WHISTLEBLOWERS: COMPANY’S SOUTH CAROLINA LAUNCH HAS BEEN “ONE EPIC DISASTER AFTER ANOTHER”
“It’s another great day in South Carolina,” Haley said at the time. “We celebrate Nephron Pharmaceuticals’ decision to locate its new manufacturing facility in the Midlands and create hundreds of well-paying new jobs. This is a big win for our state.”
S.C. Commerce Secretary Bobby Hitt joined in the cheerleading, noting that Nephron would “have a huge positive impact on our state.”
How many jobs? Haley and Hitt touted an estimated 707 new positions – at more than $70,000 a pop.
Three years later, though, these promises have yet to materialize – despite the company receiving a direct appropriation of $4.5 million from the S.C. Department of Commerce to build its new facility (on top of millions more in government-subsidized training grants, tax credits and property tax breaks). In fact according to former and current Nephron whistleblowers, things appear to be moving in reverse.
FITS was suspicious of this deal from the beginning – and we said so. In fact, we published a detailed story regarding its questionable financials – and also wrote extensively about pay-to-play allegations involving Nephron and the governor.
We also busted Haley in a lie regarding her prior connections to the company’s founders – Bill Kennedy and his wife, Lou Kennedy (who have contributed thousands of dollars to Haley’s political campaigns and who frequently allowed Haley access to Nephron’s private jet).
After the mainstream media picked up on our story about Haley’s lie, her spokesman claimed she “misspoke” about her relationship with the Kennedys – curtly correcting the record about when she met them (and under what circumstances).
And as is the custom in Haley’s administration, the lie was drowned out by spin.
“The governor’s job is to build relationships that benefit the people of South Carolina,” her spokesman Rob Godfrey said. “And there is no better example of her doing that than today’s announcement of more than 700 jobs and millions of dollars in investment in our state.”
About those “benefits …”
“DROPPING LIKE FLIES”
In our mid-August report, we noted that Nephron employed only “100 full-time South Carolina” workers – and that the company was relying increasingly on imported workers from its Orlando, Florida headquarters.
“The SC folks are dropping like flies,” we were told at the time.
Our report also noted that in addition to problems with the quality of the Palmetto State’s workforce, Nephron was “facing a host of problems including major financial troubles, high turnover among its senior executives, legal drama associated with several recent terminations (and) issues with the U.S. Food and Drug Administration (FDA), delays in production.”
We also reported that Nephron had retained The Huron Group, a Chicago-based company that helps its clients “improve performance, comply with complex regulations and reduce costs—delivering measurable, sustainable results.”
What’s happened since we published our report? Brace yourself … because you’re about to see the “loser” side of “picking winners and losers” in the economy with taxpayer money.
CASH CRUNCH CONFIRMED
First of all, FITS previous reporting on Nephron’s financial troubles have been confirmed. Shortly after our story ran, Nephron confirmed it had retained the The Huron Group – which issued a press release stating its goal was to help the company “reposition its operating and financial story to lenders.”
Three weeks after our story ran, the company announced it had completed a $280 million refinancing plan. Despite its financial issues, the company reaffirmed to a local business journal its intention to invest $313 million in South Carolina and employ more than 700 workers within ten years at an average wage of $71,000.
Months earlier, similar claims were made in the fawning coverage Nephron received from The (Columbia, S.C.) State newspaper on the occasion of the grand opening of its gleaming Cayce, S.C. facility – which Haley referred to as the “Taj Mahal.”
Specifically, Nephron vowed it would “approach sterile drug production” by the end of 2014. Its executives also said they would “blow through” previously announced job totals.
That’s consistent with other recent promises made by Nephron CEO Lou Kennedy, who in early 2013 told veteran establishment reporter James T. Hammond that Nephron was going to exceed its original job totals – and achieve its “much higher” employment numbers in less time than originally projected.
In an effort to gain a better sense of Nephron’s progress in making good on these various promises, FITS spoke with several current and former employees of the company recently. Needless to say, these whistleblowers told us – to a person – a vastly different story than the one being told by South Carolina’s politicians, corporate cronies and their apologists in the legacy media.
Where to start?
First, let’s look at the number of employees currently working inside the facility. According to our sources, Nephron’s workforce has declined from 125 employees to roughly 60-70 employees over the last few months. In other words three years after vowing to bring 700 jobs to South Carolina, Nephron is only ten percent of the way there – and moving in the wrong direction.
“They are making up reasons for letting people go,” one of our whistleblowers said.
Not only that, of the employees currently working at the facility our sources say only 25-30 are from South Carolina – and even worse the company’s Palmetto State human resources department has been “shut down.”
Doesn’t bode well for future hiring, does it?
Nope. Also, the few employees who are left working inside Haley’s “Taj Mahal” are reportedly only making an average of $45,000 a year – well below the $71,000 figure Nephron has frequently cited.
“WORST START UP I HAVE EVER SEEN”
Beyond the shrinking job totals and lower-than-expected salaries, Nephron’s South Carolina facility is also a year behind schedule when it comes to actually manufacturing medicine – a process that’s been marred by ongoing incompetence and, in one case, allegations of corporate espionage.
“They are not producing medicine for sale as of October 1,” one whistleblower told us. “It’s been one epic disaster after another.”
Another whistleblower flatly told us the U.S. Food and Drug Administration (FDA) “is not going to approve them to run product this year.”
In fact as of this writing, Nephron’s South Carolina plant has yet to successfully complete its trial batches – or “PV” (product validation) runs – due to a myriad of problems. At least three such “PV” runs – required by the FDA – have reportedly “failed,” according to our sources.
Among the issues? Shoddy ventilation and electrical work – which is obviously a serious issue in a manufacturing facility that’s regulated for public health. According to our sources, Nephron’s vent system was built too low for several of its larger machines – and untrained employees spent three weeks “raising the vents.”
Not only was this delay extremely costly, the new ventilation system apparently wasn’t professionally installed – with one employee telling us “they used whatever employees were on the site” to complete the job. Similarly, Nephron reportedly fired its electrical installation team during the middle of its work – and had existing employees finish the wiring of the new facility.
“I’ve worked with several start-ups,” one whistleblower told us. “This has been by far the worst start-up I have ever seen. They hired a hotel manager to run the project – a guy with no idea what he was doing. No one there had start-up experience.”
“They don’t have anybody there who knows what they area doing,” another added. “And no one’s getting training.”
“CEASE AND DESIST”
By far the most damaging allegation leveled against Nephron’s South Carolina facility is that it engaged in corporate espionage – allegedly stealing proprietary pharmaceutical “batch records” prepared by another company, The Ritedose Corporation (TRC) of Columbia, S.C.
“Nephron has stolen information from another company,” one of our whistleblowers said, highlighting documents obtained from Nephron that still bear the TRC name and TRC-specific terminology.
Another one of our sources confirmed the theft – telling us the company hired a former TRC employee who “had all the documents on his computer.”
According to both sources, Nephron attempted to conceal this alleged espionage by repackaging the documents – although “like everything else they did they botched it.” As a result, the documents still contained identifiable information tying the batch records back to TRC.
According to one of our sources Nephron received a “cease and desist” letter from TRC which – in the words of an employee who saw it – “basically said we know you have our info and are using it and you are not allowed to do so.”
Months after the letter was received, though, Nephron was reportedly still using the proprietary information it allegedly stole.
A copy of the cease and desist letter was reportedly sent to the FDA, although neither the agency nor TRC immediately returned our calls to discuss the alleged corporate espionage.
“THEY CAN’T WORK THE MACHINES”
According to our sources, Nephron’s biggest problem in getting its South Carolina facility up and running is the fundamental inability of its work force to handle the complex machinery and work processes required to make medicine. And the lack of resources available to train them.
“People there aren’t getting the training they need – a lot of them have never seen an FDA-regulated environment before,” one whistleblower told us. “Manufacturing and sterilization processes are all screwed up.”
For example recently sterilized areas are often immediately re-contaminated with non-sterile cleaning equipment due to the fact “the employees don’t know any better and no one is showing them how to do it properly.”
As for the manufacturing process itself, we’re told there are major problems related to the operation of a pair of new $12 million Sigpak TTP packaging machines recently purchased from Bosch. These problems reportedly began when Nephron had to delay receipt of the machines due to its cash flow problems.
“Four of them were ordered but they could only pay for two of them and only one of them is up and running,” one source told us. “Neither of the newer Sigpak models are currently up and running.”
Complicating matters, training on the new machines was reportedly cancelled due to cost considerations – a decision our whistleblowers say Bosch advised against in the most strenuous of terms.
“They told Nephron it was stupid,” one told us.
Nephron is said to be bringing in employees from Florida in an effort to get the machines up and running, but according to our sources as of September 30 the new Sigpak machines were still not in use.
“No one there knows how to work those machines,” one whistleblower said flatly.
For Nikki Haley, Nephron Pharmaceuticals has obviously served its purpose. In addition to the campaign cash and private flights she received while running for office, the project helped cement her reputation as a successful “economic developer.”
She was able to take credit for “hundreds of new jobs” in 2011, and this summer she attended the company’s grand opening like a conquering hero – two events which featured tons of media attention but little in the way of actual journalism.
Haley faces the voters in three weeks, and her reelection is all but assured – in large part thanks to the way the local press applauds her crony capitalist exploits as opposed to investigating them.
So for the self-styled “Jobs Governor,” Nephron was a clear win.
For the company (and for the South Carolina taxpayers who have helped subsidize it), the future is less certain …
We’re not saying Nephron can’t overcome its rocky start and eventually make good on its promises, but it has put itself in a deep hole. With competitors already owning 60 percent of the market for the medicines it makes, it stands to reason the company cannot afford to continue running at less than full capacity for much longer.
Personally, we hope Nephron succeeds … primarily because we’d hate to see millions of dollars in tax money flushed down the toilet with absolutely nothing to show for it. But Nephron’s success or failure isn’t the issue here – the issue is whether taxpayers should have to assume the risk associated with it.
We maintain that no company – large or small – should ever be handed a competitive advantage courtesy of the taxpayers. Whether such investments produce dividends or not, the process is inherently corrupt and unfair.