Image Improvement at Sigma-aldrich

Sigma-Aldrich is a fairly significant player in fine chemicals, but it is something of an accidental participant in a lucrative niche of the business: the custom manufacture of active pharmaceutical ingredients (APIs) and advanced drug intermediates.

Frank Wicks, president of Sigma-Aldrich Fine Chemicals, is out to change that. Wicks, a Ph.D. biochemist who joined Sigma-Aldrich as a researcher 21 years ago, says he wants to boost the company's role in custom manufacturing, in part by erasing its image in the drug industry as a mere supplier of lab chemicals.

It's a hard image to shake, Wicks acknowledges. Sigma-Aldrich catalogs and chemicals are on the shelves of most of the world's chemistry and biology labs. And even the firm's 2003 annual report describes the fine chemicals unit as an extension of its scientific research and biotechnology units, charged with supplying larger volumes of the research products sold by those businesses.

But in 1999, while developing a strategic plan, Sigma-Aldrich executives--including Jai Nagarkatti, fine chemicals president at the time--came to realize that the fine chemicals unit was being treated too much as a "bolt on" to the core research business and that opportunities in custom manufacturing weren't being fully exploited. "We identified that Sigma-Aldrich Fine Chemicals was being treated somewhat as an afterthought," says Wicks, who then headed the scientific research division.

In response, the company reconfigured its manufacturing assets and devoted its current Good Manufacturing Practices (cGMP)-compliant plants in Sheboygan, Wis., and Gillingham, England, largely to the fine chemicals business. Managers sought to build up fields of specialization at the plants, such as phosgenation in Sheboygan and hydrogenation in Gillingham.

Last year, Sigma-Aldrich Fine Chemicals posted sales of $235 million, three-quarters of which were used in the diagnosis and treatment of disease. Looked at a different way, fine chemicals sales were 80% large-quantity lab chemicals and 20% custom-manufactured products. This is an improvement over a few years ago--Sigma-Aldrich now produces more than 15 custom-made APIs--but Wicks says he is working toward a 50–50 split.

The typical Sigma-Aldrich custom-manufacturing customer is still a buyer of off-the-shelf research chemicals that sticks with the company as its needs evolve into a customized drug intermediate or API. Wicks, however, wants any company seeking custom manufacturing to consider Sigma-Aldrich as a supplier from the outset.

He took a step toward this goal last month with the purchase of Ultrafine, a U.K. supplier of contract drug development chemistry ranging from basic research to cGMP manufacturing for human clinical trials. Formed in 1984 and backed for the past five years by venture-capital investors, Ultrafine is expanding rapidly. Sales grew 50% in 2003 to reach close to $15 million.

Wicks and Michael Harris, head of business development at Ultrafine, see several benefits from the purchase. Ultrafine's reaction vessels are small scale, Harris says, and until now customers whose products made it beyond early clinical trials have had to transfer their projects to larger manufacturers. "As part of Sigma-Aldrich, we can go a lot further with the customer now," he says.

Wicks says Ultrafine's staff, which includes 45 Ph.D. chemists, will enhance Sigma-Aldrich's chemistry development capabilities. And Ultrafine's ability to quickly turn around projects for emerging companies will be a boon to an organization that Wicks acknowledges is geared to making large volumes. "When we've tried to be responsive on smaller quantities, especially for emerging pharma, we had the full overhead of a larger firm, and we probably responded like a larger firm," he says.

ALTHOUGH THE PURCHASE is just weeks old, Wicks and Harris already claim to be capturing business synergies. They say custom-manufacturing inquiries and projects are starting to move from one organization to the other--small-scale ones from Sigma-Aldrich to Ultrafine and large ones the other way around.

Thanks to its base load of large-volume research chemical production, Sigma-Aldrich Fine Chemicals is probably the world's most profitable fine chemicals business, Wicks maintains. And with its manufacturing plants at only 50% of full capacity, the company has the capability to take on many more projects, boosting profits even further.

In the process, Wicks hopes to convince the custom pharmaceutical chemical marketplace that Sigma-Aldrich Fine Chemicals is what its sales figures and history show that it is: a top 25 fine chemicals company with broad manufacturing expertise born of its research chemicals business.

"It's difficult because most of the people we deal with 'grew up' in the research market," he says. "They were educated with our stuff in front of them. We are trying to prove that we are a specialist when they consider us a Wal-Mart."

With Harris' Ultrafine team aboard, that perception may start to change.