COVER STORY ONTHESPOTAcustom manufacturing mecca, Informex provides multiple opportunities to network, negotiate, and nail down business.
MIXED OUTLOOK FOR CUSTOM CHEMICALS Most suppliers expect 2005 to be only slightly better than 2004, but some are riding high A. MAUREEN ROUHI, C&EN WASHINGTON
C
USTOM MANUFACTURERS GATH-
er in Las Vegas this week for the annual Informex trade show organized by the Synthetic Organic Chemical Manufacturers Association. Most are glad 2004 is over, but views vary about what 2005 will bring. Mirroring the fragmentation of the fine chemicals industry custom manufacturers are forecasting different outlooks and anticipating different challenges, according to an informal survey by C&EN. Following are the views from 12 suppliers, rang-
ing in size and services from one-stop shopping to specialized offerings. ChemCon began manufacturing active pharmaceutical ingredients (APIs) in Freiburg, Germany in June 1998. It concentrates on small-scale production of highly potent products, such as cytostatic compounds. The largest scale of production it undertakes is 100 kg per year. "It's a niche in the market," says Peter Gockel, one of the company's founders. "We need to be in a niche to survive." ChemCon is not just surviving; it is thriving. Although
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2003 was "a bit quiet," 2 0 0 4 was "very good," with sales of about $6 million, he says. The company has five APIs in the market, all produced on a custom-synthesis basis. ChemCon also has facilities to produce injectable APIs, which are subject to a higher level of microbiological regulation than other APIs. The business is "steadily growing," Gockel says. At Clariant, the mood is upbeat. Last December, its facilities in Origgio, Italy, successfully passed Food & Drug Administration preapproval inspections for two APIs. It is not true that all pharmaceutical companies are making their APIs inhouse, says Ralf Pfirmann, senior vice president and global business director for Clariant's pharmaceuticals business unit. "People are outsourcing, but you have to do it well to get the business." The major challenges, he says, are the imbalance that still remains between capacity and demand and the unpredictable success rate of pharmaceutical pipelines. For Degussa Exclusive Synthesis & Catalysts, "we see only a stabilizing of the market, no real turnaround," according to Rudolf Hanko, vice president for exclusive synthesis. The challenges continue to be competition from Asia and overcapacity in the industry To survive and succeed, Degussa is investing heavily on innovation, which already is paying off, he adds. For example, tens of millions of dollars invest-
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COVER STORY ed in catalysis R&D enabled Degussa to build expertise in catalysis. Custom synthesis at Degussa draws upon that expertise for the development of routes involving asymmetric reactions and other catalysis-mediated steps. "But Degussa does not rely only on internal research and development efforts," he notes. "It supports or has collaborations with universities in Europe and the U.S. for chiral technology and catalysis research." DSM EXPECTS a "still tough climate" for 2005, although new business leads are increasing both in quality and in quantity, "and the project portfolio is stronger than ever before," according to Ellen de Brabander, business unit director for DSM Pharma Chemicals. DSM has responded to the poor market conditions of previous years by closing some assets, building a network of Chinese partners for sourcing raw materials, expanding custom synthesis activities to early drug development, and optimizing internal efficiencies to deliver required services at competitive costs, she says. DSM also is relying heavily on innovation, focusing on technologies for ho-
mogeneous catalysis and biocatalysis for a of a drug product that few contract manwide range of applications, says Ronald ufacturers have, Haering says. 'All this Gebhard, director ofglobal R&D for DSM know-how is available to our customers. Pharma Chemicals. "Otherwise, it is im- We have gotten new opportunities because possible to develop something new for of our success with palonosetron." each new molecule." "Measured optimism" is Isochem's outHelsinn Chemical Operations, the cus- look for 2005, based on "tangible successtom manufacturing arm of the Helsinn es in the past six months," according to David Simonnet, deputy general Group, has been going against the manager of Isochem. However, current in the past four years, acbecause of the high failure rate of cording to Gabriel Haering, dinew molecules, V e must be realrector ofthe commercial division. istic" about the long-term viabil"We have had a nice stream of ity of new projects. Key chalprojects, and we were expanding lenges for 2005, he says, are to because we needed capacity" he improve Isochem's effectiveness tells C&EN. The company proin Europe, the U.S., and Asia and duces only APIs, and drug registo ensure the consistency of sertrations are key to its business. vices to customers throughout the This year, Helsinn is expandCUSTOM life span of products. To improve ing both its high-potency and CHEMICALS competitiveness, Isochem is relyregular API facilities. With its involvement with the Helsinn drug ing on technology-based breakthroughs in palonosetron, an antiemetic launched in process development to match product the U.S. in 2003, the custom manufactur- needs at key stages of the life cycle—that is, ing group gained valuable experience in rapid production at early development and producing highly potent compounds, man- continuous gains in efficiency and reductions aging regulatory filings, and handling oth- in cost as the product moves through develer issues related to development and launch opment, launch, and maturity
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[email protected] COVER STORY The business climate is "slightly improving," says Wilhelm Stahl, head of pharmaceuticals marketing and of R&D at Lanxess. "Since May last year, we have been seeing positive signals, slowbut steady" Formerly a part of Bayer as Bayer Fine Chemicals, Lanxess, now an independent player in the custom synthesis market, greets 2005 with several advantages, he says. It already has a solid reputation. As a smaller company it can be more flexible and faster in responding to customers than it was as part
of Bayer. And most important, with Bayer out of the picture, Lanxess can nowbe more attractive to customers who were reluctant to work with Bayer Fine Chemicals before because ofits connection with Bayer's pharmaceutical business. In positioning itself in the market, Lanxess will be stressing solutions and services, Stahl says. R&D will focus on identifying new chemistries with great potential for adding value—by improving the flexibility and efficiency of synthetic routes—and
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taking them to commercial scale. Arecent example, he points out, is the aromaticbond-forming chemistry of Stephen L. Buchwald, a chemistry professor at Massachusetts Institute oflechnology (C&EN, Sept. 6,2004, page 62). "Specific inquiries have come in because of this technology" he says. Furthermore, "when presented with a synthetic challenge, we now have another method to offer that has distinct advantages." Demand for custom synthesis might "see a little pickup" in 2005, according to Peter Stevenson, president of Pfizer CentreSource (PCS). PCS is the sales and marketing arm of Pfizer for custom manufacturing. In the depressed business climate of recent years, "we've held our own, because in our particular segment the market has been reasonably stable," he says, referring to PCS's focus on specialized markets such as respiratory and steroid hormones. Nevertheless, PCS is vulnerable also to competition from Asia, he points out. What keeps PCS ahead, he says, is that its custom manufacturing is backed by the same technology; quality systems; respect for intellectual property; and consideration of environmental, health, and safety aspects of manufacturing that are behind Pfizer's blockbuster drugs, such as Lipitor. Nick Green, president of Rhodia Pharma Solutions, also sees signs that the custom synthesis market will improve in 2005. "Rationalization among custom synthesis providers is bringing supply and demand closer to balance," he says. Because the main challenge this year is to be faster and more flexible in delivering services, Rhodia Pharma Solutions is continuing to simplify its organization and operations to boost speed and flexibility he adds. Customers are also looking for technology that offers better synthetic routes or higher process efficiencies. Green points out that Rhodia's hydrolytic kinetic resolution, aromaticbond-foixning, and phosphorus technologies have enabled the custom synthesis group to develop innovative processes. MEANWHILE, at SAFC, the fine chemicals division of Sigma-Aldrich, business is "going crazy," with inquiries for custom synthesis doubling over the past six months, according to Edward Roullard, director of SAFC Europe. SAFC has embarked on a program to be recognized as a manufacturer, distinct from the catalog business, and the effort is now paying off. At present, custom synthesis accounts for 30% of SAFC's sales; the goal is to take that to 5 0 % by 2007, according to Roullard. "If things continue as they are
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going now; we'll be ahead of schedule. With business growing so fast, the challenge is to maintain service and quality," he says. The custom synthesis business is "look ing good" for 2005, says Dennis P. Bauer, vice president for sales and marketing of the U.S. operations of Siegfried. "We had a dip in 2003 in the number of products in our portfolio, but by about April last year new products filled our pilot plants and kilo labs, and we have had them filled ever since." Continuing success depends on how far these projects will move
president of the fine chemicals division of Sumitomo Chemicals America. Customers have greeted the merger with "general ap proval," Sellers adds. "They like the fact that it expands our manufacturing capa bility and gives us greater flexibility and speed when scaling up production." Summarizing the challenges not only for Sumitomo but also for all pharma ceutical custom manufacturers, Sellers says: "The industry is hypercompetitive. Ύοιχ need multiple differentiating factors,
particularly novel technology, because other companies also have nice facilities and good service. Success is about credi bility and track record. Credibility comes with experience you've developed, the re sponse you get from regulatory agencies when they visit, and having assets on the ground. Track record is about developing a relationship with a customer, deliver ing great quality on time at a reasonable price, and building on that to grow addi tional business." •
Because of the high failure rate of new molecules, "we must be realistic" about the long-term viability of new projects. through the pipeline, as well as Siegfried's ability to remain competitive. "Fortunate ly, Siegfried concentrates only on a market segment where quality makes a difference: We will make only APIs and regulated in termediates. We have a quality system in place that has been inspected multiple times by the Food & Drug Administration, and that's where we hang our hats," he says. Bauer adds that six new projects are un der evaluation at present, the challenge be ing to manage the timing so that capacity is available when a new project is ready to start. Another challenge, he says, is a num bers gap in analytical method develop ment— that is, the human resources avail able to develop assays for APIs and to validate them for reproducibility, preci sion, and other measures required by reg ulatory agencies. Regulatory requirements have increased "by an order of magnitude over the past 10 years, and analytical de velopment people are tough to come by," he explains. For the fine chemicals division of Su mitomo, the challenge for 2005 is to demonstrate that its merger inJuly of last year with Sumika Fine Chemicals benefits customers. The merger brings together Sumika's API manufacturing facilities in Japan and Sumitomo's technology base. "Sumika was known for exemplary serv ice and fast response. Sumitomo is known for route development and process tech nology All that is now blended together," better positioning Sumitomo Fine Chem icals to compete for both APIs and ad vanced intermediates, says Simon Sellers, HTTP://WWW.CEN-ONLINE.ORG
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