A Minnow Jumps Out | May 11, 2009 Issue - Vol. 87 Issue 19 | Chemical & Engineering News
Volume 87 Issue 19 | Web Exclusive
Issue Date: May 11, 2009

A Minnow Jumps Out

Small contract development firm Recipharm wants to swim with the big fish
Department: Business
Eldered
Credit: Recipharm
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Eldered
Credit: Recipharm

RECIPHARM may just be a small company nestled on the northern edge of the European Union, but it has an ambitious goal. The Swedish firm, based in Haninge, near Stockholm, aims to become a significant player in contract drug development and manufacturing.

Unexpectedly, the economic downturn is helping further this goal. Strengthened through acquisitions and internal growth, Recipharm is positioning itself as a strong, financially healthy partner for small to medium-sized customers.

Although the company was founded more than a decade ago, "our presence only really started about two years ago," says Chief Executive Officer Thomas Eldered. In 2007, Recipharm made a major change in its strategy when it decided to focus on contract development and manufacturing. Its aim was to use process and formulation development to help customers bridge the gap between the discovery of an active pharmaceutical ingredient and a finished, marketable product.

That was a significant shift for the company, founded in 1995 by Eldered and partner Lars Backsell through a management buyout from what was then Pharmacia, a Swedish drug company.

Pharmacia was restructuring after an acquisition spree in the early 1990s, says Eldered, a former site manager for the firm. One casualty was manufacturing, which enabled him and his partner to buy some dosage-form drug operations, primarily in Sweden.

The partners' original business plan involved developing a range of known drug products "with a new twist," Eldered says. "These are not generics but more specialized products—in vitamins and minerals and prescription products, as examples." Managers soon realized that they could carry out manufacturing for others as well.

The company pursued the dual tracks of contract manufacturing and developing its own products. However, Eldered says, "we gradually came to the conclusion that we needed to focus: Our own products would require much more investment going forward." Hence Recipharm's decision in early 2007 to sell its own products division to Sweden's Meda Pharmaceuticals.

The timing turned out to be fortuitous. Recipharm wound up with a sizable cash stash to fund several acquisitions.

It made three purchases in 2008. In one deal, Recipharm bought a lyophilization facility in Switzerland from Inotech Labor. In another, it snapped up a site in France from Laboratoires Fournier, part of Solvay, for finished-drug production, packaging, and distribution.

The latest deal was for AstraZeneca Biotech Laboratory, a facility in Sweden that gives Recipharm development and production capabilities in biologic drugs—mammalian recombinant proteins and monoclonal antibodies. AstraZeneca kept a minority stake in the lab and got board representation at Recipharm. In turn, Eldered says, Recipharm will manage "a very important project for them."

THE ACQUISITION SPREE leaves the company with six facilities in Sweden, two in France, one in the U.K., and one in Switzerland. Three of the plants have been inspected by the U.S. Food & Drug Administration, and another is soon to join that list. And all the company's labs are operating under current Good Manufacturing Practice standards, the CEO says.

In 2008, according to Eldered, the company posted sales of about $215 million, representing like-for-like growth of 9% over the previous year. In 2009, he predicts, the company will reach $275 million in sales on the efforts of its 1,400 employees.

Even at that level, Recipharm has a way to go to meet Eldered's stated goal of becoming one of the major contract development and manufacturing organizations serving the pharma sector. Top players include Lonza, in Switzerland; CMC Biologics, in Denmark; and Catalent Pharma Solutions, based in Somerset, N.J.

Indeed, Peter Pollak, a Basel, Switzerland-based consultant to the pharmaceutical industry, notes, "Recipharm is big in drug formulation, but it only has pilot-plant capabilities in mammalian cell technology. It is by no means on the verge of being a big player" in the biologics field.

Pollak also points out the current problems facing small and medium-sized companies trying to obtain financing to continue their operations. On that front, though, Eldered is convinced that Recipharm is in good shape.

In fact, says Mark R. Quick, vice president for corporate development, the company's financial position is a marketing plus. "From a customer's point of view, where we are different is financial robustness. We're not doing a radically different business model," he observes, "but many competitors have a lot of debt."

Eldered agrees, pointing out that drug companies have begun conducting due diligence investigations of their suppliers. "Nobody used to do this, but today it happens all the time," he says.

Moreover, Eldered adds, Recipharm's financial strength may enable it to support smaller customers with cash woes. Many small companies, he notes, have built up heavy debt over the past few years and now face troubles in financing their operations. "They just aren't able to get funding now, even though they may have very promising projects," he says.

"We are discussing with a number of customer clients and partners not just service relationships, but risk/reward relationships," Eldered says. Possibilities might involve "some sort of risk sharing???for example, royalties or even a minority equity participation," he adds.

He is convinced that such an approach would be attractive to some customers. As a small, privately held company, Eldered says, "we are not dangerous. We don't want to take over their projects. We won't swallow them up. We can work together to the benefit of both. This situation really didn't exist even a year ago—clearly there are opportunities in this for us."

 
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