Douglas Pharmaceuticals installs AI-driven robots, faces up to tariff threat

One of our largest high-tech exporters is upping its game with AI-driven robots - and assessing the potential impact of what Trump says will be a “major” tariff on pharmaceutical exports to the US, where it sends $70 million in product, and counting, per year.

Douglas Pharmaceuticals has shown off its new, AI-powered warehouse system, involving 13 robots on rails that wrangle 6000 storage bins.

An order is punched into an app, then the products are bundled into a bin by a robot, ready to be packaged up by a human operator.

A scale model of Douglas Pharmaceuticals' new robot warehouse system. Photo / Chris Keall

It’s four times faster than the previous all-manual system, managing director Jeff Douglas says.

The privately-held firm - founded by Jeff’s father, chemist Sir Graeme Douglas in 1967 - employs some 700 staff at its Henderson, West Auckland plant.

It produces a mix of prescription medicines to naturopath supplements, as well as offering services including contract manufacturing and product co-development.

More automation is planned, but Douglas says jobs aren’t at risk.

There was a sinking lid once the new system was confirmed as on the way, with a handful of jobs not replaced.

Warehouse operations manager Ryan Gibbs says, “One retired, one went to do further studies and one to a very promising boxing career.

“We’ve been able to implement this, hit all out targets and get the ROI [return on investment], all without any job losses.”

Staff had been freed up for other work, Douglas said.

One of the robots in the Kardex system. Photo / Dean Purcell

Outbound and inventory team leader Stella Gibbons said the robots work around the clock, bar brief breaks to park on top of a self-cleaning station, or to attach themselves to a wall for a recharge.

There were some minor teething issues with the software initially, but there have been no hardware issues.

Gibbons can sit at home in the evening and push a button on her laptop to start an order. The robots will then sort it during the night.

The $3.8 million AutoStore system, from Swiss company Kardex, should pay for itself in three years, Douglas said.

In 2022, Douglas Pharmaceuticals opened a $50m, 4500sq m innovation centre, and now has two large buildings across the street from each other.

But the growing firm still needed more warehouse throughput.

A couple of more traditional options were on the table: extending the current warehouse, or buying a warehouse in another area.

But the faster, more efficient, AI-driven robots offered a solution that could be incorporated into its current setup.

“This warehouse used to be overflowing. We’ve saved 550 pallets through this robotic machine,” Douglas said.

Kardex’s AutoStore had “the highest storage density of any automation in the market and it’s also extremely fast”.

Tariff threat

The first Trump administration was good for Douglas Pharmaceuticals.

In 2015, the company’s then in-house counsel Lynette Stanton told this reporter she was bracing for the Trans-Pacific Partnership (TPP) - a free trade deal between 12 countries, including NZ and the US, which was close to being signed.

As a maker of generic versions of drugs, the Kiwi firm was vulnerable to a TPP provision that was expected to extend the exclusive patent period on new drugs from as few as seven to as many as 20 years - which was seen as benefiting the power and profits of the mostly US-based “big pharma” firms.

“We’ve been able to implement this, hit all out targets and get the ROI [return on investment], all without any job losses" - Douglas Pharmaceuticals warehouse operations manager Ryan Gibbs. Photo / Dean Purcell

The TPP was ratified by the Republican-controlled senate but in January 2017, during his first week in power as president, Donald Trump withdrew the US from the free trade deal, calling it a “rape of our country”.

As the second Trump administration kicked off a new trade war, the international pharmaceutical industry seemed to have dodged a bullet again, with the sector exempt from tariffs.

But on April 8, President Trump said the US will soon announce a “major” tariff on pharmaceutical imports, according to a Reuters report.

Speaking at an event at the National Republican Congressional Committee, Trump said the tariff will incentivise drug companies to move their operations to the US, Trump said.

$70m in sales exposed

Douglas Pharmaceuticals doesn’t release financials. But the 2024 TIN200 report put the company’s annual revenue at $215m - a figure the Herald understands is accurate.

And its MD was able to give the Herald a flavour of its Trump tariff exposure.

“Ninety per cent of the volume of prescription medicines for US citizens come from offshore. So if he [Trump] slaps on a tariff of any significance, it’s going to have huge repercussions on the cost of pharmaceuticals for Americans.” - Jeff Douglas. Photo / Dean Purcell

“Seventy per cent of our turnover is offshore, and $70 million goes to the US,” Douglas said.

Is Trump’s April 8 comment about an impending “major tariff” on pharmaceutical imports a concern to Douglas?

“It does. This is our major market. We’re not sure what’s going to happen and no one we’ve talked to knows.”

The robot system can process hundreds of orders per hour. Photo / Dean Purcell

He adds, “Ninety per cent of the volume of prescription medicines for US citizens come from offshore. So if he slaps on a tariff of any significance, it’s going to have huge repercussions on the cost of pharmaceuticals for Americans.”

NZX-listed AFT did not respond to requests for comment. In June last year, AFT said it had reached an agreement with California-based pharmaceutical wholesaler Alexo to distribute its Maxigesic Rapid painkiller in the US, which it described as “the largest pharma market in the world”.

Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.