean / Kaizen principles we’ve put in place at all our facilities. We’re proud of the systems integration that we’ve implemented, as well as the customer service infrastructure. Most importantly, we are proud of the teams we have in all our sites – tremendous leadership and expertise. A lot of the fundamentals are in place.

We’re grown our profitability and that allows us to continue expanding for our customers. I’m very encouraged about our ability to expand and continue to serve our client base.

We want to be a large global player relatively soon and we know where our holes are in geography and dosage forms. The next phase of our strategy will address that.

CP: How does the recent news about Ben Venue’s exit from the CMO market affect your growth plans?

MM: We’re monitoring that situation. There have been customers who are looking for alternative suppliers. We don’t have cytotoxic capabilities, so we can’t provide them with that service. With regard to the other sterile parenteral requirements of their clients, we could fit them into our existing capabilities comfortably. We’re working with some companies and are evaluating their interest.

I don’t think the Ben Venue news is going to change our strategy. We’ll continue to focus on expanding our parenteral capabilities, both clinically and commercially, and expanding our dosage capabilities.

CP: What dosage forms are you looking at?

MM: As I said, we don’t have cytotoxics. That will likely grow in demand, but it’s a difficult dosage form to manufacture safely, effectively and consistently. We will assess this dosage over the coming months and discuss accordingly.

We don’t have prefilled syringe today, but we’re addressing that and will have that capacity soon. There are certain areas that we’re not involved in, like cephalosporins and penicillins. Then there are very unique device-related forms, or platform-related forms. In some cases, we may build the capacity to fill in a dosage form we’re lacking. In others, we’ll work with another customer to build it.

We have a client we’re working with now that has a unique delivery platform. The technology will stay with them, but the expertise we’re developing can be applied down the road. So there are some broad dosage form gaps and then there are some specific niche ones.

CP: What’s your take on prefilled syringe capability? It seems that everyone was adding it in the last few years, so I’m concerned that we’ll see a glut in capacity.

MM: That risk has been around for a long time. There was an analysis of the market three years ago that showed almost double the capacity in the market against demand, and recent analysis shows a similar trend today.  Through our business intelligence capabilities we are carefully assessing and monitoring our customer requirements for syringe dosages. As we expand, we are incorporating our customer needs into our growth plans. 


CP: Are the major pharma facilities up for sale useful to a company like Jubilant HollisterStier?

MM: You have to take them on a case-by-case basis. I've looked at a number of big pharma facilities  across the world in the last year and a half. The fit hasn't been there, particularly for the large facilities. They tend to be built around just a few large volume products, with tremendous amounts invested in very sophisticated technology.

In the parenteral space, some of the facilities I've seen had very sophisticated isolator technology, and were very high volume. That's ideal if you are making, say, three products. But as those products go generic or move out, that sort of high horsepower facility is impractical both for the large pharma and for a CMO.

A CMO needs a facility with much more flexibility. We run hundreds of SKUs, and you need to do changeover quickly to maintain high utilization. So some of those facilities, while very impressive, aren't that practical.

Instead, we find that we're talking with pharma companies much more about equipment. But that's more of a one-off basis.

Really, our conversations with large pharma are more about building our relationships with them, not buying facilities. Many of them have pipelines with so many projects going that they can benefit from our flexibility.

The path of commercialization really varies from product to product. One will accelerate and another will get delayed. We're much more agile and able to flex with those changes than their internal resources are, sometimes. For example, if a company has three or four pipeline products and two get accelerated while two others get delayed, they may find a two-year timeline getting shrunk to 18 months. We're good at responding when those changes occur. There's an appetite for our services from large pharma because of that.

Gil Y. Roth has been the editor of Contract Pharma since its debut in 1999. He can be reached at gil@rodpub.com.
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