CUSTOM CHEMICALS - C&EN Global Enterprise (ACS Publications)

Feb 17, 2003 - As Marc A. Hennebert, a partner in the London office of Strategic Decisions Group (SDG), a global strategy firm specializing in decisio...
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COVER STORY

INGENUITY Expanding the technology toolbox through internal R&D is key to staying ahead of the competition.

CUSTOM CHEMICALS Custom producers of pharmaceutical active ingredients and advanced intermediates continue to adjust to challenging economic conditions A. MAUREEN ROUHI, C&EN WASHINGTON

C

O M I N G O U T O F A BRUTAL YEAR AND H O P I N G FOR A

better year ahead, the custom chemical industry will be center stage next week in New Orleans for Informex 2003, the trade show sponsored by the Synthetic Organic Chemical Manufacturers Association. More than 400 companies will bring to the fore technological advances and new developments. Most will be targeting the pharmaceutical industry the largest customer for custom manufacturing. Observers predict another tough year overall. The U.S. economy still ails, and it appears that a robust recovery must await

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resolution of the prospective war against Iraq. But because customers can be served in various ways, suppliers have multiple avenues for growth. As Marc A. Hennebert, a partner in the London office of Strategic Decisions Group (SDG), a global strategy firm specializing in decision analysis and risk management, puts it: "The challenge for every company is to identify the business model from which it can extract the most value-creating opportunities." Hennebert noted last November at Fine Chemicals Conference 2002 that in the early and mid-1990s, pharmaceutical fine chemicals offered a platform for growth and diversification with attractive margins. But after peaking in the late 1990s, the segment's performance has deteriorated. C&EN

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COVER STORY And according to an SDG survey, pharmaceutical custom manufacturing executives anticipate that profitability will continue to decline in the near term. The market forces squeezing custom manufacturers are well known: Demand dropped as drug companies merged, while supply rose with overenthusiastic investments in cGMP (current Good Manufacturing Practice) assets. Meanwhile, the Food & Drug Administration (FDA) has ruled against an unprecedented number of new drug applications, while R&D has yielded fewer new products. Even when market conditions are good, however, custom manufacturers must grapple with a conundrum: Their customers are often their competitors. According to Joseph R. Colleluori, director of strategic outsourcing for Merck & Co., companies like Merck, Pfizer, and GlaxoSmithKline consider manufacturing as a core activity and routinely produce their active ingredients. That allows better control of quality and schedules as well as more effective use of manufacturing assets, he says. Drug companies still consider outsourcing to be a tactical rather than a strate-

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gic move, says James C. Miller, president of PharmSource Information Services, Springfield, Va. "Decisions are price driven and done on a product-by-product basis. The attitude is, 'We will satisfy our needs internally as much as possible and outsource only the odd project.' " Miller says this stance has been fostered by historically high profit margins: Gross margins—price received minus cost of goods—typically have been 80%. "Every sales dollar lost because of a supply interruption means 80 cents off the bottom

HARVEST FDA approval of new molecular entities peaked in 1996 No. of new molecular entities approved

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line," he explains. "For this reason, pharma's principal consideration in manufacttiring has not been cost but security of supply In most other industries, cost is often part of the competitive environment and manufacturing efficiency is important." ALTHOUGH DRUG companies are becoming more sensitive to cost, it has resulted not in more outsourcing but in a tighter squeeze on suppliers. For example, Steven R.Johnson, vice president for fine chemicals sales at Degussa, notes the increasing "commoditization" of the market. Sourcing used to be more selective and based on knowledge of companies, relationships, and performance, he says. "Now, requirements are broadcast over a spectrum of producers. That automatically intensifies the competition." What may tilt conditions in favor of custom manufacturers is sustained pressure on drug companies to further reduce costs. "Some pharmaceutical companies continue to ignore the risks associated with empty plants resulting from late-stage product failures," says Rudolf Hanko, head of Bayer's fine chemicals business unit. "We must

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OVERVIEW Fine chemicals are made mostly in Europe... Rest of Asia 10%

... the leading application is pharmaceuticals...

Rest of the world 5%

Japan 10%

Pharmaceuticals 57%

Other

Agrochemicals 21% Europe 50% Supply

End use

... the U.S. is the biggest user.

Asia

... and less than half of the market is outsourced

U.S. 55%

Merchant 47% Captive 53%

Europe 30% Demand

Production

Annual sales • $40 billion to $70 billion SOURCE: Degussa

make the case that fine chemical companies can better hedge this risk because the portfolio of potential replacement products available to us is larger than that available to a drug company from its own pipeline. We must also convince pharmaceutical companies that we can offer them absolute reliability." In the meantime, market realities are forcing custom manufacturers to make painful adjustments, says Peter Pollak, a fine chemicals business consultant based in Switzerland. Some companies, such as Eastman Chemical and Lonza, have shut down plants; others, such as Great Lakes Chemical and Cambrex, are trying to sell assets. Noting that the Swiss company SF Chemie is for sale, Pollak says, 'Absolutely, some businesses will be closed." % t reasons for staying in the market remain strong. Analysts forecast demand for advanced intermediates and active pharmaceutical ingredients (APL·), as well as electronic chemicals, to grow at an annual rate of7% until 2005. Other fine chemicals segments are expected to grow at rates of 2 to 5% only Furthermore, demand for drugs will continue to grow, driven by aging populations, development of new drugs for unmet needs, and direct advertising to consumers. In the U.S. alone, according to IMS 58

C & E N / FEBRUARY 17. 2003

Health, pharmaceutical sales are expected to reach $330 billion in 2006, nearly doubling the $175 billion worth of drugs sold in 2001. Custom manufacturers are adjusting in different ways. In the past year, several companies have reorganized pharmaceutical assets to better respond to the demands of drug development. For example, Clariant Pharmaceuticals is the new business unit that emerged from Clariant's life sciences and electronic chemicals division after the acquisition of BTP in 2000. At Fine Chemicals Conference 2 0 0 2 , the division's president, Joachim Mahler, said that integration of

BTP was guided by two principles: achieving a structure responsive to market and customer requirements and organizing assets to optimize technology development, plant utilization, and productivity Similarly, integration of ChiRex, which Rhodia acquired in 2000, has given birth to Rhodia Pharma Solutions. According to Jean-Pierre Clamadieu, president of Rhodia's pharmaceutical and agrochemicals division, the enterprise combines Rhodia's drug development, custom manufacturing, and bulk actives operations. It can support drug development from the early stages to launch and maturity. And it can provide materials through the whole range of the value chain, from building blocks to advanced intermediates and bulk active ingredients. SDG's Hennebert notes that BTP and ChiRex were acquired at steep prices. The expected immediate returns on those investments did not materialize, and perhaps only now will those assets start to generate cash for their owners, he says. CUSTOM SYNTHESIS providers also are eyeing the biopharmaceutical market for opportunities (C&EN, Jan. 27, page 27). Biopharmaceuticals, which are therapeutic proteins produced by microbial fermentation or mammalian cell culture, offer a market landscape in sharp contrast to that of small-molecule drugs. The pipeline is rich, and capacity is short. According to Enrico T. Polastro, vice president and senior industry analyst at Arthur D. Little Benelux, "Compared with traditional small molecules, biopharmaceuticals appear to be a dream area for service providers." However, the prospect of a biomanufacturing mania is worrisome. "People may see biomanufacturing as the pot of gold at the end of the rainbow," says MalcolmJ. Braithwaite, chiefexecutive officer ofExchem Organics. 'Alot ofmoney will be spent, venture capitalists will pile in with promises ofhuge earnings, and they'll be disappointed. If we're

CONTRAST Biomanufacturing is attractive for many reasons Growth per year through 2006 Revenue per unit capacity per year Return on assets Supply structure (share of top three vendors] Pricing Customer bargaining power Capacity situation

SMALL-MOLECULE DRUGS

BIOPHARMACEUTICALS

6-7% $500,000 to $1 million

>15% $5 million to $10 million

About 12-U% Extremely fragmented (

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COVER STORY FRUITFUL Dinuclear zinc catalyst bears many chiral building blocks for Dow 0

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cause-effect relationship between a process cules will remain a major focus of the phar­ variable and product quality is poorly un­ maceutical industry for the medium term. derstood. A prevailing dogma is that the And talking about risk, Hanko points out process makes the product." the significant challenges associated with development and production of biophar­ Polastro points to the example of the maceuticals. "The increased cost in the anemia drug erythropoietin. A severe blood production, formulation, and administra­ condition called pure red cell aplasia has tion of biopharmaceuticals will put pres­ been observed among patients taking the sure on these therapies and may limit their version produced by Johnson & Johnson, future acceptance for some in­ called Eprex, but not among dications," he says. 'Also, because those using the theoretically each biomanufacturing process identical version from Amgen, is unique, workup and product called Epogen. Experts attribute isolation vary widely It becomes the difference to variations in the very difficult to build a multi­ processes used, he says. Such a purpose plant that can switch be­ variance would be precluded by rffti total chemical synthesis, which tween products quickly and this partially negates a major argu­ now seems a reachable goal, as Η Ml demonstrated by the recent as­ ment for outsourcing." sembly of a version of erythro­ Furthermore, the body of CUSTOM poietin [Science, 299,884 (2003); knowledge and experience for CHEMICALS C&EN,Feb.l0,page9]. biomanufacturing is much less Another risk is that the biopharmaceu­ well developed than with organic synthesis, tical pipeline may not be as robust as ex­ Polastro notes. "Biopharmaceutical process­ es are still much like black boxes, where the pected. "Much of it is due to companies

not careful, well have overcapacity just as we did in the cGMP area." Hennebert makes a similar point. "The current hype around biopharmaceuticals strangely looks like the hype around fine chemicals just a few years ago," he says. But he thinks people are being cautious be­ cause biomanufacturing is very different from chemical manufacturing. "Those thinking of investing must have a clear un­ derstanding of the risks and rewards, which are very different from the risk-reward pro­ file for fine chemicals," he says. In terms of rewards, Pollak observes that the demand for biopharmaceuticals is still small and is going to stay so for a while. The most optimistic projections indicate that the value of outsourced biopharma­ ceuticals in 2001 is only 12.5% that of out­ sourced small-molecule drugs. "Even if biopharmaceutical outsourcing doubles every four to five years, it will remain small compared with small-molecule API mar­ kets," he says. Hanko agrees, saying that small mole-

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COVER STORY that have never had a product such as containment for highly BIOCATALYSIS approved by FDA," Miller says. potent active ingredients. The Glucose is cosubstrate in Julich route to chiral diols "High-profile products have requirements of containment failed in clinical trials or have manufacturing allow a maxiGlucose been rejected by FDA. That mum of onlyfiveprojects per adds a high level of uncertainyear, he explains. A typical camty to the pipeline." paign for a compound that requires four to six chemical steps Miller adds that many small OH 0 takes up to four months. Then biopharmaceutical companies the facility must be cleaned, valare cash-deprived. "They deidated, and prepared for the 0 pend on public offerings to fiOH OH Lactobacillus next campaign. A project may nance late-stage development kefir range in value from a few hunand product launches, and they dred thousand dollars to a milcan't get any moneyrightnow," lion dollars. he says. Fortunately, biomanufacThe niche is ideal for a mediLactate COo turing is not the only opportuum-sized company "Is it inter2 nity for custom manufacturers. esting for a large manufacturer Hennebert says that a range of alternatives Force, director of marketing and sales at to have two or four high-potency plants, exists: what segment to serve, what stage Helsinn Chemicals, a medium-sized pro- with all the people involved and the anaofdrug development to focus on, what type ducer of active pharmaceutical ingredients lytical work, and just generate sales of $2 of services to provide. Indeed, C&EN finds and advanced intermediates based in Bi- million to $4 million? I don't think so," that life outside the multiton-per-year asca, Switzerland. "The real problem is LaForce says. blockbuster-API arena is just fine. with companies that added a lot of capacCompounds entering Phase I clinical "It is important to differentiate between ity in anticipation ofblockbuster projects." trials are another attractive segment. UsLaForce says Helsinn Chemicals' strat- ing biotechnological tools, emerging pharthe larger groups, such as Clariant, DSM, and Lonza, and the more numerous small egy has been to focus on production under maceutical companies are rapidly idenand midsize companies," says Roger La- very specific manufacturing conditions, tifying small molecules for specific

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EVENTS OF INTEREST Feb. 23-26, Polymorphism in Crystals. Tampa, Fla. Contact ACS Prospectives, (800) 227-5558; fax (202) 872-6013; email: [email protected]. Feb. 25-28, Informex 2003. New Orleans. Information is at http://www. informex.org. March 2-5, Catalysis in Modern Organic Synthesis. Cambridge, Mass. Contact ACS Prospectives.

March 4-5, BioPharma2003 Symposium. Barcelona, Spain. Contact Catalyst Group. March 6-7, BioCat2003: Interdisciplinary Approaches to Industrial Biocatalysis. Barcelona, Spain. Contact Catalyst Group. March 12-14, Chemical Development & Scale-up in the Fine Chemical Industry. St. Augustine, Fla. Contact Scientific Update, 44 14 3587 3062; e-mail: sciup@ scientificupdate. co.uk.

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April 1-4, Making & Using Fluoroorganic Molecules. Stratford upon Avon, England. Contact Scientific Update.

March 3-5,ChiraSource2003 Europe. Barcelona. Contact Catalyst Group, (215) 628-4447; e-mail: [email protected].

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June 9-11, 6th International Symposium on Laboratory Automation & New Technologies in Process R&D. London. Contact Scientific Update. June 17-19, CPhI China 2003. Shanghai. Information at http://www.cphi.com. Aug. 10-15, Drug Discovery Technology World Congress. Boston. Information at http://www.lifesciences info.com. Sept. 3-4, 3rd PPG-Sipsy Symposium on New Frontiers in Asymmetric Synthesis. Angers, France. Information is at http://www.ppg-sipsy.com. Sept. 7-10, 8th International Conference on Organic Process R&D Europe. Barcelona. Contact Scientific Update. Sept. 21-24, Combinatorial Chemistry: New Methods, New Discoveries. Leesburg, Va. Contact ACS Prospectives.

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COVER STORY pharmacological actions. "We can supply the building blocks for these molecules, while others with c G M P capacity can make the active molecule," Exchem's Braithwaite says. 'And that's where the fine chemicals sector will find its salvation, I believe." Up to 15% of Exchem's sales are devot­ ed to supplying kilogram quantities to emerging pharmaceutical companies. "It has grown significantly in the past 18 months," Braithwaite says. 'As soon as the compounds become of clinical interest, that's where we see the opportunity" And so do the big companies, which are touting one-stop shops for the chemistry needs of drug development. For example, Raylo—Degussa's multikilogram facility in Canada—focuses on serving small virtual drug companies. Historically, these com­ panies enter into collaborations or joint ventures with, or are even acquired by glob­ al drug companies, Johnson says. "Being involved in this marketplace through Ray­ lo means that we are present if and when a small company succeeds." For AllessaChemie, not solely targeting the pharmaceutical industry works well.

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Sturm predicts that as fine chemicals companies optimize supply-chain operations, they will increasingly collaborate in operations that do not compromise secrecy and intellectual property—for example, in distribution and transportation. He can't name names, but he says the industry has exemplars in this area. Such companies, he says, view collaborative supply-chain planning, strategic sourcing, and sales and operations as capabilities that give a competitive advantage. Another area for improvement is portfolio optimization. Companies do not always have a clear reason for their mix of technology or products, Hennebert says. Historically, some companies develop THE GOOD NEWS is that people in the fine more in one area than in others. Often, a chemicals industry are paying more and new technology is acquired because an immore attention. According to Sturm, many portant customer asks for it, without conbenefits derive from a well-managed sup- sideration for how it fits with how the inply chain: lower inventories, fulfillment cy- dustry is evolving and what area the cle time, staffing requirements, and sup- company aims to serve. According to Henply-chain costs; higher sales, savings, and nebert, analyzing the portfolio and optiproductivity; and better forecasting and mizing the allocation of resources among on-time delivery Supply-chain manage- projects and technologies can add up to ment in the chemical industry can raise 20% to the bottom line. revenues by up to 2.5%, he says. Whereas supply-chain management raw materials to delivery to the end user. That supply-chain management contributes to the bottom line is not yet well appreciated in the chemical industry 'The supply chain is not perceived as part of the core business," noted Gerald D. Sturm, a senior manager at Accenture, Amsterdam, at Fine Chemicals Conference 2002. "Many companies do not even know what their supply chain is. They have departments responsible for transportation, procurement, and logistics, and those departments are working autonomously and not solving issues across the total chain of responsibility Many fine chemicals companies are still in this state, unfortunately"

and portfolio optimization may just be appearing on the radar screens of some fine chemicals producers, the importance of an ever-improving technological toolbox is widely accepted. As David Moody, director of new technology ventures for Avecia Pharmaceuticals, said at Fine Chemicals Conference 2002, companies that are standing still with respect to technology will lag behind and be forced to exit. At Informex 2003, custom manufacturers will be touting improvements in their technology toolboxes. The developments rangefromnew reagents to new synthetic routes and industrial processes, all enhancing the ability of custom manufacturers to serve pharmaceutical customers. Among companies offering novel reagents are Albemarle, Rutherford Chemicals, and Simafex. Sodium aluminum hydride (SAH) is now available from Albemarle as a cost-effective alternative to lithium aluminum hydride (LAH). Use of LAH in large-scale reductions is inhibited by the reagent's high cost. At present, SAH is up to 20% less expensive than LAH, according toJohn M. Power, a customer technical service scientist.

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COVER STORY

BACKUP Reverse Strecker reaction releases chiral auxiliary

H9N

D-Phenylglycine amide H+

CO

H, Raney Ni

Triethylamine

NH9OH«HCl

POCl,

KoCCk ι—:—— Heat

SOURCE: DSM

SAH has the same reactivity profile as LAH, but in some cases it is less reactive but more selective, Power says. For exam­ ple, cinnamaldehyde reduction with LAH proceeds completely to hydrocinnamyl alcohol, whereas the reaction with SAH proceeds partially— to cinnamyl alcohol—

or fully, depending on the stoichiometry Furthermore, when the reactivity of SAH is lower than that of LAH at low-temper­ ature conditions, usually a modest increase in temperature gives suitable results. "In such cases, the combination of a lower cost reagent and lower cooling costs can bring

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significant cost advantages," he adds. Rutherford Chemicals has developed heterocyclic boronic acids for use in biaryl couplings that do not require low-temper­ ature conditions. Lab volumes are available through Lancaster Synthesis, but quanti­ ties greater than 1 kg will be supplied di­ rectly by Rutherford. Available compounds include 2-methoxvpyridyl-5-boronic acid, pyridyl-3-boronic acid, and 2-bromopyridyl-5-boronic acid propylene glycol ester. Simafex has formulated 2-iodoxybenzoic acid (IBX) for use in industrial-scale selective oxidation of primary and sec­ ondary alcohols. IBX is ofgreat interest as a mild oxidizing agent for synthesis of carbonyl compounds because of its reactivi­ ty and selectivity. Compared with metalbased oxidizing reagents, it is also safer environmentally However, even when very pure, IBX has a tendency to explode, says Dominique Depernet, director of research. That prop­ erty has precluded IBX's industrial use. But now, Simafex is making available IBX stabilized by a mixture of benzoic acid (22%), isophthalic acid (29%), and iodoxybenzoic acid (49%). Called SIBX, the

6FS Chemicals: Primary Producer of

Acetylenic, Olefinic&Silyl Intermediates Inquire about the Farchan line, only from GFS. Since we're the manufacturer, you can get many other organic and inorganic specialty products, including:

•Organic and organometallic specialty products derived from Liquid Ammonia and Grignard Chemistries, Birch Reductions, Brominations, and Skraup reactions • Classic GFS Organics: Bipyridines, Phenanthrolines,Ruthenium & other metal-ligand complexes Get Personal with us! Visit booth 1504 at Informex, Feb. 25-28, New Orleans, LA

ISO 9000 Certified

CHEMICALS '

Polysciences, Inc. 800-281-3667 or 740-881-5501 (int) www.gfschemicals.com

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reagent is easier to handle and can be produced and used safely at industrial scale. Simafex has used it to make aldehydes (for example, farnesal, nicotinaldehyde, and 3,4,5-trimethoxybenzaldehyde) and ketones (for example, cyclooctanone, menthone, and adamantanone) from corresponding primary and secondary alcohols. In process development, SK Energy & Chemical has designed a continuous catalytic process for making (5)-3-hydroxy7 -butyrolactone (HGBL) from malic acid. HGBL is a precursor to intermediates of cholesterol-lowering drugs such as Pfizer's

IN RESERVE Isochem assembles D-naphthylalanine by camphorsultam method

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Lipitor (atorvastatin calcium)—the largestselling prescription medicine worldwide— and AstraZeneca's Crestor (rosuvastatin), which not been approved by FDA. Batch production of HGBL requires hydride reductions, which involve expensive reagents, difficult-to-handle high-pressure conditions, and tedious workup. In SK's continuous process, catalysts are held infixed-bedtube reactors, so they do not need to be separated from the product. And because the volume handled at any given time in a continuous process is much

less than in batch reactions, working at high pressure is easier. A commercial plant with a capacity of 120 metric tons per year will begin operation in April in Daeduck, South Korea. In several technologies, companies will be emphasizing their deepening expertise. Clariant will play up its know-how in nucleosides, which are of interest for their antiviral and anticancer activities. Its involvement in this chemical class goes back to the early 1990s, and its current production of antiviral drugs such as riba-

FROM HIT TO LEAD Τ THE SPEED OF LIGHT

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69

COVER STORY dard method does not work well, for example, when two benzylic carbonnitrogen bonds with similar reactiv­ ities are reducible. Thus, to convert 1indanone to (5)-l-aminoindane, the PGA imine is stereoselectively re­ duced with Raney nickel and then the PGA group is converted to an amino nitrile. A reverse Strecker reaction liberates thefreeamine. In collaboration with chemists S. H. van Leeuwen and R. M.J. Liskamp at Utrecht University, DSM re­ searchers also have progressed in solv­ ing an age-old problem in peptide chemistry: how to simultaneously protect the nitrogen functionality and activate the carboxylate functionali­ ty of an amino acid for coupling to form amides. Syntheses would be shorter and cheaper, Broxterman points out, ifthe need to separate cou­ pling and protection/deprotection steps in peptide syntheses could be avoided. DSM's solution lies in dichlorodialkylsilanes [Tetrahedron Lett., 43,9203 (2002)}. The strategy also works with β-amino acids, N-alkylated amino acids, and the dicarboxylic amino acid L-aspartic acid. Another development relates to 4-hydroxypiperidines. Functionalized piperidines are substructures of many bioactive compounds, but ef­ ficient routes to this type are few. In collaboration with chemists Mandy K. S. Vink and Hans E. Schoemaker at the University of Amsterdam and Floris P.J. T. Rutjes at the University

VERSATILE DSM routes furnish cis and trans 4-hydroxypiperidines OR

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THPE-GE is a reactive intermediate targeting high temperature adhesive and structural resin applications. This strong cross-linking or branching agent can enhance key properties and improve product performance. Suitable for castings, laminates, composites and coatings requiring high mechanical strength, heat or chemical resistance.

Adhesion

[>^° THPE-GE l,l,l-tris(p-Hydroxyphenyl)ethane Glycidyl Ether

70

C & E N / FEBRUARY 17. 2003

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of Nijmegen, DSM chemists have worked out a stereodivergent ap­ proach \J. Org. Chem., 67, 7869 (2002)}. The route begins with enantiopure starting materials prepared by biocatalytic desymmetrization of hydroxy-, alkoxy-, or aryioxypentanedinitriles using whole cells of Rho­ dococcus erythropolis. This yields the Senantiomer of the corresponding cyano acid, which can be worked up to the (5)-4-hydroxylactam. Chemi­ cal and electrochemical treatment of the lactam yields different Ν,Οacetals, which can be alkylated to cisor trans-substituted (5)-4-hydroxypiperidines. Other related achievements in­ clude use of enantiopure acetylenecontaining amino acids as starting materials for synthesis of oxygen and nitrogen heterocycles by palladiumcatalyzed reactions [Adv. Synth. Catal., 344,70 (2002)} and use ofthe monodentate phosphoramidite MonoPhos in rhodium-catalyzed hydrogénations of enamides to prepare primary amine derivatives at high enantiomeric excesses [Adv. Synth. Catal., 344,1003(2003)}. The latter is noteworthy because it had been thought that such reactions require bidentate ligands, says David Ager, DSM competence manager for homogeneous catalysis. The ligand MonoPhos is also easy to prepare and relatively inexpensive. In a similar manner, enamines have been

Hardness

For more information, call Matt Romberger, at 972 720-5016, or visit www.cfem.com. Formerly, TriQuest, LP

Heat resistance

Solvent resistance

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Strong Base Reagents

Organic Synthesis for Early Discovery COOH

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