French pharma chemical firms assert their culture

A years-long upturn in the pharmaceutical chemicals business has left many companies with a lot of cash on hand. Players are weighing acquisitions far afield, many of them European and Asian firms looking to invest in the U.S. Everybody seems to be on the verge of something transformational.

In other ways, though, the pharmaceutical chemicals business has an immutable regional quality—one that is well illustrated by the French. Contract manufacturing organizations there are pursuing world markets, and some are expanding outside the country. But they remain purposely rooted, committed to a European approach to high-quality manufacturing despite France’s comparatively high costs and exacting environmental, health, and safety standards.

No company is more quintessentially French than Isochem. The company, once the fine chemicals division of the former state-owned explosives and munitions manufacturer SNPE, operates three manufacturing facilities situated in a ring around Paris. These are long-standing sites, dating back to SNPE.

Isochem sees high standards coming back in vogue, according to Amélie Arboré, vice president of sales and business development. The company, she claims, is putting its European chemistry heritage to work by meeting rising expectations for quality and transparency in a market that is continually evolving toward more complex science.

If anything, the company has spent the five years since gaining its independence from SNPE reining operations back into France. Seeking to focus on custom active pharmaceutical ingredients (APIs), it divested ventures in Hungary and the U.S. It also recently separated from a U.K. nonactive drug ingredients firm, Wychem, that was purchased by Aurelius, the holding company that acquired Isochem in 2011.

Aurelius, a German firm, is an exception to Isochem’s French essence. But Arboré says she and other managers are acting autonomously as they reassert and heighten Isochem’s cultural focus—high-end fine chemistry at its plants in France.

“This is the story of a transformation,” she says, “in which we have had to deal with two challenges. First, the conversion to a midsized fine chemicals company after being part of a state-owned firm. Second, dealing with the forecasted decline of agricultural business. We were manufacturing low-cost molecules, and manufacturing was moving to low-cost countries. We were not going to be competitive anymore.”

The company answered both challenges in 2014 with the sale of Framochem, a Hungarian subsidiary that supplied phosgene derivatives mainly for the agricultural market, to the U.S. firm VanDeMark.

Today, Arboré claims, custom synthesis, mainly of pharmaceutical chemicals, accounts for 60% of revenue. Exports have increased from 50% to 75% of sales in the past five years, she notes, with 45% of exports going to the U.S.

Isochem is working hard to enhance both research and manufacturing, Arboré says, investing about 5% of sales annually in new resources. “There is a high demand for analytical development skill, as pharmaceutical companies want suppliers to track impurities that can lead to adverse effects,” she says.

Isochem’s transformation program has shown one key result, Arboré says. “When we developed our strategy in 2011, one of our targets was to reach 60 million euros in sales from our three plants. And we did it,” she says. The company is now targeting 10% annual growth for the next three years.

At PCAS, a larger French firm, R&D has been the focus of late. In November, the company acquired a 10,000-m² R&D facility in Porcheville, France, from U.S.-based R&D services firm Covance. “This new center will gradually become the central platform for PCAS’s R&D projects,” says Vincent Touraille, the firm’s chief executive officer.

Touraille notes that the facility, originally a Sanofi research center, is located near PCAS’s manufacturing site in Limay. Shifting research from its five other facilities in France will reduce development time and take advantage of synergies between its pharmaceutical and industrial specialties businesses, he says. The site’s pilot facilities can accommodate the small-scale manufacturing that now takes place at the company’s disparate research locations.

Rather than shrink in the consolidation process, R&D staffing will increase by 20 to 25%, Touraille anticipates. Like Arboré at Isochem, Touraille points to increased demand for analytical services that will require the company to increase scientific staffing. “Quality is very important right now,” he says.

Although PCAS won’t disclose the amount it paid for the Porcheville site, Touraille says the firm has upped annual investment in its facilities from below 10% of sales to between 18 and 20%. In addition, it is currently spending about $20 million to boost capacity at its API manufacturing facilities.

Much of the investment is in support of the complex molecules currently being developed by drug companies, but PCAS is also looking to generally boost capacity, which has been the limiting factor in its fast-growing pharmaceutical chemicals business.

Yet PCAS will not be increasing the size of individual manufacturing contracts, keeping within a comfort zone of between 1,000 and 1,500 metric tons. “It isn’t a question of volume,” Touraille says. “We are faced with very complex chemistry. Instead of seven steps, now there are 20 to 40 steps.”

PCAS isn’t the only French company expanding by acquiring the unwanted local assets of international firms. In 2015, the French custom manufacturer Fareva acquired Merck & Co.’s API plant in Saint-Germain-Laprade, France. Fareva said the purchase brings 128,000 L of reactor capacity, equal to the capacity it has among its three other API plants in Germany and France. Fareva is spending around $28 million to make the plant a high-containment facility by mid-2017.

Last month, the French contract research provider Oncodesign completed the purchase of GlaxoSmithKline’s François Hyafil Research Centre in Villebon-sur-Yvette, France. GSK will provide 57 employees and about $40 million over four years to support transfer of the site.

And in October, Paris-based Axyntis acquired 3M’s API facility in Pithiviers. Axyntis will merge the operation with its Orgapharm division, which operates in the same industrial area. Roughly 60 3M employees will remain with Axyntis.

The Pithiviers site includes two API plants and a final-dose drug manufacturing facility, as well as a 1,000-m² R&D facility and a similarly sized quality-control lab. Axyntis intends to transfer the final-dosage plant to a business partner, deeming it a bad fit with the company’s API focus.

CEO David Simonnet says the acquisition will advance Axyntis’s effort to combine manufacturing and chemistry services, a push that began three years ago when Axyntis formed Kyrapharm, a joint venture with Fuji Silysia that offers high-performance liquid chromatography services.

And the new facility has kilogram-scale production labs that will allow Axyntis to pursue work in highly potent APIs. Combined with Orgapharm, Axyntis will have 120,000 L of industrial capacity in addition to three R&D labs, Simonnet says.

Axyntis has a target of doubling annual sales to $200 million by 2020 through a combination of internal growth and further acquisition. A U.S. R&D site with kilogram-scale manufacturing capacity might be of interest, Simonnet says.

Minakem, another French pharmaceutical chemicals maker, has been on the lookout for U.S. assets for a couple of years now, according to Frédéric Gauchet, CEO of the company, which is a division of the French firm Minafin. “To be frank, it’s a difficult market,” he says. “Prices are very high.”

The company’s API business is doing well, Gauchet says. The market for contract services remains strong, but companies need to adapt to new technological and regulatory needs. Having facilities in the U.S. would provide some flexibility.

Operating costs in Europe are high, Gauchet observes, and particularly so in France. Adding to the challenge of doing business, the French drug companies Sanofi and Servier have major API manufacturing divisions that compete for business.

“And unfortunately for us, we are waiting to see who will be the next president,” he says, pointing to the recent surprise announcement by French President François Hollande that he will not run for reelection. “We will have several levels of reform for business,” he predicts.

Minakem, whose parent company already owns U.S. operations, has always had its eye on the world outside France, Gauchet says. The company has plants in Germany and Belgium, and Asia is on the radar screen, he says. “Our long-term plan is not necessarily to be in China, but in Asia. If you look, China is developing good assets in fine chemicals, but so are India, Thailand, and Singapore.”

Novasep, the largest pharmaceutical chemicals company in France, may have undergone the most thorough transformation over the past five years. Launched in 1996 as a chromatography specialist, the company added chiral separation and API manufacturing through a series of acquisitions. The company purchased Aventis’s Seripharm, for example, whereupon it began manufacturing the cancer drug paclitaxel.

Novasep merged with Rockwood Holdings in 2004 and became part of a U.S.-based conglomerate. In 2009, Novasep was purchased by a group of investors and relaunched on its own, but with huge debt from its acquisitions.

A refinancing ensued, during which Minafin proposed a merger with Novasep—by invitation of the French government, according to Gauchet. “In France, it’s rather complicated,” he told C&EN at the time. “When a significant company is in trouble here, it becomes a political issue.” The deal was rejected.

Under new leadership, Novasep leaned into its original area of specialization with a $40 million investment in its largest chromatography facility, in Mourex, France. Meanwhile the company expanded highly potent API manufacturing and in 2015 announced plans to build an antibody-drug conjugate facility in Le Mans.

Novasep completed a new round of refinancing last year as it pursued a “back-to-basics” program of focusing on pharmaceutical services. In November, the company struck a deal to provide process development and production services for two HIV vaccines developed by France’s Vaccine Research Institute. Last month it sold TangenX, a U.S. subsidiary that supplies biomanufacturing filtration technology, to Repligen for about $40 million.

Like Novasep and its French compatriots, pharmaceutical chemical companies around the world are positioning themselves to compete using a compelling mix of manufacturing and services. But there is a distinctively Gallic angle to strategies under way at the French firms, one based on a tradition of meeting high expectations.

“France has always been very demanding on environmental performance as well as health and safety,” PCAS’s Touraille says. “That has meant some investment. But now other countries are making those investments. Everybody is turning toward the French way, and right now I would say France is very competitive.”