A New Game Plan

I remember a speaker at a manufacturing managers' meeting I attended in the mid-1990s who asked the audience for the name of the first fast food company. McDonald's followed by Burger King and Wendy's were the quick answers. No, he said. It was F.W. Woolworth.

During the 1950s and '60s, you could buy a sandwich and a bowl of soup at almost any of this five-and-ten-cent store's locations. But Woolworth failed to see a bigger opportunity in the transformation to fast food and didn't or couldn't adapt its game.

Today, all that remains of Woolworth has been consigned to museums and the memories of the baby-boomer generation. The lesson taught by that speaker was that when you think you are at the top of your game, you need to be thinking about changing your game before someone else changes it for you. That's the situation at hand for the chemical and pharmaceutical industries.

A new book, "Shaping the Industrial Century: The Remarkable Story of the Evolution of the Modern Chemical and Pharmaceutical Industries," by Alfred D. Chandler Jr., stops to take a look at this situation. Chandler, an emeritus business history professor at Harvard Business School and a Pulitzer Prize winner for his business writing, provides the reader with a historical overview of the evolution of the modern chemical enterprise. He discusses the factors responsible for its successes--and in some cases its failures. The book is a sequel to his examination of the information revolution in the 20th century, "Inventing the Electronic Century."

Chandler follows his general assessment of both the chemical and pharmaceutical industries with a detailed analysis of the major U.S. and non-U.S. companies involved. I recommend this book to anyone who wants a very thorough education into business environment factors. Topics of interest include the first-mover companies and the fast followers and how barriers to entry, strategic boundaries, and the practical limitations to growth played out in determining the fate of these sectors and the companies that have populated them.

My 30 years of experience at Pfizer, a relatively small player in the pharmaceutical arena in the 1970s and now the largest and most successful company in this cohort, suggests Chandler's analysis of the pharmaceutical industry is right on the money, as far as he takes it. But in the past five years or so, dramatic changes have occurred, and there's no sign of letup going forward.

These changes are due to a host of reasons: merger and acquisition consolidations, the rapid growth of biopharmaceutical companies, patent expirations resulting in the loss and pending loss of billions of dollars of revenues to generic companies, escalating R&D costs coupled with worsening drug candidate survival, the prescription cost debate, and more.

George Santayana's teaching, "Those who cannot remember the past are condemned to repeat it," makes a book like "Shaping the Industrial Century" a must-read for anyone who works in these industries now or plans to do so in the future.

Virtually every surviving chemical and pharmaceutical company mentioned in Chandler's discourse has made a commitment to "triple bottom line" performance--that is, economic, environmental, and social values--as part of their embracing sustainable business practices. When you visit these companies' websites, you find statements from corporate officers describing their company's performance against these three criteria.

To get a sense of the state of the sustainability problem, the World Resources Institute reported in 2001 that only 10% of the raw materials taken from Earth make their way into manufactured goods, with the remainder becoming waste. When the growing middle class of China, India, and countries in Africa move closer to the same standard of living as in the West, the resources of three Earths will be needed, according to the United Nations. How will we triple the yield? The clock is ticking.

The purpose of the chemical industry is to transform raw materials into products useful to society. The mission of the pharmaceutical industry, defined by the Pharmaceutical Research & Manufacturers of America, is discovering and developing new medicines that will enable patients to live longer, healthier, and more productive lives. For these missions to be complete, there needs to be a strong commitment to a healthy environment.

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To that end, a growing number of practioners in the chemical and pharmaceutical industries believe green chemistry and engineering is an important transforming event in the evolution of their businesses on the road to sustainability. Green chemistry, as defined in the seminal text by Paul T. Anastas and John C. Warner, "Green Chemistry: Theory and Practice," is the utilization of a set of 12 principles that reduce or eliminate the generation and use of hazardous substances in the design, manufacture, and application of chemical products.

The first principle teaches that it's better to prevent waste than to treat or clean up waste after it has been created. Roger A. Sheldon of Delft University of Technology, in the Netherlands, has developed an analysis of the amount of waste produced by various sectors of the chemical industry. It has served as an important catalyst for action around waste reduction and waste prevention. Sheldon defines a simple metric of green chemistry performance, the E-factor, which is calculated as the weight ratio of by-products to products.

His numbers indicate that the pharmaceutical industry produces the most waste per unit of product, between 25 and 100 kg or more of waste for every kilogram of active pharmaceutical ingredient (API) manufactured. For comparison, the petrochemicals sector produces 0.1 kg of waste for every kilogram of product produced.

Pharmaceutical industry spokesmen are quick to point out that commercial volumes of drugs are much lower, with annual production between 1,000 to 1 million kg per compound, compared with basic chemicals, such as phenol, that are produced in billions of kilograms per year. API molecular structures are more complex, the syntheses are lengthy, and patient safety demands very high purity. Also, unlike their chemical-sector neighbors, most APIs are made in a batch mode rather than by continuous processing.

Nevertheless, some pharmaceutical companies report that dramatic results can be achieved when green chemistry principles are used to redesign existing manufacturing processes and to design processes for new drugs in the pharmaceutical industry pipeline. In some cases, waste reductions of more than 10-fold have been achieved. These reductions provide a double economic benefit to companies because more of the raw materials they purchase end up in the products and less waste needs to be disposed of--a costly and highly regulated process.

Audited pharmaceutical industry annual sales were almost $500 billion in 2003, according to IMS Health. Using some assumptions about average daily selling price, average daily dose of a typical pharmaceutical product, and Sheldon's E-factor, one can estimate a potential waste coproduced with APIs to be in the range of 500 million to 2 billion kg per year. Even at a nominal disposal cost of $1.00 per kg, the potential savings just in waste avoidance is significant and the economic argument for green chemistry becomes compelling. Similar economic arguments can be made for all sectors of the chemical industry.

A broadly experienced committee commissioned by the National Research Council through its Board on Chemical Sciences & Technologies recently examined the issue of the grand challenges for sustainability of the chemical industry. The process culminated in February with a two-day symposium in Washington, D.C., that I attended and in which industry, academic, government, and nonprofit organization opinion leaders met to discuss the challenges and to suggest broad areas for future research. The results of these discussions and recommendations were just presented at the American Chemical Society's national meeting in Washington, D.C.

The four broad areas that were identified and discussed were sustainability science literacy and education that enable the adoption of more sustainable practices in the chemical industry, enabling technologies that drive the application of green chemistry and engineering, new chemistries and processes that lead to commercially viable alternative feedstocks to fossil fuels, and reducing the energy intensity of the chemical process industry.

Separately, ACS's Green Chemistry Institute is sponsoring a pharmaceutical industry roundtable made up of green chemistry advocates from almost a dozen major pharmaceutical companies. This roundtable may be a model for other sectors of the chemical industry to consider as a way to help advance green chemistry and engineering in their businesses.

Some of the green chemistry barriers, outlined by James H. Clark from York University, in England, are conflicting regulatory policies, companies too focused on the short-term bottom line, too little R&D funding of green chemistry research, too few universities teaching green chemistry, and an absence of a culture-of-change mind-set in these industries.

I find Clark's reference to culture most discerning because organizational culture can be the greatest barrier to change. For example, during the Pfizer-Warner Lambert merger and acquisition period in 2000, a saying from an anonymous sage, quoted by one of the R&D site heads, was very popular: "Culture eats strategy for breakfast every day of the week."

These many examples point out that there is a new revolution afoot in the chemical and pharmaceutical industries. I liken this advance of green chemistry in the chemical enterprise to the biological process of viral infection. The patient isn't coughing, sneezing, or running a fever yet, but the patient is infected, the viruses are replicating, and it's only a matter of when the patient starts to show the symptoms.

As we move forward in the 21st century, what are the trajectories for the two industries examined in Chandler's text? If the trajectories are a linear continuation of what happened in the 20th century, it will be easy to predict the future. A more challenging, although possibly chaotic, outcome occurs if disruptive forces precipitate innovation. A few examples of such forces on the horizon include diminishing stocks of fossil-based chemicals, persistent toxic substances, and the emergence of a larger chemical industry in India and China.

Like death and taxes, I think we can count on disruptive change to occur. But when will that happen and which innovations will it spawn? My view is that green chemistry is an on-the-come innovation that has started to provide the positive economic, environmental, and social benefits these industries will need. It would be interesting to read what a future writer will pen on the evolution of the chemical and pharmaceutical industries 100 years from now.

Berkeley W. (Buzz) Cue Jr. spent nearly 30 years working at Pfizer and led the company's R&D units before he retired in 2004. Cue created Pfizer's green chemistry initiative, and he currently serves as a member of the governing board of ACS's Green Chemistry Institute.