Rising Players in Global Fine Chemicals

A mid-year review of the custom manufacturing and fine chemicals market reveals Asian producers continue to invest in manufacturing capabilities in Asia and in Europe. Facing increased competition, some US and European producers are responding by building a manufacturing presence in Asia through partnerships or greenfield projects. Select larger players are expanding with improved business conditions, and certain established players are making transitions.

Asian producers advance

Perhaps the most notable of the rising Asian players is NPIL Pharmaceuticals, part of Nicholas Piramal India. Ltd., (Mumbia, India, www.nicholaspiramal.com), which last month agreed to acquire the Morpeth, Northumberland, UK, manufacturing facility of Pfizer, Inc. (New York, NY, www.pfizer.com). The site has production and supply chain capabilities for active pharmaceutical ingredients (APIs), finished dosages, packaging, and distribution.

With the Morpeth acquisition, NPIL Pharma secures a supply agreement worth as much as $350 million with Pfizer through November 2011. NPIL Pharma already has a sourcing relationship with Pfizer, a seven-year agreement, signed in December 2005 for providing process development and scale-up services to Pfizer's animal health division.

The Morpeth acquisition is NPIL's third acquisition of European-based manufacturing assets. It acquired Rhodia's (Paris, www.rhodia.com/us/home_tunel.asp) inhalation anesthetics business in December 2004 and Avecia's custom manufacturing business in December 2005.

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Dishman Pharmaceuticals and Chemicals, Ltd. (Ahmedabad, India, www.dishmangroup.com) also is raising its position in global fine chemicals. In May, it agreed to acquire the Swiss fine chemicals companies CarbonGen AG and AMCIS from Solutia (St. Louis, MO), providing Dishman with manufacturing capabilities for high-potency actives. In February it acquired I03S, Ltd. a company specializing in ozone chemistry, and in 2005 acquired the contract research company Synprotec, Ltd.

These acquisitions follow investments in manufacturing. Dishman recently completed a new 75,000-ft² R&D center at its Bavla manufacturing site in Ahmedabad, India, which includes CGMP kilo and pilot plants. In May, the Bavla facility successfully completed an FDA inspection for manufacturing the antihypertensive drug eprosartan mesylate for Solvay Pharmaceuticals (Brussels, Belgium, www.solvay.com). It also expanded its facilities in Naroda, India, to include CGMP manufacture of quaternary ammonium and phosphonium compounds and certain bulk drugs.

Like some Indian producers, Dishman is backward–integrating in China. Earlier this year, Dishman acquired an 80,000-m² industrial plot in Shanghai Chemical Industry Park for two projects: a $10-million investment for producing quaternary compounds and intermediates and an API plant, targeted for completion in 2008.

Others are making their marks. "Indian companies such as Hikal, Jubilant Organosys, Matrix, and Suven have the benefit of the 'high-skill and low-cost advantage' plus the leadership and financial muscle to implement it," says Peter Pollak, a Swiss-based fine chemicals consultant.

Jubilant Organosys, Ltd. (Noida, India, www.jubl.com), a supplier of APIs and formulations, is building a new facility for finished solid dosages in Uttaranchal, India with a capacity of 1.8 billion tablets and 160 million capsules (on a two-shift basis), scheduled to come on stream at the end of 2006. On the API and intermediates side, it set up two new multipurpose plants at Gajraula, Uttar Pradesh, India and expanded its kilo laboratories in Gajraula.

Matrix Laboratories, Ltd. (Hyderabad, India) is in acquisition mode. It recently acquired a 55% stake in Concord Biotech Ltd., which specializes in fermentation and biocatalytic technology. As a strategy to backward-integrate its intermediates from China, Matrix acquired a 58% stake in Mchem Group in December 2005. Matrix also acquired a 43% stake in the Swiss API technology firm Explora Laboratories SA, formed two manufacturing ventures with South Africa's Aspen Pharmacare, and bought a controlling stake in the Belgium generics company Docpharma NV.

Other recent moves includes: Shasun Chemicals & Drugs' (Chennai, India, www.shasun.com) acquisition of Rhodia's pharmaceutical custom synthesis business, and Kemwell Pvt., Ltd's (Bangalore, India) entry in the contract API market with the purchase of Pfizer's Uppsala, Sweden facility.

A leading API supplier from China, Zhejiang Hisun Pharmaceutical Co. (Taizhou, Zhejiang Province, China) is now supplying vancomycin for Alpharma, Inc. (Fort Lee, NJ) until a new vancomycin manufacturing plant at the Hisun facility in China is completed. The new facility, which will be owned and operated by Alpharma, will incorporate technology purchased from Hisun. Zhejiang Hisun also has a technology transfer agreement with Eli Lilly and Company (Indianapolis, IN) to make capreomycin, an API for treating tuberculosis.

Western-Asian supply lines

The penetration of suppliers from India and China is obliging US and European companies to refine their business models. "Apart from the issues of quality, speed, and value, the two key requisites for success are a position in India or China (a manufacturing subcontracting arrangement is good and an affiliate company is better) and an attractive toolbox of technologies," says Pollak.

Degussa positions in Asia. A case in point is Degussa AG (Düsseldorf, Germany, www.degussa.com), which formed a custom manufacturing joint venture with Lynchem Co., Ltd. (Dalian, Liaoning Province, China). Lynchem, with 2005 sales of roughly $45 million, has 800 m³ of reactor capacity at a 50-hectare facility in Dalian, Liaoning Province.

The joint venture is part of a strategy of what Degussa terms as "horizontal integration," for leveraging manufacturing assets in Asia for cost-competitive manufacturing of on-patent intermediates, steps in API synthesis, and off-patent APIs. Degussa will focus its existing European custom manufacturing sites for producing high-value regulated intermediates and on-patent APIs.

Consistent with that approach, Degussa agreed to sell Raylo Chemicals, a custom manufacturer of APIs and advanced pharmaceutical intermediates, to Gilead Sciences last month.

"The sale of Raylo is a key step in our strategy to shift production capacity from the Western Hemisphere to Asia," said Klaus Engel, chairman of Degussa's management board.

Earlier this year, Degussa signed a long-term, nonexclusive agreement with the Indian custom manufacturer Hikal, Ltd. (Mumbai, India, www.hikal.com) under which Hikal will provide manufacturing of advanced intermediates and APIs for Degussa. Hikal is expanding, building a new 140,000-ft² contract research facility in Pune, India. To backward-integrate sourcing from some of its intermediates and APIs, Hikal also acquired a minority stake in a subsidiary in China's chemical conglomerate Sinochem Corporation (Beijing, China) in 2005.

Lonza, Albany Molecular, Aceto, and SAFC position in Asia. Lonza (Basel, Switzerland, www.lonza.com) is investing $200 million to build a multipurpose API and intermediates plant complex with large- and pilot-scale production capabilities in Nansha Guangzhou, China. Earlier this year, Lonza opened a new R&D center for intermediates and APIs in Nansha.

Albany Molecular Research, Inc. (Albany, NY, www.albmolecular.com), a mid-sized custom manufacturer, also is expanding in India. It is building a new 50,000–ft² research and development center in Hyderabad, India, slated to be operational in 2007, for custom chemical synthesis and medicinal chemistry. The new facility also will house a scale-up laboratory for APIs and intermediates. This follows the opening of its first laboratory in India last year.

Fine chemicals distributor Aceto Corporation (Lake Success, NY, www.aceto.com) is expanding in India with plans to buy or build a facility in or near Mumbai, India for housing its pharmaceutical quality control, quality assurance, and analytical laboratories, and to serve as its Indian logistics center. "We believe it is vital to create more in-house capabilities and enhance our Indian presence, similar to what we have done in China," said Leonard S. Schwartz, Aceto's chairman, CEO and president, at the time of the announcement last month. In addition, last month, Aceto Pharma formed a wholly owned subsidiary, Aceto Pharma Corp. to market finished-dosage form pharmaceuticals, both chemical and biopharmaceutical, under its own brand.

And, SAFC, the custom manufacturing arm of Sigma-Aldrich Corporation (St. Louis, MO, www.safcglobal.com) is building a small-scale manufacturing plant in Bangalore, India.

Established players expand. As Asia becomes part of the strategy of established players, some too, are expanding.

As part of its strategy to build its large-scale custom manufacturing capability, in May SAFC acquired Honeywell International's Iropharm, a custom manufacturer in Arklow, Ireland. SAFC also recently completed an expansion of its high-potency manufacturing capabilities in Madison, Wisconsin.

Lonza is making investments in biologics. These include the acquisition of UCB-Bioproducts, the peptide manufacturing division of UCB, the construction of a new large-scale mammalian cell-culture plant in Singapore, the addition of mid-scale biologics capacity in Portsmouth, New Hampshire, the addition of a commercial-scale biopharmaceutical manufacturing facility in Visp, Switzerland, and the expansion of clinical scale mammalian manufacturing capacity in the United Kingdom.

Siegfried Group (Zofingen, Switzerland, www.siegfried.ch) is upgrading its crystallization facility in Zofingen following building a new milling and blending facility in 2004. It is building a new pharmaceutical manufacturing facility for solid-dosage forms in Malta and completed an upgrade to its biopharmaceutical facility in Berlin-Kleinmachnow, Germany in 2005.

On the formulation side, in 2006, DSM (Geerleen, Netherlands, www.dsm.com) added an additional capsule-manufacturing suite at its solid-dosage manufacturing facility in Greenville, North Carolina and completed a major investment to debottleneck its solid-dose manufacturing facilities. In biologics, DSM is advancing its partnership with Crucell NV for using the "PER.C6" cell line, a production platform for recombinant proteins and monoclonal antibodies.

Saltigo GmbH (Leverkusen, Germany, www.saltigo.com), the new identify of the former fine chemicals business unit of Lanxess AG (Leverkusen, Germany) is integrating and upgrading its small-volume production plant, expanding its low-temperature capabilities, and recently formed a specialized fluorine team.

Another new identity in the market is Pharmazell GmbH, formed from the former API and intermediate compounds business of the Noveon segment of Lubrizol Corporation (Wickliffe, OH). Lubrizol sold the business to Auctus Management GmbH and former managers of the API business in May. Pharmazell has manufacturing facilities in Raubling, Germany, and Chennai, India.

The entry of private equity firms, typically a sign of a lack of strategic buyers, reflects the changing fortunes in global fine chemicals. Recent deals include Clariant's (Muttenz, Switzerland) sale of its pharmaceutical fine chemicals unit to the private equity firm TowerBrook Capital Partners LP for roughly $89 million. Clariant had built is pharmaceutical fine chemicals business through several acquisitions, most notably the 2000 acquisition of the UK-based specialty and fine chemical company BTP for $1.8 billion.

Earlier this year, Groupe Novasep SAS (Pompey, France) sold its Swiss fine-chemicals business Rohner AG to the private equity firm Arques Industries AG. Novasep acquired Rohner in 2005.