BUSINESS
CAMBREX GETS DOWN TO FIGHTING WEIGHT Fine chemicals pioneer hopes to rebound with a tighter focus on human health RICK MULLIN, C&EN NORTHEAST NE
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Baldwin Jr. and Arthur Mendolia, started with the idea that a company can be built through the opportunistic acquisition of businesses discarded by large conglomerates. Cam- î brex, which went public in J 1987, grew in size but lacked s the kind of cohesion among ζ its businesses needed to ? generate high revenues. Mack, hired from Olin Corp. in 1990 to correct this problem, added a strategic dimension to the firm's ac quisition regime. Industry observers credit him with blazing a trail into fine and pharmaceutical chemicals— Mack the latter with the acqui sition of Akzo Nobel's pharmaceutical chemical unit in 1994—ahead of the fine chemicals bandwagon of the late 1990s. More recently Cambrex staked out bio pharmaceuticals with the acquisition of BioWhittaker in Walkersville, Md., in 1997. The firm followed up by acquiring
HEN CAMBREX COMPLET-
ed the sale of Rutherford Chemicals to Arsenal Capital Partners for $65 million late last year, Cambrex went from being a fine chemicals company with a mix of pharmaceutical, nonpharmaceutical, and biotech products to a trimmer and more focused human life sciences firm. It also shed businesses that accounted for about 25% of sales. According to Chief Executive Officer James A. Mack, however, the sale of Rutherford puts Cambrex in a better position to achieve his goal of $ 1 billion in annual sales within five years. The sale of Rutherford is to some extent the culmination of a restructuring started at Cambrex in 1998 with the formation of a pharmaceuticals unit. T h e company, which had operated as an amalgam of acquired fine and specialty chemicals firms, was seeking to achieve greater definition as a life sciences firm with a major focus on pharmaceuticals. At the same time, Cambrex began looking ahead to the coming wave of activity in biopharmaceuticals. Soon after the Rutherford deal closed, Cambrex announced another organizational repositioning: the combination of its smallmolecule active ingredients and biopharmaceutical businesses into a single group under the direction of Gary L. Mossman, former head of predominantly nonpharmaceutical contract manufacturer Dixie Chemical, who came to Cambrex last year. Mack and Mossman plan to push Cambrex beyond its traditional base in fine chemicals into a field they call human health. Cambrex approaches the field with three divisions: small-molecule active pharmaceutical ingredients (APIs); bioproducts, including cells, media, and other products; and biopharmaceuticals, its contract process development and manufacturing business. The company is investing across the board but emphasizing highgrowth niches such as cell therapy, where Cambrex hopes to achieve pioneer status. Pioneering is not a new role for Cambrex. The firm, formed in 1981 by Cyril C. HTTP://WWW.CEN-ONLINE.ORG
CAMBREX AT A GLANCE Headquarters: Rutherford, N J . Sales: $406 million Net loss: $47 million Income from continuing operations:
$7.2 million Capital spending: $47 million R&D spending: $17 million Employees: 1,900 BUSINESS SEGMENTS (% of total sales]—major products: Human Health (60%)—active pharmaceu tical ingredients, advanced intermediates, and other fine and custom chemicals Bio Products (29%)—cells and media, electrophoresis, chromatography, and en dotoxin detection products and services BioPharma (11%)—contract biopharmaceutical process development and manufacturing Website: http://www.cambrex.com NOTE: Figures are for 2003.
Bio Science Contract Production (now Cambrex Bio Science) in Baltimore and Marathon Biopharmaceuticals in Hopkinton, Mass., in 2001. According to Allen Cohen and Tracy Marshbanks, analysts at First Analysis, re cent moves at Cambrex are part of a con stant push into future growth markets. 'They have demonstrated the ability to look out a few years and see a growth area and get there at the right time—not so early that you lose money trying to build it, and not so late that it's become expensive be cause everybody is there," Marshbanks says. 'And they've done well. [Mack] is viewed by his peers as a visionary who can also execute." Cohen adds that much of Mack's success hinges on his being "an astute buyer and usually an astute seller" of businesses. Mack himself acknowledges that he might have done well to have sold Rutherford Chemicals in 1998 or 1999, before spe cialty chemicals markets tanked. "He may have sold cheap with Rutherford," Cohen says, "but at that point it was small relative to the rest of the company and it had a strate gic thrust to it." THE MOST RECENT changes at Cambrex follow a tempestuous year that started with the departure of Claes Glassell, chief op erating officer and heir apparent to Mack. Industry sources familiar with the cir cumstances of Glassell's departure say he left when Mack decided not to retire ear ly in the year, as he had planned. Mack subsequently agreed to stay on as C E O through 2004. Anne-Marie Hess, direc tor of investor relations, says Mack, 66, has not committed to leaving at the end of the year, but that an active search for his replacement is underway As the year went on, Cambrex settled a 1998 class-action constraint-of-trade law suit involving its Italian subsidiary Profarmaco Milano. Cambrex cut its earnings forecast in April. Cambrex also experienced a classic cus tom manufacturer's setback when Transkaryotic Therapies (TKT) failed to get U.S. approval for Replagel (agalsidase alfa), a drug it markets in Europe for treating Fabry dis ease. Cambrexhad been supplying a key bi ologies component with expectations that TKTwould ramp up to supply the U.S. mar ket. TKTpulled production back in-house, resulting in a loss of about $17 million in C&EN
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BUSINESS business for Cambrex, according to Mack. The result of the setbacks was a finan cial beating: Cambrex' stock dropped near ly 50% to approximately $15 per share last spring, and last month it re- 0 ported a 2 0 0 3 net loss of | $47 million. Its stock had re- >< bounded to $2760 late in 1 January The company is fighting hard to recoup from theTKT loss with new biopharma ceutical business, Mack says, but the environment has been tough. "We had a robust pipeline ofopportunities Oast year}, but as that end of the industry continued to suffer from a lack of funding, a lot Mossman of the projects we had antic ipated near term just got pushed off and pushed off," he says. "That's beginning to change, and part ofthat change is being driv en by our new organizational alignment." Mossman's main objective, Mack ex plains, is to close deals and shorten the selling cycle. "Our projections are that by late third or early fourth quarter, we'll
be back to our 2002 run rate," Mack says. Anticipating success, Cambrex has been adding capacity Last June, the company opened a biopharmaceutical development lab and pilot plant in Balti more, part of a $26 million plan to expand contract bioprocessing capability Earli er in 2003, the firm com pleted validation of an $11.5 million expansion of smallmolecule API plants in Karlskoga, Sweden, and Charles City, Iowa. Cambrex re cently opened its Center of Technical Excellence for pharma and biotech in New Brunswick, N.J. The company has also been expanding its offer ings through partnerships. In September, it formed an alliance with Analytical BioChemistry Laboratories in Columbia, Mo., through which it gained access to tools and services in the area of radiolabeled drug testing and A D M E T (absorption, distri bution, metabolism, excretion, and toxic ity) studies. A month later, Cambrex an
nounced an alliance with Dextra Labora tories, a U.K.-based specialist in sugar and carbohydrate chemistry, by which Cam brex gains access to new chiral molecules used in API manufacture. Generally, Mack expects sales to ramp up in 2004, based on new investments and products, such as taste-masking for oral drugs and newbiocatalysis technology The company is also supplying the active in gredient in Namenda (memantine HC1), a drug for treating Alzheimer's disease de veloped by Merz and marketed by Forest Laboratories. Cambrex is forecasting dou ble-digit growth overall, including 20 to 30% growth in biopharmaceuticals. Even if it achieves 10% overall growth, however, Cambrex will need to keep its eyes open for more acquisitions, Mack says, noting that it is evaluating about a dozen candidates. But he is confident the com pany is on the right path. "The sale of Rutherford made us a smaller company in terms of revenue but gave us more focus on higher growth areas," Mack says. Ά fouror five-year time horizon for reaching $1 billion in sales is a lot more realistic today than it was a couple of years ago." •
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