Criteria for the commitments a plant can honour

When a customer's plant stops, the request that reaches us is usually for everything at once. I have learnt to answer with criteria rather than goodwill. We rank requested products by the clinical and supply consequence of a gap, by their fit with equipment we already validate, and by the documentation and investigation capacity our quality team says it can add without delaying existing customers. Each transfer needs validation batches, stability data and an approved change of manufacturing site before commercial supply, so a promise made in April may not be deliverable until the following year. I ask customers to fund part of that work and to commit to a minimum term, because a transfer that leaves after two years costs both parties more than it earns. Declining a product is part of the method, and so is explaining the reason quickly.

Japan's generic manufacturers are under pressure to merge, share production and narrow their ranges, and the government has encouraged that consolidation. For a contract manufacturer, a merger between two customers can double a relationship overnight without any decision on our part. I track each customer group's share of revenue, of plant hours and of overdue receivables, and I bring concentration to the board as a strategic question rather than a sales success. A larger share can be right when the customer contributes to capacity and accepts terms that would survive a change in its own ownership. It is risky when our prices automatically follow NHI reductions while labour, energy and material costs move the other way. My recommendations usually separate volume we welcome from exclusivity we should not grant, and they say so in the first paragraph.

NHI prices are now revised every April, and many older generics we manufacture sell for a few yen per tablet. Customers respond by pressing us for lower prices or by withdrawing products, and both change our plant loading. I review our range of about 420 products each year with customers rather than against them. For each low-volume product we examine whether a larger, less frequent batch, a shared formulation or a price change would keep it viable, and whether patients depend on it with few alternatives. Where withdrawal is right, the customer follows the notification and transition steps expected before a medicine leaves the market, and we keep supplying until that period ends. Pruning in this business is slower than a spreadsheet suggests, and I plan staffing and loading for that slower pace.

Our customers trust us with formulations, volumes and launch plans. If we held marketing authorisations for our own branded products in their therapeutic areas, that trust would be harder to keep. I therefore look abroad for manufacturing technologies rather than marketing rights: formats such as orally dissolving films and easier-to-swallow tablets that suit Japan's older patients and that customers may wish to launch. A manufacturing licence keeps us in the role customers chose us for, while giving us a capability other contract manufacturers lack. The trade-off is margin. An own product would earn more if it succeeded, and a licence leaves the commercial decision with a partner. I set out both cases for the board, including what we would do with a dedicated line if a partner's approval failed.