Attendance was up at the Informex custom chemical manufacturing trade show in Las Vegas last week, but optimism, for the most part, was not. Manufacturers of large-volume bulk pharmaceuticals continue to suffer with excess capacity and a dearth of new drugs emerging from the pharmaceutical industry.
The meeting's tone was set on Monday when word spread that Markus Gemuend, CEO of bellwether custom manufacturer Lonza, had resigned that morning following another report of poor earnings (see page 13). Norbert Dieterich, the head of Clariant's pharmaceutical business, which has had profit problems of its own, said the resignation "shows in a dramatic way the situation in the industry."
Peter Nagler, president of Degussa's exclusive synthesis and catalysts unit, said the business climate in outsourcing didn't improve in the past year and that it likely won't in the coming year either. "We don't expect a big turnaround until late 2005 or 2006," he told a press conference.
Some large companies see a thin silver lining. Avecia had a tough 2003, including delayed or lost large-scale projects, but Peter Jackson, vice president of pharma products, said the firm has secured orders for this year on 15 to 20 drugs in development worth a total of more than $10 million.
Indeed, companies active in the earlier stages of drug development reported better prospects. Jackson said Avecia's early-stage business is near its capacity, while Michael Harris, head of business development at contract development firm Ultrafine, said he was "pinching himself" in disbelief at the high number of small-scale projects that drug companies are seeking to outsource.
Nonpharmaceutical exhibitors at Informex reported problems of their own. Dow Haltermann Custom Processing missed its goal of 8% growth last year, achieving less than half that, because of high energy costs and economic problems, according to business head Simon Upfill-Brown. However, he says customer projects that were put on hold are beginning to move with the economic recovery, and he is optimistic that business will pick up this year.
Competition from companies in India and China continues to weigh on Western pharmaceutical chemical firms. David W. Bristol, president of Pisgah Labs, said small contract manufacturers like his are under intense pressure from a shift to offshore sourcing on the part of large pharmaceutical companies. Still, Pisgah recently began building a new R&D facility in Pisgah Forest, N.C., that will expand its process development services.
Some small players aren't fighting the shift anymore. JFC Technologies just broke ground on a multipurpose pharmaceutical chemical facility in Ningbo, China, that it expects to have fully operational by second-quarter 2005. JFC CEO James G. Schleck says the facility will cost $2.3 million, roughly one-eighth of what it would cost to build in the U.S.