Are robots expediting and improving the drug industry?

A benefit-cost analysis of using automation and robots

In the era of COVID-19, non-contact produce and service are critical to business survival and success. The use of robots provides the opportunity to optimize drug companies’ production.

Photo by Fitore F on Unsplash

Some drug companies, such as Eli Lilly & Co. and ClaxoSmithKline PLC are investing in automation to replace human workers. While humans, as the President of Lilly thinks, are needed to focus mainly on thinking and strategy, automation will be the key to develop better therapies more efficiently.

The benefit

By using automation, drug companies can keep track more easily and faster than humans. Also, the use of robots saves customer’s time to get required drugs and speeds up the pace of scientific discovery.

Since launching automation technologies one year ago, Lilly has already seen a more-than-fivefold increase in its capacity to screen antibodies. Another advantage of using automation lies in reproducibility because robots can get more data from each experiment and increase the value of that information.

For drug companies, the investments in automation technology and robots can be treated as capital. According to the Wall Street Journal article,

“Automation and robots are more efficient than human workers that make better drug faster.”

In other words, the marginal rate of technical substitution (MRTS) of capital and labor is quite small because a small amount of capital can substitute a large amount of labor. Therefore, it seems a wise strategy for drug companies to replace humans with robots in order to save the total amounts of input when producing the same amount of outputs.

Further Reading: My picks of investment opportunities under the public health crisis

The cost

However, the benefits of using automation technology and robots might be exaggerated. What we don’t know from the article is the costs of automation and robots, as well as the cost of human labor. If the human labor costs much less than the technologies, especially when the drug companies are outsourcing in some countries with cheap labor markets, then too much investment in automation and robots may not save the costs to produce the same amount of outputs.

Photo by Reproductive Health Supplies Coalition on Unsplash

What’s more, the maintenance and supplies of the automation technology and robot may involve the transaction costs, particularly the specialized investment. According to economists Baye and Prince,

“An investment in a particular exchange that cannot be recovered in another trading relationship.”

Robots used in the drug company are physical-asset specificities because Lilly relies on San Diego-based BioSero Inc., which is a laboratory automation company to build the robots that inhabit its new facility. Lilly will face the potential problem of costly bargaining or underinvestment if BioSero attempts to raise the robot price or provide some robots with inferior quality. And thus, the transaction costs of Lilly will be higher.

In conclusion, the use of automation and robots makes drug companies more efficient by saving time and human labor, but it may also increase the potential transaction costs.

I write about business, culture, travel, and anything interesting | Proud alumni of MacquarieU & M.St.Mary

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