Degussa Goes East

Degussa has agreed to sell Edmonton, Alberta-based Raylo Chemicals, its only North American pharmaceutical chemicals facility, to the California biopharmaceutical company Gilead Sciences for $146 million. Degussa also announced a new long-term contract to supply Gilead with raw materials and certain active pharmaceutical ingredients (APIs) manufactured in Europe.

At the same time, the German firm has formed a manufacturing agreement with Lynchem, a pharmaceutical chemicals company based in Dalian, China. Degussa will take a 51% stake in the Chinese firm, forming a joint venture called Degussa Lynchem. Lynchem had sales last year of $45 million. Earlier this year, Degussa announced a similar partnership with India's Hikal, although that deal didn't involve an investment.

Industry analyst Howard Foote of Meadowbrook Associates tells C&EN the deals make sense in that Degussa is off-loading an expensive North American asset while it expands in Asia. He notes that Gilead, on the other hand, enhances its position as a biotech firm with a manufacturing base. "Gilead is carefully and methodically becoming an integrated pharmaceutical company," he says.

Ernie Prisbe, vice president for chemical development at Gilead, says the Edmonton facility, Gilead's first API manufacturing plant, will be used as a process development and pilot-scale "launch site." Gilead will continue to use contract manufacturing as its key source of large-scale supply, according to Prisbe.

Rudolf Hanko, head of exclusive synthesis at Degussa, says the new custom manufacturing contract with Gilead indicates that North American customers are comfortable with supply from Europe, where Degussa's primary process development and manufacturing assets reside. He says customers are also interested in Degussa's expansion into Asia with lower cost, FDA-approved manufacturing. "Customers have been waiting for the opportunity to get the best of both regions from a single supplier," Hanko says.