Roche Shops Capacity

Roche’s recent announcement that it will attempt to sell three pharmaceutical chemical plants in Europe and one in the U.S. came with an explanation that fits nicely with a major trend in drug active ingredients.

The company cited the trend toward smaller volume, higher complexity chemistry in drugs coming forward in the pipeline. To that end the Swiss firm is spending about $300 million on a new manufacturing site in Kaiseraugst, Switzerland, that will support novel technologies.

But the sale plan also lines up with a long-term move by big drug companies away from manufacturing, a trend that will impact the future of the plants, which are in Ireland, Spain, Italy, and South Carolina. Swiss industry consultants Roger LaForce and Peter Pollak give the plan some historical as well as local perspective.

“Selling a fine chemicals plant in Europe today is not an easy task,” LaForce says. “I am aware of at least four different fine chemical companies for sale at this time.”

He notes that contract manufacturers of active pharmaceutical ingredients (APIs) have been avid buyers of large drug firms’ assets during a 15-year wave of big pharma exits from manufacturing.

One of the first examples was DSM’s purchase of several Roche vitamin plants in 2003. But the Dutch conglomerate recently exited API manufacturing itself, as have virtually all of the large, diversified chemical companies that may have taken on a large pharma asset.

Smaller API makers are potential buyers, LaForce says, citing the example of Hovione’s 2009 acquisition of a Pfizer plant in Ireland—a bold move, considering the amount of capacity and risk the company took on. A private investor could also step up, “but a knowledgeable management would be needed,” he says.

Here again, an example can be cited in International Chemical Investors Group, a German private equity firm that has acquired several fine and pharmaceutical chemical companies.

LaForce sees the possibility of a buyer from Asia. “Chinese investors are able to mobilize a lot of cash, and Roche’s plants could be a target,” he says. “Again the question arises, ‘Who would manage them for the Chinese investors?’ ”

Such a deal happened last year when a Chinese firm acquired a Boehringer Ingelheim chemical plant in Virginia, but the company quickly abandoned its plan to restart it. Industry watchers say the attempt failed because there was no immediate business for the facility.

The Roche plants, in contrast, could provide a buyer with immediate business. The company says a buyer may have the option to supply it with chemicals historically made at the plant, but such a firm would also have to bring in other work. Single-purpose plants would have to be made multipurpose to take on more business.

Pollak notes that the Roche plants are underutilized. For example, the one in Florence, Italy, was built about 15 years ago exclusively to manufacture orlistat, an antiobesity drug. Sales failed to meet forecasts, he says, and the company attempted to sell the plant as early as 2010. He says it comes with extensive tank farms and wastewater treatment plants.

In contrast, Roche’s new plant, Pollak says, will better match the demand for chemicals going forward. It also highlights the benefits of investing in an expensive market in Europe.

“At first sight, building a plant in the country with one of the highest labor costs in the world does not seem to make much sense,” he says. “However, in due consideration of all crucial factors, Switzerland actually is the first choice.”

Pollak cites Roche’s skilled workforce in Switzerland and tax advantages for drug companies that invest there. He notes that Biogen is currently spending nearly $1 billion on a biopharmaceutical plant in Switzerland.