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Wacker seeks help from biotech

Softening chemical markets encourage German giant to grow through biochemistry

by Alex Scott
April 21, 2019 | A version of this story appeared in Volume 97, Issue 16


Photo of Wacker's therapeutic protein plant in Amsterdam.
Credit: Wacker
Wacker has been making biopharmaceuticals, live microbial products, and vaccines at this plant in Amsterdam since buying it in April 2018.

Wacker Chemie, one of the world’s largest producers of silicone polymers and polysilicon for solar panels, has a financial problem. The Munich, Germany–based firm recently reported that its 2018 net profits tumbled 70% compared with the year earlier.

“Creeping doom” is how Sebastian Bray, a financial analyst for the German investment bank Berenberg, characterizes Wacker’s financial predicament in an April 1 note to investors. Prices for silicones, Wacker’s biggest business, are “on the slide,” and prices for polysilicon continue to plumb new depths, Bray states. New capacity from Dow and Chinese competitors will erode Wacker’s silicone margins, he predicts, while a drop in Chinese demand will crimp polysilicon prices.

While Wacker’s president and CEO, Rudolf Staudigl, waits for markets to improve, he has another card up his sleeve: a strategy to build the firm’s small, but technologically rich, biochemical business, called Wacker Biosolutions. Its 2018 sales of a little more than $250 million mean it makes up less than 10% of Wacker overall. Those sales, though, are growing by 10% annually. Given the business’s niche technologies in high-margin markets, Staudigl is hoping it will be a shining light for years to come.

Biosolutions operates in an array of markets, including food and feed ingredients, biologic drugs, consumer care, and bioprocessing. Market conditions for its products “could not be any more promising,” says Gerhard Schmid, president of Wacker Biosolutions—a stark contrast to the outlook for silicones and polysilicon.

Biosolutions’ jewel is its biologic drug manufacturing business, which since 2014 has increased annual sales on average by 19% in a market growing at about 9% per year, the firm says.

In this business, Wacker derives therapeutic proteins in bulk from microbes, in contrast to the mammalian cell–grown drugs that most firms in the field make. “We are now the biggest dedicated microbial contract developer and manufacturing organization worldwide,” says Susanne Leonhartsberger, managing director of the drug manufacturing business, Wacker Biotech.

We are now the biggest dedicated microbial contract developer and manufacturing organization worldwide.
Susanne Leonhartsberger, managing director, Wacker Biotech

The firm’s biologic drug plants in Jena and Halle, Germany, are almost full, so in April 2018 it purchased the Amsterdam-based biologic drug maker SynCo Bio Partners, doubling its manufacturing capacity. The acquisition also provides Wacker for the first time with fill-and-finish facilities that enable it to provide customers with finished products as well as bulk drugs.

Wacker Biotech has already filled some of the spare capacity in Amsterdam. “We are looking very much into expansion at all three sites,” Leonhartsberger says.

Should the business Leonhartsberger runs require capital for expansion or additional acquisitions, she is convinced that Staudigl and the Wacker board will do their best to make it available. “Wacker realizes that the business is growing, and they want to grow another business that is not traditional chemicals,” she says.

Because Wacker makes drugs in microbes, it only makes sense that it should also pursue the emerging business of producing microbes that are themselves living drugs. Research increasingly shows a link between health and certain microbes in the human gut, and some 100 therapies featuring microbes are now in clinical or preclinical trials.

By 2025, the market for contract manufacturing live therapeutic microbes could be worth $200 million, rising to more than $1.1 billion by 2035, industry experts say. The early signs for Wacker are good. “We are currently seeing a huge request for live microbial projects,” says Guido Seidel, managing director of operations for Wacker Biotech.

Wacker won’t have the microbe market to itself. Earlier this month, Lonza and the Danish company Chr. Hansen said they will spend about $100 million to create a joint venture company specializing in making therapeutic microbes.

Still, the microbial therapeutics business is nascent enough that success is not guaranteed. “While going in early might carry some risk, it does present the opportunity to establish oneself as a market leader,” says Bernhard J. Paul of Carinth Consulting, which advises drug service firms.

Beyond pharmaceutical markets, Wacker’s Biosolutions division is targeting the food and nutritional ingredient business. In September, it completed the refurbishment and expansion of a fermentation plant it acquired in 2016 in León, Spain, for making cysteine, an essential amino acid.

Most of the world’s cysteine, used in drugs, food ingredients, and flavorings, is made in China, where it is extracted from human hair and feathers. Wacker reckons its fermentation process will enable it to take advantage of growing demand for animal-free ingredients.

Another Wacker product in this field is cyclodextrin, a cyclic oligosaccharide consisting of six or more glucose molecules that the German company produces via the enzymatic conversion of starch.

Cyclodextrin can be used to improve the bioavailability of coenzyme Q10 and the herbal antioxidant curcumin—endurance-enhancing additives in sports drinks—by making them more soluble. This improved solubility occurs because the outside of the cyclodextrin molecule is hydrophilic and the interior cavity is lipophilic, allowing it to combine fats and aqueous solutions into an emulsion.

Cyclodextrin’s properties mean it also can be used as an egg replacement in cakes and other baked goods. Cyclodextrin can bind fats and proteins to form batters and doughs that look and taste similar to ones containing egg.

The sugar molecule could also appear in a series of nonfood markets in the coming years, Wacker says. Projects include paints for the automotive sector in which polymers cross-link with cyclodextrins to help heal scratches.

Cyclodextrins can also be used to enclose mosquito repellents, thereby slowing evaporation from the skin. Using the same enclosing mechanism, the molecules can trap sweat in sportswear, conceal unpleasant-tasting molecules, and replace activated carbon filters in wastewater treatment systems. Wacker runs a lab in Adrian, Michigan, that develops cyclodextrin products exclusively for industrial applications.

Between the broad application of such molecules and its pharmaceutical activities, Wacker hopes to accelerate the growth of Biosolutions, which has already more than doubled its sales since 2010. “We have not set an upper limit for our Biosolutions activities, but we intend to increase the business significantly,” Staudigl says. “Acquisitions will be considered, but the firm will stick to its strategy of bolt-ons and not major acquisitions.”

Biosolutions is on course to become Wacker’s most profitable business, according to Berenberg’s Bray. The profit margin for the firm’s silicones business will drop from 20.0% in 2019 to 16.0% in 2021, he forecasts, and the margin for polysilicon will fall from 8.2% to 7.4%. Meanwhile, the profit margin for Biosolutions will rise from 15.0% to 17.0% over the same period.

It is not inconceivable that Biosolutions will one day earn more than Wacker’s chemical businesses. As Staudigl says, “We need to be involved in this sector.”


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