Penn: a success story in pharma outsourcing

A recent management buy-out is transforming the fortunes of Penn Pharmaceuticals. Sarah Houlton visited its site in south Wales to discover the secret of its success

Back in 1999, the shareholders at Penn Pharmaceuticals recruited Craig Rennie as chief executive with a brief to sell the business. In the previous four or five years, the company's performance had not done it justice in terms of its core skills and size of the potential market, and Rennie rapidly realised that the obvious strategy was to lead a management buyout instead. In the five years to 1999, the company saw its turnover ticking over at £4.5m p.a. This rose to £6m in the next year, and the current financial year is expected to see a further rise to £9.2m

This increase in business is taking place against a background of growth within the outsourced pharmaceutical manufacturing sector. The total outsourcing market was £13bn in 1998, and has risen by 15;20% p.a. since then. One of the major drivers of this expansion is the raft of mergers being undertaken by large pharmaceutical companies, which have led to fewer development projects being undertaken in-house. 'Big pharmaceutical companies are inflexible,' says Rennie, 'and this is where companies like Penn come in, as their increased flexibility and absence of committee structure means projects can be undertaken more quickly.'

The company was originally founded in 1979 as a pharmacy business in the village of Penn in Buckinghamshire. The success of the manufacturing business, initially started in the back of the shop, rapidly meant a relocation to more suitable premises was needed. The founder hailed from Wales and, with the aid of grants from the Welsh Development Agency, in 1986 the company moved to its present location in Tredegar in south Wales.

'The MBO was completed on 20 September 2000,' says Rennie, 'in a deal worth £12.6m. The plan is to spend £1m p.a. on capital investment into the current site over the next four years, creating an extra 50 jobs in the process.' The aim is that by the end of the third year, the company's workforce will have risen to over 200. A dedicated facility for thalidomide production has recently been completed, and a further manufacturing extension is currently under construction.

The company specialises in contract outsourcing services for the pharmaceutical industry. It has no own-brand products, but offers formulation development, distribution, analysis, and clinical trials packaging as well as contract manufacturing, for which it has a specials licence. Of these, by far the largest turnover-wise is the contract manufacturing business, which currently amounts to around 60% of turnover. The plan is to expand the other areas of the business so contract manufacturing amounts to around 50% in future, making the company less reliant on one area.

Maximum flexibility

'We have clear priorities for where we intend to spend money,' says operations director Peter Skellon. 'The business needs to be as flexible as possible, with mergers and acquisitions within the pharmaceutical companies leading to changed priorities. We may, for example, see a big turnaround in development outsourcing business. We have a more clear view of how we expect the contract manufacturing part of the business to develop.'

The facility's equipment storage area is resonant of a museum of the history of pharmaceutical manufacturing, being full of old machines awaiting disposal. Parts of the facility are 15 years old, and some of the machines are 30 years old. However, significant money is being invested at the site, with a planned spend of £5m in as many years. 'This is probably more than total investment in the previous life of the company in total,' says Rennie.

Much of the company's business is in the area of tablet manufacturing. A recent acquisition is a prototype high energy mixer being set up on site in Tredegar. The mixer has a high speed chopper granulating blade and hot water jacket. As it can pull a vacuum down to 19mmHg, aqueous granulation is possible under low relative humidity, and it can dry without the need for a fluid bed drier.

The flame-proof tablet coating area can be used for solvent or aqueous coating. The Accelacota 150 has automatic sugar coating attachments, and a 48" diameter pan load of around 100kg.

Another newly installed machine is a Macofar CD60 capsule filler. 'Porcine pancreatin would not run on a Zanazzi at all as it is far too fluffy — it's an absolute pig to handle!' says Skellon. The Macofar machine has a vacuum dosator system, with a vacuum being pulled through the nozzles, sucking the product in. 'We considered roller compacting, but this machine manages to fill 99% active at ±2.5% by weight,' adds Skellon. The CD60 can fill up to 60,000 capsules/hr, and will ultimately be able to accept automatic weight control.

Developmental products

Creams are filled using a Comadis C130 tube filler. A small, second hand, Brogli development stage mixer was installed to produce small quantities of a developmental anticancer cream. 'The area was set up with a view to being able ultimately to do full worldwide production for the product,' says Skellon. The Comadis tube filler will be able to handle plastic and laminate tubes in the future if necessary, and a 500l cream vessel on order.

Penn used to have a full steriles operation, but the recent business review led to the conclusion that the business was not sufficiently large to justify its continued operation. Upgrading to meet the latest regulatory requirements would be prohibitively expensive, so the company is now selling off its steriles machinery. One leftover from the steriles operations is a room for 'clean' tableting, currently being used to make 4¥2mm coated cylindrical pellets of hormonal implants to alter the lambing season in sheep.

In 1995, Penn sold most of its specials business to Martindale, with the exception of three or four products, including melatonin, which it makes in three strengths of capsules, and, notably, thalidomide. 'It can manufacture melatonin at 12,000 capsules/hr, and we keep it as a stock item, despite its short shelf life,' says Skellon. It is distributed to pharmacies on a named patient basis.

Thalidomide is sold in the UK and Europe on a similar basis, and the company manufactures the product for Celgene in the US. Penn is the world's largest secondary manufacturer of the product. The volume manufactured has gone up by around 20 times since 1996, with production rising from 10,000 to 200,000 capsules/month because of a rekindled interest in the treatment. No women are allowed in the thalidomide facility at any time, because of the potential risk of teratogenic effects, and complete containment of the facility and its waste is extremely important. Water from the thalidomide plant is taken to pH13.5 for 4hrs with NaOH, then neutralised to 6.5 with HCl. There is a 6,000gal tank, set in an 18,000gal bund, and another 6,000gal bund with a 9" step around the acid and alkali tanks to ensure nothing at all gets out into the water system.

The expanded thalidomide suite was built with the help of Swiss contractor Luwa but the company has now worked out a system for construction using local contractors, which is how the new production extension is being built. The shell of the new 400m² building cost a relatively low £600k, and it is hoped it will be fully operational by June. This latest extension will essentially double Penn's manufacturing capacity. The new rooms are being built to the same standards as the containment suite, to Class 100,000. Air is HEPA filtered, both in and out, and the air changed at least 20 times/hr. It will have cleanroom steel partitioning, a fully sealed ceiling, and will operate at 15Pa negative pressure.

Investment in analysis

Investment has also been made in the analysis area, with well over a dozen hplc machines having been installed, for example, alongside stability cabinets, humidity controlled areas and headspace GC analysis capabilities. A dedicated lab for thalidomide analysis has also been added, and this has been inspected by the FDA.

The future is looking bright for Penn, and the investments resulting from the MBO should put the company on track to realising its potential. As Rennie says, 'The talent within Penn is as good as any other company in the industry. What was lacking was a good sales and marketing operation, and effective business systems. Get these right, and the company will succeed.'