Catered Services

The first tentative claims of a possible rebound in the business of contract-manufacturing active pharmaceutical ingredients (APIs) were only starting to be heard last year when Minakem made its move. The company, established expressly to enter the business by its chief executive officer, Frédéric Gauchet, and other investors, acquired the SEAC contract manufacturing assets of NuPharm in Beuvry-la-Forêt, France, for $29 million.

This summer, Minakem made a second investment, buying Chemtec Leuna at the former East German Leuna Works. The business was purchased for an undisclosed sum from Schenectady International, yet another diversified chemical company opting to slough off a small, noncore contract manufacturing operation.

Small is a good thing, Gauchet says, but service orientation is even more important. Gauchet says the trick to succeeding in this business is to concentrate on supporting clients' efforts in developing and commercializing new drugs without attempting to garner intellectual property. And Gauchet believes Minakem can succeed.

"I know it's not the general opinion, but for a small business I think there are growth opportunities," Gauchet says. With annual sales of $69 million, Minakem is preparing to take on what Gauchet sees as the kind of cradle-to-grave manufacturing package that both large and small drug companies most want to outsource.

According to Gauchet, drug companies are focusing on optimizing internal resources at a time when pipelines are filling up. Most firms have several projects at various stages, and the chemistry is becoming increasingly sophisticated, he says. "Our business model is to take care of the overflow of needs that our customers have when they get involved in several molecules," Gauchet says. "They need us. But what we have to do is perform a service that is at least at the same level as the ones they have internally."

This means taking a life-cycle project management approach. Minakem is not, like some firms in the sector these days, shifting its focus to early-stage synthesis, Gauchet says. "We are not a lab company—we don't do grams for money," he says. "When we work on a project, we do it with the idea that there will be an industrial process at the end of the job."

Yet, Michael Staff, president of Minakem LLC, the company's North American marketing subsidiary in Saddle Brook, N.J., says this approach requires the company to have expertise ranging from gram production to commercial scale-up. "It is our objective to fill reactors," he says, "and to do this, we need the nursery of projects at the early stage."

Staff emphasizes the importance of relationship building at the early stage of drug intermediate or API synthesis. "The sample does not leave our site until we have a process that's ready to be implanted into our pilot plant," he says. "Once the customer gets a sample, it's a commitment from us to move it forward."

This approach may take longer than producing lab-scale samples without regard for the larger scale chemistry needed for clinical trial production and beyond, but it's worth the extra time for Minakem, Staff says. The idea is for existing customers to see a fit for Minakem's life-cycle development approach when they embark on new projects.

Gauchet says drug companies are quite amenable to the idea of contract manufacturing firms taking this long view. "The customer is spending $1 million a day when it gets to clinical trials," he says. Putting off process development could lead to changes in purity profiles when clinical trials start, which delays Food & Drug Administration filing.

Gauchet estimates that 80% of Minakem's business is with major pharmaceutical companies, down from nearly 100% at SEAC when Minakem bought the plant. "Because we are very active in the American market, emerging pharma and biotech are taking a larger percentage," he says.

This shift has intensified the need to cater chemistry precisely to customer needs. Large drug companies only contract a small part of their business to firms such as Minakem, but emerging companies and biopharmaceutical start-ups with one or two projects in development are making a much larger commitment. "When you help them," Gauchet says, "you have to make sure you really can do the chemistry."

Gauchet says Minakem is constantly recruiting Ph.D. chemists. "We have become very diversified and have remained up-to-date in our chemical capacities," he says. "And we have a catalog business, which is exactly what we need in order to show our technical capacity to our customers. Especially the new customers." Minakem lists phosgene, epichlorohydrin, and strained small-ring chemistry such as cyclopropyl and cyclobutyl among its chemical specialties.

Minakem saw a need to beef up its large-scale production capabilities early this year, Gauchet says. With the former SEAC plant geared more toward prelaunch custom synthesis, the company needed to add capacity to manufacture building blocks and facilitate replicable commercial-scale production. Gauchet says Chemtec Leuna seemed like an ideal opportunity, given its seven large-scale production lines (three with FDA current Good Manufacturing Practice certification); its fixed-bed hydrogenation reactors; and its capacity for handling difficult chemistry such as phosgene, ammonia, chlorine, and phosphorus pentachloride.

Gauchet also liked Chemtech Leuna's location and its chemistry. "They do a lot of protective agents, especially for amino acids," he says. "It's one of the tools you need to master custom synthesis."

But even with the Chemtec Leuna acquisition, Minakem needs to further scale-up its operations, Gauchet says. The company is currently investing about 10% of sales in expanding its pilot plants in France and Germany. It is also expanding its R&D capabilities at Beuvry-la-Forêt and its commercial-scale production at Leuna.

Gauchet is gauging the need for yet more capacity from the growth in business it has experienced over the past year. "I can't say it's the market coming back, because we are a small player," he says. "But we had significant developments in 2005 and 2006."

Peter Pollak, an independent industry analyst, agrees. "I would not conclude from Minakem's experience that Europe is on a buying spree in regard to fine chemicals," Pollak says. He adds, however, that the Chemtec Leuna purchase can be viewed as a reasonable bet on Minakem's part. "Chemtec Leuna is a large Eastern European producer, probably with a lot of intelligent people," he says. "Minakem has carved out for itself a part of the fine chemicals market that is in pretty good shape."

Gauchet acknowledges the risk of doing business in contract fine chemicals, especially in Europe, given the crowded field of competitors zeroing in on the pharma pipeline. But he says his focus is not on the competition. "We don't pay attention to what our competitors are doing in order to see what we should do," Gauchet says. "We listen to our customers to see that we have everything in place to meet their expectations."