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Reset For Fine Chemicals

Attendees at the annual Chemspec Europe exhibition calibrated growth prospects in recuperating markets

by Rick Mullin
July 4, 2011 | A version of this story appeared in Volume 89, Issue 27


Geared Up
Credit: Rick Mullin/C&EN
Contract manufacturers in Geneva dangled specialized technology as a lure for drug firms.
Credit: Rick Mullin/C&EN
Contract manufacturers in Geneva dangled specialized technology as a lure for drug firms.

At the annual Chemspec Europe exhibition in Geneva last month, attendees celebrated an upturn in agricultural chemicals after a dismal 2010. With a pickup in most industrial markets as well, executives claimed that fine chemicals in general are rebounding this year. On the other hand, most agreed that the pharmaceutical market, still a major focus at the custom and specialty chemical event, has changed fundamentally in the past two years such that it is unlikely to return to the double-digit growth it enjoyed prior to 2008.

Setting the tone a day before Chemspec opened, the European Fine Chemicals Group hosted an afternoon conference on agricultural chemicals. Keynote speaker Matthew Phillips of Phillips McDougall, a Scotland-based crop protection consultancy, illustrated a revitalized sector in which crop protection chemicals are emerging from a down cycle in 2010 with modest 1.2% growth behind a booming seed market.

In the days after, major suppliers of agricultural chemicals reported upticks in sales surpassing the modest gains Phillips cited. Most attendees at Chemspec were less sanguine about prospects in pharmaceuticals despite a rebound in the first half of 2011.

“Agchem is making its long-expected comeback,” said Michael Hassler, director of marketing and business development for exclusive synthesis at AllessaChemie. “But for pharma, there is no light at the end of the tunnel.” Pipelines are not recharging at major drug companies, and generic competition continues to increase. “Unless you have a specific technology niche, you are in trouble,” he said.

Growth Spurt
Global sales of crop protection chemicals bounced back in 2010. SOURCE: Phillips McDougall
Global sales of crop protection chemicals bounced back in 2010. SOURCE: Phillips McDougall

AllessaChemie is attempting to maintain a balance among agricultural chemicals, pharmaceuticals, and industrial performance chemicals, Hassler said, noting that each of these markets accounts for less than 30% of its business. Sales for the company’s 2010–11 fiscal year, which ended in June, were approximately $240 million, and Hassler expects that they will remain at that level this year. “Stability amounts to success this year,” he said.

The German company’s performance chemicals division is recovering slowly, in pace with the economy, although some areas are coming back briskly. The acrylics market, for example, is rebounding faster than expected. AllessaChemie plans to double its capacity for the acrylic stabilizer phenothiazine in the next two to three years. Hassler said the company is the lead supplier of phenothiazine, which has been in short supply in recent months.

Shortages of raw materials, a result of earlier economic pressures on commodity chemicals, may be the darkest cloud over this year’s agchem market, Hassler said. “There is a squeeze on chemicals we took for granted, the simple stuff,” he said. “Hydroquinone and its derivatives, iodine, and magnesium are, for example, suddenly very tight.”

Tony W. Bastock, managing director of England-based Contract Chemicals, sees similar activity in the major markets for fine and specialty chemicals as the economy rebounds. “The pharma market is slow. It’s very mature,” he said. “Agchem and personal care are doing well. Toll manufacturing is relatively buoyant.” Rising prices in India and China have helped companies based in Europe, he noted.

Contract Chemicals’ sales for the fiscal year that ended in March reached about $36 million. “We fell back a bit, but we are maintaining our margins,” he said. “This year, we expect pretty much the same.”

The agchem sector will be “a provider of good business,” Bastock added, given population growth, demand for biofuels, and the changing diet in China. He agrees with Hassler that raw material costs will be a major concern.

At Chemspec, Contract Chemicals announced investments in high-efficiency distillation and ultraviolet light catalysis at its Knowsley, England, site. New distillation capacity will consist of a glass-lined fractionation column, 12 meters high and 1 meter in diameter, linked to a bromination plant on-site. The UV process, for bromination and isomerization, will consist of a continuous reactor with a high-containment plant for solids separation and drying. Both plants are due on-line later this year.

Uwe Brunk, head of Saltigo’s agricultural and fine chemicals business, said demand is picking up significantly this year. Brunk acknowledged that Saltigo, the custom chemical business of Lanxess, faces price pressures from raw materials, but he claimed that the firm was able to secure large volumes of raw materials in 2010 to cover many manufacturing operations this year.

“Customer pipelines are filling again,” Brunk said. The concern, he said, is continued cyclicality. “We have been asking our customers whether the year 2013 will be the same as 2010. They say they will try to avoid it. They have optimized their entire supply chains to better manage their stock.”

Markus Blocher, chief executive officer of Dottikon Exclusive Synthesis, sees the pharmaceutical industry in the latter stages of a transformation that will leave drug companies in need of new services, including process development, from their traditional contract manufacturing suppliers. Although this shift will create opportunities, Dottikon is still dealing with the loss of 10 projects last year as major drug companies pared their development portfolios. “Of 10 projects, usually four go to market,” he said.

Blocher said Dottikon’s pharmaceutical revenues are down nearly 35% this year. Meanwhile, the Swiss company has nearly doubled its sales in industrial fine chemicals, but from a much smaller base. The net result is sales of about $100 million for 2010, down close to 30% from 2009, he said.

Dottikon’s response to pharmaceutical customer cutbacks, Blocher said, has been to emphasize technology and service. The company has increased R&D spending from 7% to 10% of total sales with an eye on improving synthesis efficiency and process development services, especially in the area of route-finding to support customers’ projects that are moving into Phase II development.

This follows a $90 million investment between 2007 and 2010 to expand Dottikon’s technology toolbox to multiton low-temperature reactions and add capacity for high-pressure and hazardous reactions as well as continuous processing.

Looking ahead for growth, “I don’t care if it is industrial or pharma,” Blocher said. “What matters is whether the job fits our technology specializations and high-end service strategy.”

Axyntis, formerly the fine chemicals division of the French firm Orgasynth, is also on a technology development push in the face of flat revenues of $72 million in 2010, according to CEO David Simonnet. Its efforts for revenue growth are already paying off, he said.

The company recently formed an alliance with Kiralya, a French liquid-phase chromatography services firm. It’s also looking to develop chiral chemistry, fluorination for microreaction services, and biotechnology. Simonnet said Axyntis has budgeted close to $3 million for investments in each of the three areas. The firm may also pursue partnerships in these areas similar to the one with Kiralya, he added.

Axyntis hopes to grow sales by 50% this year, Simonnet said, claiming that for the first half of 2011, sales are already up 40%. He attributed the outsized gain to investments in expanded R&D, especially in the pharmaceutical side of its business, which accounts for about 60% of sales. Axyntis has also grown its nonpharma business, moving into new markets such as photographic chemicals and cosmetics, Simonnet said.

At Chemie Uetikon, pharmaceutical business is beginning to pick up after the loss of projects in recent years, according to CEO Heinz Sieger. “Drug firms are making a greater distinction between more compliant and less compliant suppliers,” he said. More important, he noted, they are looking for specialized technology.

The German firm recently added cryogenic manufacturing capabilities to its plant, which is now able to handle reactions at –90 °C. In 2009, the company added a 100-L Hastelloy vessel to its existing kilo lab along with several small vessels up to 5 L as part of a 3,000-L pharmaceutical chemical manufacturing train. In all, the company has invested $43 million in expansions in the past 10 years.

Pharmaceuticals contribute between 50 and 60% of sales at Chemie Uetikon, Sieger said. About half of its pharma production is done as custom manufacturing.

Across the exhibit floor in Geneva, exhibitors conveyed optimism for traditional markets as well as ones that are generally not emphasized at Chemspec. For example, Saltigo came to the event with a press release entitled, “Not exclusive, but very attractive.” The company hopes to double its sales of generic fine chemicals for markets such as polymer additives and flavors and fragrances, according to Dirk Sandri, head of marketing and sales for agricultural and specialty chemicals.

“We want to increase the number of multicustomer products in our portfolio,” Sandri said. “Not simply me-too products but complex building blocks.” Areas of focus, he said, include toluene derivatives and products from phosgene chemistry such as chloroformates. The company’s insect repellent Saltidin, an icaridin-based product that repels rather than poisons insects, was given pride of place in the Saltigo booth with a continual video display.

“Our core business is still exclusive synthesis,” Sandri said. “But we are looking at a trend toward more and more generic chemistry.”

Saltigo’s take on the market is in keeping with that of other companies that two years ago were looking to custom chemical services as the route to growth. “We serve a number of markets, with no particular focus on pharma or agchem, which are prone to up-and-down swings,” AllessaChemie’s Hassler said. He emphasized that the world has changed drastically in recent years and that expectations for growth will need to be adjusted. “My personal opinion,” he said, “is that pharmaceuticals will not come back.” ◾


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