Issue Date: July 23, 2007
Meet The Italians
AT LUNCH, alfresco in the Montecchio region of northern Italy not far from Venice, Vittorio Bozzoli, a member of the executive committee of Fabbrica Italiana Sintetici (FIS), points out the castles of Romeo and Juliet on a nearby foothill of the Alps. He discusses the local wine industry, motioning to the vineyards in every direction. And after lunch, he's discussing chemistry on a short drive to one of the largest active pharmaceutical ingredient (API) manufacturing facilities in Europe.
Celebrating a half-century in business this year, FIS is itself a local legend and, until recently, was something of a well-kept secret. Wholly owned by the Ferrari family (no relation to the automotive clan), FIS got started when small-scale API manufacturing flourished as a regional cottage industry, supported by the lax patent laws that prevailed in Italy until the late 1970s.
The Ferraris—four of whom, including President Gianfranco Ferrari, 85, remain on the executive committee—kept FIS's profile low as it amassed a portfolio of generic APIs. In the 1990s, the company took the logical next step and began custom manufacturing APIs for big pharmaceutical companies. Sales grew to $200 million in 2000.
Then FIS joined the mainstream.
With the loss of a single contract in 2000, the company's revenues went into a tailspin, just as the rest of the sector fell into a severe slump. The company hit bottom in 2005 with sales of just $90 million. Like some of its peers, FIS found itself with a lot of spare capacity and a need to rebuild its custom API operations.
The company's conservative approach to business proved to be a saving grace, according to Bozzoli. Family ownership, he says, kept FIS from having to close down plants and lay off staff. The excess capacity played in the company's favor when drugmakers returned to outsourcing chemical production to cut costs. Most important, Bozzoli notes, FIS could trade on a solid reputation. One of its largest contracts today is with the same Swiss drugmaker whose product failure slammed FIS seven years ago.
Now, with custom API manufacturing rebounding in Europe, FIS is clearly one of the survivors—something that cannot be said of several large diversified firms that also entered the sector in the 1990s. Revenues climbed back to $172 million last year, and the company expects sales of $193 million for 2007.
In the depths of the downturn, Bozzoli notes, FIS decided to bring in a fresh management perspective. Enter Roger Laforce, the former senior manager for marketing and sales at the Swiss company Helsinn, who in 2004 replaced Bozzoli, 66, as general manager of marketing, sales, and R&D.
Laforce, only the second non-Italian employee at the 500-person Montecchio site, describes the move from Helsinn, which is a smaller family-owned specialist in high-potency APIs, as a venture into the broader fine chemicals arena. FIS's main plant in Montecchio has a capacity of 1,115 m3. The firm's other facility, in Termoli in southern Italy, has 340 m3 of capacity.
"What I saw was a company with a very strong base of assets, capacity, and know-how, as well as financial solidness," he says. "The only critical need was to improve the organization and the company's position in the market."
TIMING HELPED. Starting in 2004, Laforce says, large drug companies began cutting back on in-house production and began outsourcing again. "Merck announced a reorganization [of manufacturing], and Roche followed them, as did GlaxoSmithKline, Bristol-Myers Squibb, and Lilly," he says. "Today, name any big pharma company, and they are changing their outsourcing policy."
Under these circumstances, Laforce says, a low profile doesn't work. He initiated a marketing and communications push in coordination with Steven DeSalvo, the company's New Jersey-based U.S. marketing manager. Laforce hired a second full-time person, chemist Gail Underiner, to work as a technical sales consultant for the U.S. operation. Laforce tripled the company's advertising budget and put together a plan to replace what he calls an ad hoc approach to advertising.
And he went to work on changing management's concept of business travel as an administrative expense. Laforce quips that he had to convince management that failure to show up at major industry conferences leads to speculation that a company may be in trouble. "There is one simple principle," Laforce says. "The number of contacts is directly proportional to the hit rate for new projects. Therefore: Hit the road!"
But the big challenge, Laforce realized, would be balancing the product portfolio as custom manufacturing customers returned. Given the volatility of that part of the business, he pushed FIS to firm up its base in generics, which tend to enjoy steadier sales. "With generic APIs," he says, "we can better define our destiny."
Over the past two years, FIS has increased its generics portfolio to 40 products with additions such as terbinafine, an antifungal agent; sumatriptan, a migraine drug; quetiapine, an antipsychotic; and entacapone, for Parkinson's disease. "And we are trying to improve customer service," Laforce says. "Many things come together at marketing and sales."
Part of the effort is Pharmaceutical Holding FIS (PHF), a separate company in Switzerland owned by a holding company established by FIS in the 1980s. PHF, which was launched to market generic APIs in the U.S., recently hired a project manager to work on launching a dosage-form drug business to compete with similar operations that are emerging in India. Laforce says PHF will likely evolve over the next two years into a small generic drug company that is supplied with APIs by FIS and other pharmaceutical chemical firms.
Although FIS has been emphasizing generic APIs, they and a small roster of intermediates accounted for only 30% of its sales; 70% of the company's sales last year were generated from custom synthesis.
The company, according to Laforce, is trying to avoid becoming dependent on any large contract. "We have one customer with nine projects, making up 25-30% of our total income," Laforce acknowledges. "But there are lots of small projects. We have three hundred customers for our generics, but the classic problem is always in custom manufacturing."
THE TRICK to managing a large business in the volatile custom synthesis arena, he says, is flexibility, which he defines as having plenty of capacity, broad technology know-how, and the ability to make quick decisions.
"Anyone can respond in two weeks with paperwork," Laforce says. "Real flexibility means you adjust reaction lines, move reactors, buy new equipment, and put it in on time to have it ready when it's needed. That's industrial flexibility, and it's something a small company doesn't have."
FIS spent $11 million last year to increase API capacity in Montecchio and $14 million to enclose the Termoli facility and bring it up to FDA's current Good Manufacturing Practice (cGMP) standards. Laforce says the firm is currently working on four or five blockbuster projects. It is one of the firms manufacturing intermediates for Roche's antiviral drug Tamiflu. Meanwhile, projects under development with drug companies prior to Laforce's arrival are coming to fruition.
James Bruno, director of the consulting firm Chemical & Pharmaceutical Solutions, says FIS has done well in balancing its product offering in recent years. And he credits Laforce with giving FIS a much higher profile.
"If I looked at FIS before Roger got there, I would have thought they were focused on generics, very large products, not so much on technology," Bruno says. His view of the company today is quite different. "Their focus seems to be more toward innovator-type products and custom products as opposed to other suppliers that say, 'we've got 100 m3 of capacity, let's just fill it,' " he observes. "They are technically focused, and from everything I've heard, they are running flat out. Business has been pretty good for them."
Laforce confirms that the Montecchio facility is running near capacity, which he says is the goal for any custom API manufacturer. As far as new technologies are concerned, the company is focusing on high-potency APIs—a field Laforce pioneered at Helsinn—and cytotoxic drugs for oncology. Over the past two years, the company opened three kiloscale cGMP labs and a commercial-scale steroids lab. FIS opened a commercial-scale cytotoxics production unit in 2003.
Recently, FIS has turned its attention to China, where it opened a one-person liaison office in Shanghai for purchasing and logistics. "The fact is that, today, the supply line starts in China and ends at the customer with tablets and pills," Laforce says. "We are at the middle or high end of that chain, and our customers want us to qualify the Chinese suppliers." He adds that China will soon become a fast-growing end market as well.
MEANWHILE, PHF has formed an R&D joint venture with Viwa, a pharmaceutical research laboratory in Hangzhou, China.
Laforce insists that much of what he has accomplished in his two years with FIS was already under way when he arrived. He jokes that while he is 100% responsible for revenue, Massimo Barcaro, general manager of technical operations, manages 80% of the Montecchio staff and oversaw the plant development needed to enter custom manufacturing in the 1990s. Laforce says most of his work has been in the area of strategy development.
Earlier this month, he brought in industry consultant Peter Pollak, a former Lonza executive, to moderate FIS's first companywide strategic meeting—the kind of daylong session most companies hold every year to review progress and brainstorm on the road ahead.
"For a U.S. company, it might seem ridiculous that we are only doing this now," Laforce says. FIS, though, has tended to be very cautious about sharing company information, not only with the outside world but also among internal management. "But I am a strong believer in open information and providing the whole picture of the company."
Laforce says the feedback he got from managers at the meeting was predictably conservative in nature. "Our people would like to see continuity in FIS," Laforce notes, referring to the managers' collective message. "They would like the company to focus on its core competency, which is chemistry." He agrees and says there is plenty of room to grow. "Should we go into biotech? That's a different world," Laforce says. "Anticancer? Yes. We should stay in organic chemistry. Chemistry is not dead."
And with the conservatism, there also is enthusiasm for the future even among the old guard these days. "We believe we can look with a certain optimism to the next two or three years," says executive committee member Bozzoli. "We don't dare look too much further."
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