Issue Date: November 14, 2011
The last time the CPhI pharmaceutical ingredients conference came to Frankfurt, it was just days after the collapse of Lehman Brothers and the beginning of what would become a worldwide recession. Last month, as chemical manufacturers returned to Germany’s financial capital, yet another economic precipice loomed in the form of Europe’s debt crisis.
Most of the exhibitors that were at CPhI in 2008 returned this year with varied stories about weathering the storm. The drug industry’s insulation from recessionary forces kept major players above water, and some have returned to pre-2008 growth rates, if not actual pre-2008 sales. But the outlook this year is, if anything, more uncertain than it was last time in Frankfurt. An air of “pessimistic optimism,” a phrase on the lips of many in attendance, prevailed.
“The general climate now is that things are more guarded than they were six months ago,” said Gilles Cottier, president of SAFC, Sigma-Aldrich’s fine chemicals division. “There is a lot less certainty because of the debt crisis in Europe.”
Nonetheless, SAFC came to CPhI with a positive outlook. Cottier pointed in particular to SAFC’s biosciences business, which manufactures cell media, reagents, and other products, as a major contributor to sales growth of nearly 10% last year to $647 million.
SAFC was among several companies at CPhI that are boosting production of highly potent active pharmaceutical ingredients (APIs). Constructed last year to meet growing demand for highly potent compounds, SAFC’s Verona, Wis., facility has just received certification from SafeBridge Consultants, the de facto standard-bearer for safety in highly potent APIs, Cottier reported. The $30 million facility is designed for handling and containing Phase III and commercial-scale production of the most potent class of compounds. In addition, SAFC’s nearby Madison, Wis., high-potency facility was also recertified.
“We also are manufacturing our first commercial product at our new facility in Jerusalem,” Cottier said. SAFC is using the multipurpose current Good Manufacturing Practices (cGMP)-certified fermentation facility to make the anticancer drug dactinomycin. Although the company has made the potent molecule at an older facility in Jerusalem for many years, the new facility allows it to meet capacity and compliance standards.
Rudolf Hanko, chief executive officer of Siegfried, a Swiss pharmaceutical chemicals firm, said the downturn offered guidance on sustainable growth in the fine chemicals industry. “The two lessons are that the crisis was not serious enough to affect pharmaceutical demand and that you need to manage your business by cash,” he said. Companies that took on debt in recent years are struggling, Hanko maintained.
Siegfried’s customers have come to the same conclusion, he added. “They are more aware of their cash flow and are optimizing supplier networks and capital expenditure,” Hanko said. “The upside is that they are more conservative regarding building new plants, which in the long run will help contract manufacturers.”
Siegfried’s sales last year reached $300 million thanks to growth in the “high single digits,” Hanko said. The firm has expanded its capability to manufacture high-potency finished drugs, he added.
Saltigo, the custom manufacturing division of Lanxess, announced that it will expand capacity for highly potent APIs at its plant in Redmond, Wash., with capacities in the kilogram range available early next year. The company is currently producing lab-scale quantities of APIs there.
Andreas Stolle, head of Saltigo’s pharmaceutical business, said drug companies are shortening their lists of suppliers to better manage costs and safety in procurement. “We have our preferred suppliers as well,” he said. Some of them are in Asia, he added, noting that these partnerships require direct contact to be successful. “Luckily, as part of Lanxess, we have people on the ground there.”
Michael J. Kosko, president of Pfizer CentreSource (PCS), the contract services division of the major drug company, said the competitive landscape is shifting as other drug companies exit manufacturing and contract firms acquire assets. PCS has had a good year, he said, and expects to meet its sales budget of $250 million. The business, he added, has been reassessing its service offering after Pfizer’s acquisition of Wyeth in 2008.
This year, PCS began offering development services for highly potent APIs from its Freiburg, Germany, plant, where it until now did internal development. According to Cristin B. Grove, director of contract manufacturing, technology can be transferred from Freiburg to PCS’s commercial-scale production sites in Illertissen, Germany, and Ascoli Piceno, Italy.
In the past three years, outsourcing in the pharmaceutical industry has moved significantly to early-stage development, according to David Ager, principal scientist at DSM Pharma Chemicals. Ager sees a pickup in inquiries for early-stage business and a simultaneous push to “sell technology” at DSM. “We are selling projects based on research, which we have never done before,” he said. The company launched a route-scouting service last year via a new division called InnoSyn.
Global shifts were noted at CPhI as well. Dr. Reddy’s Laboratories, a major Indian generic drug firm, has been trying to increase the profile of its custom pharmaceutical services (CPS) business. About one-third of Dr. Reddy’s nearly $2 billion in sales this year will be in APIs and pharma services, according to Manoj Mehrotra, CPS business head.
The company is committed to expanding in the West, particularly in the U.K., Mehrotra explained. In April, CPS completed the expansion of its Chirotech site in Cambridge, England, part of the Dowpharma business it acquired in 2008. Now under way is an expansion of its Mirfield, England, site, also part of the Dow deal. There, the company manufactures chiral intermediates and is adding a clinical-scale API facility by mid-2012. It will also increase production of activated mPEGs, used for PEGylation of biological, peptide, and small-molecule drugs.
Venture capital investment in the pharmaceutical chemicals sector has advanced since CPhI last came to Frankfurt. Among the firms acquired by investment groups is Isochem, the former fine chemicals division of France’s SNPE. It was acquired last year by Aurelius, a German firm.
“The atmosphere at Vert-le-Petit has improved,” Isochem Sales Director Xavier Jeanjean said, referring to the firm’s new headquarters at its plant near Paris. “We are debt-free and generating cash to invest in the business.”
“We are happy so far with the acquisition,” said Björn Schlosser, a former Aurelius executive who is now CEO of Isochem. Sales will reach $145 million in 2011, thanks to 5% growth, he reported. Schlosser sees Isochem as being in an ideal position. “Many companies are out of the cash that they need to grow. And I am not sure it is ideal to have 10 plants all around the world.” He said Aurelius has about $200 million available to invest in its businesses.
As far as technology is concerned, Isochem will build on its base and is not interested in launching high-potency API manufacturing. “There is already a lot of capacity,” Schlosser said. “Our next area of interest for investment is cGMP phosgenation at Vert-le-Petit.”
AllessaChemie is also sticking to its knitting, according to Michael Hassler, director of business development. The German company plans to expand its production of phenothiazine, a polymer stabilizer for which it is a leading supplier. Like others at CPhI, AllessaChemie has been buoyed through the recession by a diverse product mix. “We lost about 30% of turnover due to the crisis in the performance chemicals and consumer goods sectors,” he said. “But at the same time, the exclusive and custom manufacturing sector is still growing.”
The performance chemical sector has improved since 2010, Hassler said. “It is not like 2008. Nobody is back to 2008. But it is significantly up.”
Around the Messe Frankfurt conference hall, one could find signs of optimism in specialized areas including biotech and research services. Cerbios, betting on growing demand for biologics, is expanding production of therapeutic proteins based on its Chinese hamster ovary platform in Lugano, Switzerland, according to CEO Gabriel Haering. “We have had several requests for Phase I and Phase II supply,” he said. The firm hopes to get regulatory approval for 100-L production next year.
Cerbios had its best year ever in 2011, Haering said, despite the strong Swiss franc. Sales rose about 10% to $30 million. The firm acquired a Swiss company, GMT Fine Chemicals, in September.
CPhI marked the debut of Ashland Specialty Ingredients, the result of Ashland merging its pharma-related business with International Specialty Products, which it acquired for $3.2 billion in late August. ASI is now Ashland’s largest business, with about $2.6 billion in annual sales. “We can now offer a broader portfolio of products to the pharma industry,” said Jeffrey Wolff, group vice president for pharmaceutical and nutrition specialties. In the drug sector, the business focuses on excipients and other formulation aids as well as manufacturing techniques.
Evonik Industries used CPhI to promote its new health care business. Put in place in September, the business combines almost all of Evonik’s pharma-related operations, including custom manufacturing, amino acids, and polymers.
The German firm hopes the new business will strengthen its worldwide research, technical service, and production network. In the U.S., the company has been integrating its 2010 acquisition of Eli Lilly & Co.’s Tippecanoe Laboratories, spokesman Jürgen Krauter said. Evonik gained capabilities for making highly potent APIs at the Indiana site, where it has since built a kiloscale lab, and it has also added lab-scale high-potency capacity in Europe.
At about the time of CPhI’s last stay in Frankfurt, U.K.-based Robinson Brothers. acquired Endeavour Speciality Chemicals. In the three years since then, the company has grown steadily, according to Managing Director Adrian Hanrahan. The acquisition brought R&D-scale efforts to complement Robinson’s organic chemistry capabilities, which range from kilogram to commercial scale.
Hanrahan said the diversity of the company’s businesses helped it weather the downturn. Although sales slipped about 15% to $39 million in both 2009 and 2010, he expects them to reach about $50 million this year. The company employs 260 people, up from 220 in 2009, and continues to hire.
Despite generally positive performance across the sector, few discussions at CPhI skirted the question of what’s on the horizon. Guy Villax, CEO of Hovione, told C&EN that Europe’s debt crisis may pose a bigger threat to the Eurocentric industry than the collapse of 2008. “The problem with industries like ours is that the banking system is becoming very fragile,” he said.
Hanrahan said Robinson benefits from being able to apply its core chemistry capabilities across diverse markets. “We’ve also seen about a 25–30% increase in new R&D projects coming through our pilot plant,” Hanrahan said.
Villax said the banks in Portugal, where his company is based, “won’t be around to support any expansion for anyone next year. They just won’t have the capital. And this will happen in other countries. I think this is going to be a problem. I don’t think people realize how serious this is.” Villax’ response? “Develop relationships with banks that are not Portuguese.”
AllessaChemie’s Hassler acknowledged the threat of the debt crisis but also its regional nature. “It is tough,” he said, “but don’t forget we are in Germany. For several reasons we are not affected by the crisis. Not yet.”
Wolfgang Schmitz, CEO of Saltigo, another firm based in Germany, is not taking the economic landscape of 2011 lightly. “I hope we are not in Frankfurt three years from now talking about an economic crisis,” he said.
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