Fine Chemicals Firms Go Beyond Pharma

Manufacturers of custom and fine chemicals wore many hats at InformEx, the trade show held earlier this month in New Orleans. Some firms came sporting acquisitions to broaden and balance their businesses. Others were outfitted with new chemistries and facilities to attract customers that manufacture agricultural chemicals, electronics, polymers, cosmetics, and pharmaceuticals.

Companies arrived feeling upbeat about their prospects, reported the Society of Chemical Manufacturers & Affiliates (SOCMA). With help from show organizers, the trade group recently revived its business outlook survey after a five-year lapse. It found that 88% of respondents see the current market for their products and services as good, if not excellent.

The survey covered 134 companies, most of which serve specialty and agchem markets; only one-third focus primarily on pharma. About 86% of the companies expect to post higher revenues for 2014; 59% project gains of 10% or more. To grow further, 61% intend to introduce new products in 2015. And 47% have plans in place for capital investments, while 22% see an investment as very likely.

The nonpharmaceutical side of the business has been gaining ground at the English firm Contract Chemicals. Whereas drug chemical manufacturing once made up 60% of the company’s business, it now stands at 30%. “About 55% is agchem now, and the rest is odds and sods,” said Managing Director Tony Bastock.

The shift has more to do with the agchem business growing than with pharma lagging, he added. Increases in population and advances in biofuels have spurred agriculture, as has the inclusion of more meat in the diets of people in China and other developing countries. “You need 6 kilos of grain to feed 1 kilo of pork,” Bastock said.

Beyond some of the chemistry, the pharma and agchem sectors have little in common, he noted. In agchem, Contract’s customers largely sell established products to steadily growing markets; pharma customers, in contrast, seek to introduce wholly new products for unserved markets.

And whereas even the largest drug companies hold only a small share of the pharmaceutical market, a handful of major firms such as BASF, Dow Chemical, DuPont, and Syngenta dominate agricultural chemicals. “I love the math,” Bastock said. “I can knock on five or six doors and see 90% of the market. How can I do that with pharma?”

Nevertheless, pharmaceuticals are still lucrative. “Pharma is driving the market in fine chemicals, but not at InformEx,” said Xavier Jeanjean, Isochem’s vice president for commercial development. The French firm is experiencing its strongest growth in pharmaceuticals, which make up two-thirds of its business.

Custom chemical producers with significant nonpharma businesses noted that there is plenty of technology spillover from the pharma sector and that work on drug chemicals has opened doors to other markets. Nonpharma customers are also looking for levels of quality comparable with those required for pharmaceutical work.

For example, Pressure Chemical, which does some contract manufacturing of specialty polymers used as drug excipients, has implemented a quality system to aid it in meeting the Food & Drug Administration’s requirements. “This has helped us in electronics and aerospace,” Chief Executive Officer John Pannucci said. The Pittsburgh-based firm also produces cosmetic chemicals and a range of specialty polymers, but it has no agchem business.

Pressure, which was acquired in 2012 by Minafin, exhibited at InformEx along with several of the French conglomerate’s other businesses. One of them, Pennakem, announced the opening of a biobased 1,2-pentanediol facility in Memphis.

The product, made from a corncob extract, will be processed in France into a high-purity, odorless ingredient for the personal care market. According to Frédéric Gauchet, CEO of Minafin, 1,2-pentanediol will be sold as an alternative to paraben preservatives, which are banned as cosmetic ingredients in Europe.

Minafin pursued the acquisition of Pressure to grow its business in the U.S. and expand contract manufacturing for a range of fine chemicals markets. “If you look at the fine chemicals market as a whole, 50% is for the pharma industry and 50% is for nonpharma,” Gauchet said. “What we are trying to do is be balanced between pharma and nonpharma and to be balanced between the eurozone and the dollar zone.”

Gauchet, who previously headed the firm’s Minakem pharmaceutical chemicals business, lamented what he sees as a steady drop in pharma customers attending InformEx—a common complaint at the show. “If you look at all of our booths, 75% are specialty chemical,” he said. “Without Pennakem and Pressure Chemical, we would not have any booth for Minakem.”

Similarly, Vertellus’s late-2014 purchase of Pentagon Chemicals in England was a factor that brought it to InformEx, explained Business Director Jim Keay. The purchase is helping to better position Vertellus, a nine-year-old pyridine and derivatives-based business, in fine and specialty chemicals for life sciences markets, including pharma and ag, and as a custom manufacturer. Life sciences customers now represent about 65% of Vertellus’s more than $800 million in annual revenues.

Specifically, Pentagon added capabilities in phosgenation, chlorination, sodium chemistry, and Grignard reactions, Keay said. And just before InformEx, Vertellus added another chemistry when it completed its acquisition of Dow’s sodium borohydride business in Elma, Wash.

“Both of these add-ons have significant components in life sciences but also have some attractive pieces in pulp and paper, as well as lubricants, and oil and gas,” Keay said. “It gives us a bigger tool kit and more technologies to play with.”

WeylChem’s acquisitions of Allessa and Clariant’s detergents business in late 2013 and early 2014, respectively, doubled its technological capabilities and tripled the number of people in R&D, said Andreas Maier, a WeylChem managing director. The acquisitions also doubled the company’s annual sales to $835 million.

“We have diversified, and with these new companies, we cater to different industries,” Maier said. Newly defined business segments include food ingredients, electronics, and personal care. WeylChem’s traditional business includes intermediates and active ingredients for polymers, pharmaceuticals, and agriculture.

Weyl­­Chem tries to bring its diverse operations and capabilities to bear on customer projects, Maier explained. For example, he sees room for innovation as the personal care industry moves toward individualized products. And in agriculture, the molecules are becoming more complicated.

Given the complex syntheses and supply chains required for today’s molecules, “our customers tell us they want companies that are more integrated, with a broader offering,” Maier said. “All of our large customers are telling us they want to reduce their supplier base.”

Meanwhile, more and more pharma, catalyst, and electronics customers are turning to U.S. manufacturers after encountering speed or quality problems when working with overseas suppliers, said Doug Cochran, vice president for business development at Optima Chemical. To address this demand, the Georgia-based firm is buying a large-scale site that can handle the required chemistry. The site is also registered for making agchem intermediates, an area that “we have been trying to get into for a while,” Cochran added.

Likewise, Albemarle rounded out its catalyst and performance chemicals portfolio with lithium chemicals and surface treatment technology when it completed its acquisition of Rockwood Holdings in January. Its fine chemicals services unit focuses on process development and custom manufacturing for pharma, ag, and electronics.

In these areas, performance issues can arise from mere part-per-million impurity levels, said Ryan Yoder, research and technology manager. “A key to success is really understanding the chemistry,” he said. “I could name a hundred reactions, but until you run the specific chemistry to make a specific product, you can’t really see things like the impurity profile.”

Seeking to reduce impurities that must be identified and then removed, Albemarle has developed routes to heterocyclic precursors for electronics. As an alternative to standard Suzuki couplings, the firm uses a different catalyst or no catalyst and boronic acid at all. Although yields may be lower, the payoff is in improved material and processing costs, especially on scaling up, Yoder explained.

To access new chemistries in its core areas of organosilicon and metal-organic materials, Gelest has collaborations and licensing agreements with academic scientists. It has partnered with Harvard University’s E. J. Corey to scale up silylating agents; Amos Smith III at the University of Pennsylvania and Scott Denmark at the University of Illinois, Urbana-Champaign, on cross-coupling agents; and Columbia University’s James Leighton for allylating reagents.

About 40% of the Pennsylvania-based company’s 100-plus employees are in R&D, according to President Barry Arkles. “We plan to soon announce breaking ground on a new R&D facility,” he added. “We expect to increase R&D staff over the next three years by 40–50%.” The firm’s other employees help make more than 3,000 compounds for electronics, optical materials, polymers, drugs, diagnostics, and cosmetics.

Gelest’s R&D scientists continually scan the scientific literature for Group 4A and 4B chemistries that might apply to its target markets. And like other broad-based fine chemicals suppliers, Gelest finds that perspectives on both markets and technology are critical to expanding its business.

“What is really important is understanding your own technology, being able to practice it to the highest technical level, and maintaining a dialogue with both the inputs of the new ideas and the consumers of the new ideas who are ultimately our customers,” Arkles said.