Automation is old hat these days in certain industries, such as automobile manufacturing. Such sectors long ago realized large productivity gains from using tireless robots to do the jobs of mere humans. Now, however, it seems that automation is reaching into new areas in another industry -- drug manufacturing. With drug makers caught between delivering solid margins to shareholders and affordable medicines to consumers, any innovation that improves productivity is welcome. Those companies that adapt the most quickly stand to gain the most.
One potential winner is Eli Lilly (NYSE:LLY). The drug giant will soon take a tangible step to ramp up productivity with the launch of a highly automated facility. The company expects to cut the ribbon on a new $104 million lab building this coming week, according to the Indianapolis Star. The facility is unique in that it will utilize robotics to perform certain routine tasks normally handled by chemists. The lab's automated section will run as many 120 chemical procedures a day, an output equivalent to the work of 50 to 60 chemists.
The new facility is part of Eli Lilly's effort to slash the cost of developing a new drug to between $500 million and $700 million by 2007. Lilly's goal is fairly ambitious, since the industry average for creating a new medicine is roughly $1 billion. Still, Lilly may not have much choice in the matter, since governments and the general public have increasingly put pressure on drug outfits to keep prices for their medicines in check.
Importantly, automation is not the only area where Lilly is seeking to improve productivity. The firm is rolling out Six Sigma continuous improvement practices throughout its operations. In addition, Lilly continues to outsource certain functions to firms such as Cardinal Health (NYSE:CAH) and Albany MolecularResearch (NASDAQ:AMRI). While Lilly's drive for efficiency is born of necessity, its aggressiveness in improving the efficiency of its operations may give it a leg up over competitors. Investors would do well to keep a close eye on Lilly as its efficiency programs bloom.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
