Issue Date: September 1, 2008
Chinese Firm Resets Course
IN CHINA, the most successful chemical and pharmaceutical companies are usually private concerns founded by maverick entrepreneurs. Dalian Chemphy Chemicals, also known as New Chemphy, a producer of custom chemicals based in the coastal city of Dalian, is an exception to that pattern. The young company is thriving despite having begun life as a subsidiary of a government research institute.
A rather obscure company located far away from the fine chemicals hotbed around the Yangtze River Delta, New Chemphy produces custom chemicals for customers in the agrochemical, materials, and pharmaceutical industries.
The China research manager of a major international drug company that does business with New Chemphy tells C&EN that he is particularly pleased that the firm has little difficulty scaling up production of compounds discovered in labs because it is first and foremost a chemical producer. "When contract research organizations move into bulk production, they have to build up their capabilities," he says. "But here, they already have the facilities and the experience for mass production of bulk chemicals." The manager asked that his company's relationship with New Chemphy remain confidential.
New Chemphy operates a large chemical production complex in Dalian covering 100,000 sq meters. The complex comprises eight different large-scale plants, two pilot plants, and a quality-control lab. It is fast expanding its capabilities. It bought 500,000 sq meters of land 80 miles from Dalian for a second production site. And this summer, it inaugurated a 4,000-sq-meter R&D center next to its corporate offices.
Aaron Shen, the Delaware-based chairman and president of the company, tells C&EN that New Chemphy started life as Chemphy. The old firm had some good technical capabilities through its affiliation with the Dalian Institute of Chemical Physics, but "it was basically a government-owned business, and they were kind of slow, and customers walked away."
Shen and his business partner and friend Chu Dong took over the management of the firm in late 2003 and shook things up. "We turned this company into one that competes in the global market," Shen says. "It's now closer to a Western-type company, and we got the customers to come back."
Before joining New Chemphy, Shen was the scientific leader for biomaterials at the fluorocarbon polymer and fabrics maker W. L. Gore & Associates. He had also been the general manager of Chiral Quest in China. Chu, by contrast, was Chemphy's banker. He was general manager of the Dalian branch of Minsheng Bank. Chu is a finance guy, Shen says, but he has shown an uncanny ability to understand chemical production, even to the point of suggesting practical ways to improve processes.
ONE OF THE REASONS New Chemphy is expanding so fast is that it succeeded in attracting financing from venture capitalists. The Hong Kong-based private equity firm Development Principles Group has injected $41 million in New Chemphy in the past two years. This money represents about 20% of the firm's total investment in China. "We've been studying Chemphy for a long time," says Wang Qi, a managing partner at Development Principles. "They've caught this general outsourcing trend well." Within two years, Wang foresees a stock market listing for New Chemphy.
Attracting and retaining talented staff is another thing that New Chemphy has been emphasizing. The firm's head of R&D, Jin Song, is a former employee of the old Chemphy who went to the U.S. to further his studies and acquire international work experience. He came back to Dalian after being away for six years. He earned a Ph.D. in organic chemistry at Michigan State University and worked in a private lab in San Francisco. Jin says he had originally wanted to get more U.S. work experience, but Chemphy's new managers urged him to return. He now manages 40 people, a number he expects will grow to 100 by year's end.
Shen, the company's chairman, says the main priority of New Chemphy is to "aggressively" boost sales among customers in the pharmaceutical industry. The company has designed its labs on the top floor of the new R&D center to comply with the U.S. Food & Drug Administration's current Good Manufacturing Practices. Jin, the R&D manager, says that within two years, New Chemphy will be capable of producing commercial quantities of pharmaceutical ingredients that comply with FDA requirements.
New Chemphy's goal to produce regulated pharmaceutical ingredients may sound overly ambitious given how difficult it would be for a producer of industrial chemicals to meet the strict quality requirements of FDA. Then again, New Chemphy does get things done. It built its new R&D center from the ground up in two months.
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