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Business

Resurrection On The Rhine

A downsized Rohner gets another crack at contract manufacturing

by Rick Mullin
February 8, 2010 | A version of this story appeared in Volume 88, Issue 6

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Credit: Rohner
Rohner’s plant in Pratteln is back in the game and running at more than 50% of capacity.
Credit: Rohner
Rohner’s plant in Pratteln is back in the game and running at more than 50% of capacity.

The five-story facility near the Rhine River in Pratteln, Switzerland, can be viewed as a monument to a gamble that didn’t pay off. Granted, it was in a game—contract drug manufacturing in the early 2000s—where not many came out ahead. Eight years after losing a big bet, however, Building 40, as it’s called, is back at the table.

Rohner, a chemical company with a long heritage in dyes, built the facility as a vehicle for reinventing itself as a fine chemicals maker to serve pharmaceutical companies—especially those in the nearby Basel neighborhood such as Roche, Novartis, and Ciba-Geigy. The plant, an expensive oddity with shiny hardwood floors, filled up nicely. But Rohner had just a few big customers. And when one was acquired in 2003 and its new owner pulled manufacturing in-house, Rohner lost the majority of its business.

The crisis was followed by a change of hands in 2004, when Novasep, a French custom synthesis firm, purchased Dynamic Synthesis, which at the time owned Rohner. Novasep viewed the acquisition as a means to expand its pharmaceutical business from early- to late-stage development and manufacturing. But it soon became clear that Rohner, one of three companies belonging to Dynamic Synthesis, was stalled in a serious slump, and Novasep prepared to shut the plant down.

Enter Arques, a Munich-based private equity firm that specializes in turning around failing divisions of conglomerates. Arques, according to Markus Zoellner, one of its founders, saw in Rohner the mix of assets, technology, and know-how that it likes. “We knew about the closure scenario and saw an opportunity,” he says. “We knew about the investment in a brand-new chemical facility with a skilled workforce. This company had to be given another chance.” Arques purchased Rohner in March 2006.

Arques believed Building 40, certified to the U.S. Food & Drug Administration’s current Good Manufacturing Practice standard, could be put to profitable use by a small company focused on contract services stretching beyond pharmaceuticals and beyond Switzerland. “This would require a really in-depth sales effort, which had never been done at Rohner before,” Zoellner says.

The private equity firm, with holdings in industries ranging from auto repair to fashion retailing, appointed Daniel Pedrett, an economist and executive with experience in the mobile phone industry, as Rohner’s interim chief executive officer. His first step: downsizing.

Pedrett cut the staff roughly in half to 140 employees and closed two older buildings that had been dedicated to dye manufacturing. He established a new sales and marketing division covering contract manufacturing for active pharmaceutical ingredients (APIs), drug intermediates, and electronic chemicals. Then, in accordance with Arques’ standard turnaround routine, the company brought in a new CEO with industry experience, Thomas Rosatzin.

Rosatzin, with a Ph.D. in organic chemistry from the Swiss Federal Institute of Technology, Zurich, had been chief operating officer of Induchem, a Swiss cosmetics raw material supplier. When he took Rohner’s reins in 2007, he says, his plan was to emphasize the company’s general strengths in custom manufacturing and organic chemistry and its specialization in transition-metal catalysis. “The plan was to restructure and bring down costs, to refocus and reposition ourselves as a contract manufacturer with highly sophisticated organic chemistry and Swiss quality,” he says.

The company opened a sales office in the U.S. in 2007 and now does 10% of its business in North America. APIs represent about half of its revenues, which were approximately $45 million last year.

Rosatzin points to the primacy of staying focused on contract manufacturing. He notes that the company partners with nearby Solvias, an API development firm. “Solvias came out of Ciba-Geigy and is equipped for early-stage process development chemistry,” he says. In addition to physical proximity, Rohner and Solvias present a “natural continuum, from process development to scale-up,” he adds.

Rohner is now looking to extend this business model to polymer chemistry, ideally in the U.S. “We would want a partnership as far as technology is concerned,” Rosatzin says. “Being a contract manufacturer, we don’t have the intellectual property or development resources.”

The company changed hands once again last year, when Arques sold Rohner and three of its other holdings to a group of its founding members, including Zoellner, who broke off to form a company called BluO. The new group purchased an additional four companies last year, including Evonik Industries’ AlzChem unit, a producer of calcium cyanamide-based intermediates. There are no plans to merge Rohner with the much larger AlzChem, Zoellner says.

These days, Rosatzin and Zoellner acknowledge a certain sense of déjà vu. The arrival of the worldwide recession last year, just after Rohner’s restructuring, is uncomfortably similar to the severe slump in pharmaceutical chemical demand that hit eight years ago immediately after the company built a five-story factory with shiny wood floors. But they claim the firm is in much better shape now, having already established itself as a custom manufacturer with a more diverse customer base than the Rohner of 2002.

Industry consultant Peter Pollak is not so sure. “It’s a bit of a difficult issue. This is a high-cost business, and Rohner is relatively small,” Pollak says. “They can balance the economic cycle with the pharma business, but I don’t know if it makes sense to diversify. Being involved in so many businesses, it is hard not to be impacted by the economy.” Pollak adds that manufacturing APIs and nonpharmaceutical chemicals in the same building is particularly expensive because of maintenance costs.

Zoellner admits that the economy has impacted Rohner, which saw its sales drop last year from $52 million in 2008. “Last year was a difficult year, and 2010 doesn’t look much better,” he says. However, Zoellner says that the diverse customer base makes Rohner less vulnerable to economic vicissitudes.

“I keep coming back to sales,” Zoellner says, highlighting the changes that have taken place with the Arques/BluO reorganization. “In former times, Rohner said, ‘Give us projects and we can do the chemistry.’ Now we tell them what we are really good at. And it makes a big difference that we are no longer dependent on five to seven customers.”

Rosatzin agrees that Rohner has “learned the lesson of 2002.” He says the company’s downsizing puts it in a better position to deal with tough markets by reaching out, rather than fixing what’s within. In this regard, Rosatzin notes the importance of communicating the changes that have taken place at Rohner. “We have invested in our people and shown that we are a solid partner,” he says. “We have reestablished the image of Rohner and are offering what the life sciences, especially pharma, want.”

Of course, the company also wants to recoup its 2009 sales decline. “It is clear we will not make very big steps this year and that it will depend very much on how our customers are doing,” Rosatzin says. “Overall, we are forecasting that we will grow back to the level at which we started.”

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