Issue Date: November 10, 2008
Chemie Uetikon Grows In the Black Forest
DRIVING THROUGH Lahr, a small industrial town in the Black Forest region of southwest Germany, Heinz Sieger points to factories and warehouses—a printing plant, a metalworking facility, and food and packaging operations. Sieger, chief executive officer of contract pharmaceutical chemical company Chemie Uetikon, notes that these businesses have been under pressure for years and are now facing a possible worldwide recession. "This will have a strong influence on future investment, and it will reduce consumption in all these markets," he says.
Pulling up at the gate to Chemie Uetikon, conversation turns to the fine chemicals industry, which Sieger notes is facing its own problems, given estimates of nearly 40% overcapacity in Europe and increased competition from India. Sieger says that despite this, and despite the certainty of tough economic times ahead, his company is optimistic about growth.
Chemie Uetikon recently doubled current Good Manufacturing Practice (cGMP)-certified capacity to 92 m3 of reactor volume at its Lahr headquarters, completing the installation of two reactor trains at a cost of about $18 million. These will operate in conjunction with the company's first two trains, which began production in 2002. Chemie Uetikon, which operates its active pharmaceutical ingredients (API) operation entirely from this one location, also branched into the large-molecule arena of biopharmaceuticals in 2006. The firm purchased an 80% interest in Dublin, Ireland-based Archport, a biotech firm spun off from the University of Dublin that specializes in monoclonal antibodies.
Enthusiasm for fine chemicals extends to Chemie Uetikon's parent company, CPH, based in Lucerne, Switzerland. Whereas nearly every diversified chemical company that got into contract pharmaceutical chemicals in the 1990s has since gotten out, CPH, a paper and packaging company with a business in zeolites, is sticking with it.
CPH entered the market at the beginning of a big chemical company rush into fine chemicals in 1991, when the firm, which produced some sulfuric acid in conjunction with its paper manufacturing in Uetikon, Switzerland, sought to expand into chemicals, Sieger says. Seeing an opportunity in contract work with drug companies, it purchased Chemische Werke Lahr, a struggling fine chemicals firm.
Chemie Uetikon then began producing drug intermediates and charting a course toward APIs. The firm invested $26 million to bring the first part of its new plant on-line in 2002, according to Sieger. The two manufacturing trains are used in a range of reactions for highly active APIs, including hydrogenation and Grignard reactions, using pressures up to 100 bar in 1,000-L reactors. The plant features small enclosed workspaces on individual vessels, accommodating small-volume production.
Chemie Uetikon's sales were $63 million last year, the same as in 2006, according to Sieger. The new trains, which include 3,000 L of low-temperature reactors operating to –100 ºC, were needed to increase business, he says, estimating the new capacity will foster 25% annual sales growth. Sieger notes that Chemie Uetikon is now operating with reactors ranging from 25 to 6,000 L, with several in the hundreds-of-liters range.
Biopharmaceuticals is another route to growth, Sieger says. BioUetikon, launched with the Archport acquisition, is Chemie Uetikon's foot in the door of a biotech market that Sieger estimates now accounts for 12% of the total pharmaceutical market. "Between 2015 and 2020, it will reach 40%," he predicts.
INDUSTRY ANALYST Peter Pollak emphasizes the risk in European investment in the fine chemicals area while discussing Chemie Uetikon's expansion. "I think this is a very daring move, given the overcapacity of the Western fine chemicals industry," he says. "Capacity utilization is estimated to be around 60% at present, and given the unfortunate combination of low demand and double-digit growth rates for Indian contract research and manufacturing companies, it is likely to decrease further."
Sieger, undeterred, points to Chemie Uetikon's efficient plant design and areas of technical specialization as key advantages over other European producers. Hans Schaller, CEO of CPH, agrees, adding that the Swiss parent, with sales of about $528 million, is committed to building its pharmaceutical chemicals business. "We are in the highest segment of the business," he says. "We are not a mass-producer."
Schaller says he has been keeping abreast of capacity pressure in the market and realizes an economic downturn would inevitably have some negative effect on contract pharmaceutical production. "But we are still satisfied. Chemie Uetikon is a beautiful company," he says, adding that technology specialization is generating the business to support CPH's new investment in Chemie Uetikon.
Another analyst, James R. Bruno, president of Chemical & Pharmaceutical Solutions, agrees with Sieger that Chemie Uetikon's technology and plant design may give it an advantage over other contract suppliers. "They have a lot of medium-sized reactor capability," he says. "As products become more active, produced in smaller quantities, they could be in really good shape."
He adds that CPH is approaching the business in a more realistic fashion than some of the large chemical companies that have failed. "My feeling is that they recognize the risk/reward ratio in pharma," he says. "They are not looking at it in an unrealistic manner, expecting to get returns next week."
Sieger, who is a member of the board of directors at CPH, says he is looking ahead to the next investment. "In 2002, we opened the first trains; this year, we opened the second two," he says. "Maybe our next move will be in five years. We have enough space here to easily double our capacity."
Ultimately, Sieger says, the development plan for Chemie Uetikon, which could include expanded API or biologics production or a move into formulation, will be guided by its customers' plans for the future. He admits that pharmaceutical companies are not particularly clear on their direction, despite the recent uptick in outsourcing on the part of drug companies closing or selling their plants.
"Some say the pharmaceutical industry will outsource manufacturing and concentrate on R&D, marketing, and sales," Sieger says. "I wouldn't dare to say that." He notes that some drug companies, when they reorganize and downsize, take manufacturing back to their own plants. The moving-target nature of the customer base, he says, continues to be a frustrating feature of the market.
"It really is about time for the fine chemicals and pharmaceutical industry to really decide what to do," Sieger says. "There are so many advantages to having a clear strategy for both the customer and the supplier."
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