Rex Quinn enjoyed the momentary quiet on his early-spring bicycle ride from Factory 29 to his office. As he pedaled past several of the 100-plus buildings on the 300-acre site, his thoughts were interrupted by concerns about the intended expansion of Factory 29. Months before, Winding Creek Pharmaceuticals was sold from its comfortable existence within a "Big Pharma" company, and for the first time in its 60-year history, Winding Creek was competing on its own in the cutthroat contract manufacturing industry. During the due diligence process, Winding Creek's new owner, ALPHA LLC, decided to spend $10 million to expand Factory 29 after it acquired the plant. Quinn knew, unquestionably, the plant needed extra capacity to grow and achieve profitability, but was it the right time to make a large capital investment in this factory? Would a caution from him, the plant manager, matter at this late hour anyway?
Similar to the President of the fledgling company, Brice Cooper, and the Vice President of Marketing, Doug Meyer, Quinn believed Winding Creek could sell enough product to cover the factory investment, but how quickly could it generate those sales? Low-cost foreign competitors and other structural changes had besieged contract manufacturers and Winding Creek's sales team had barely been in place for three months. In an industry with long cycle times and with foreboding evidence of an impending economic contraction, Quinn wondered what would happen if the investment failed to generate a return quickly. Arriving at the administration building, Quinn racked his Winding Creek-issued bicycle, a yellow cruiser bedecked with Quinn's prominent signature: an unusually-high seat. Eager to formulate his recommendations for the Factory 29 project, Quinn strode into his office--conflicted about expanding at this time.
Built during World War II along the banks of the Susquehanna River to provide chemicals for explosives, the Winding Creek site lay fallow for several years until it was leased, and ultimately purchased, by Limerick Stone Pharmaceuticals in the 1950s. Over the years, the owner spent considerable resources modernizing and expanding the facilities to provide the manufacturing capability it needed. Limerick Stone allocated work among its network of plants, selecting Winding Creek to supply various chemicals based on its processing capability and occasionally having it make products for other companies.
Because of excess worldwide capacity, Limerick Stone announced in 2004 its intention to prune its production network by closing or selling a handful of its plants, one being Winding Creek. Several years later, employees were relieved to hear there was a prospective buyer for their plant, a buyer that was interested in expanding the facilities. Quinn recalled, "We were nervous that the plant was closing, but to find out that the business was growing! Things were good."
The buyer, ALPHA LLC, had neither manufacturing nor pharmaceuticals experience. ALPHA provided government-contracted services, such as maintenance on federal buildings, making it accustomed to the structure and stability of these contracts--it did not have to worry much about fluctuating demand patterns and near-term uncertainty. Recognizing its shortcomings, ALPHA hired Brice Cooper, an executive with 30 years in the industry, to run its subsidiary contract manufacturer.
Pharmaceutical Industry Overview
Cooper navigated Winding Creek's January, 2008, launch as an independent supplier for the pharmaceutical industry, an industry that was expected to reach $735-745 billion globally in 2008 (IMS Health, 2007) with the dominant share, about 38%, belonging to the United States (Mroczkowski, 2012). The industry divided into two segments: legacy and emerging. The legacy companies, typically referred to as "Big Pharma," dominated the industry and included giants such as Johnson & Johnson, Pfizer, Wyeth, Merck & Co. …