BUSINESS
METAMORPHOSIS Pharmorphix added another niche segment to SAFC. • • • •
OPPORTUNITY KNOCKS SIGMA-ALDRICHfindssuccess in its measured move into custom manufacturing LISA M. JARVIS, C&EN NORTHEAST NEWS BUREAU
SCAN THE SHELVES of any chemist's lab and you're certain to find the Aldrich catalog. An organic chemist might have put it in next to "Vogel's Textbook of Practical Organic Chemistry," while in a physical chemist's lab, it could be nestled in with the "CRC Handbook of Chemistry & Physics." Sigma-Aldrich's indispensable reference has made the firm's name synonymous with research chemicals. That kind of brand recognition can be both a blessing and a curse for a company that is trying to expand outside its traditional business. On the upside, the company is already well-respected and has strong ties with key customers. The downside is that those customers have a specific view of what the company does. SAFC, the Sigma-Aldrich business that custom manufactures fine chemicals for pharmaceutical and other high-tech clients, has worked diligently to come out from the shadow of that ubiquitous catalog. It took several years of careful business planning and a strong dose of publicity, but SAFC finally appears to have established itself as a brand of its own. Moreover, SAFC has managed to thrive at a time when many chemical companies
serving the pharmaceutical industry have floundered. The unit has consistently achieved robust sales and profit growth, culminating last quarter with its best showing yet: SAFC pulled in fourth-quarter 2006 sales of $133 million, or organic growth of 15.0% over the fourth quarter of 2005. For all of 2006, the business reported almost $500 million in sales, or 12.7% growth including contributions from acquisitions. The transformation has been swift. As recently as the late 1990s, Sigma-Aldrich's fine chemicals business was essentially opportunistic. When big pharma rang looking for a custom chemical or larger quantities of a catalog product, the company was happy to oblige, says SAFC's president, Frank Wicks. The company's sales team, however, was not exactly out pounding the pavement to compete for custom manufacturing projects.
In 2000, SigmaAldrich embarked on ra five-year program t 0 t u r n t n i s ac noc * custom manufacturing and fine chemicals business into a formal one. It was a steady evolution that entailed revamping the company's internal capabilities to meet a different customer need and filling gaps in technology or capacity through acquisitions. The business really came into its own in 2004, when Sigma-Aldrich purchased two companies—the drug development chemistry firm Ultrafine and the high-potency drug manufacturer Tetrionics—and then officially launched SAFC. The company has since refined SAFC's operations into four business units: SAFC Pharma, for active pharmaceutical ingredients; SAFC Supply Solutions, for customized raw materials; SAFC Bioscience, for cell-culture materials; and SAFC Hitech, for performance materials. Though SAFC emerged from a strong foundation—when you make 45,000 different products, "you know about chemicals," Wicks points out—success in fine chemicals also required some marketing finesse. Indeed, prior to the acquisition of Ultrafine, Sigma-Aldrich wasn't getting out a clear message that it was more than just a research chemicals company. "It was unwrapping into a very good story, but it was poorly communicated," Wicks now acknowledges. SOON AFTER it took that "critical first step" to buy Ultrafine, SAFC embarked on a marketing campaign to let customers know it was committed to fine chemicals. In some ways, Wicks says, that effort to communicate its evolving fine chemicals capabilities to the outside world helped to define its strategy. "We were more focused internally once we were able to articulate that message on an external basis," he notes. That message is finally coming across in the fine chemicals industry. Customers and competitors alike still remark that SigmaAldrich was just a research chemicals com-
It took several years of careful business planning and a strong dose of publicity, but SAFC finally appears to have established itself as a brand of its own. WWW.CEN-0NLINE.ORG
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Furthermore, Wicks says, the business is pany until a few years ago, but there is also was a way to customize what it was already easily integrated into the Hitech fold; SAFC widespread acknowledgment that it has doing in its research business—that is, can supply raw materials for Epichem from quickly emerged as a strong competitor in making and packaging many chemicals in the same plants in which it makes interme the marketplace. small quantities, providing analytical ser diates for pharmaceutical customers. SAFC has made several strategic moves vices, and distributing goods across a global SAFC has been expanding that have contributed to its success, but network. A separate move its internal Hitech capa into diagnostics kits taps the most important was to take a "home bilities as well. Last year, it grown" approach to growth, says Longbow Sigma-Aldrich's expertise in spent $5.7 million to install meeting the stringent qual Research analyst Dmitry Silversteyn. "They a high-purity distillation did not fall into the trap other companies ity control requirements of facility and expand a pro the drug industry. did in the late '90s and early 2000s, when duction unit in Sheboygan, people thought the sky was the limit for In line with that growth Wis. SAFC is now sinking contract manufacturing and made huge strategy, SAFC is expanding another $5.3 million into the acquisitions," Silversteyn says. Those com its business beyond life sci site to add a clean room and panies that did are now stuck with "highences and into the electron packaging facility. Between priced, mismatched assets," he adds. ics industry. Just as in phar the purchase of Epichem maceuticals, manufacturing By avoiding transforming acquisitions and such internal expan computer chips for digital and sticking to bite-sized purchases, SAFC sions, the Hitech unit will cameras, MP3 players, and isn't saddled with the costs that have have sales of more than $60 other new electronic de plagued its competitors. Its approach has million this year, Wicks says. vices involves a wide range Wicks put the business in a better position to of specialty materials. compete with lower cost manufacturers in GOING FORWARD, SAFC will continue India and China, Silversteyn contends. Wicks says the company is stepping up to make targeted investments to fill some SAFC maintained that bite-sized growth its efforts at a time when the chemicals of the blanks in its rapidly growing opera approach through a series of investments used to fabricate chips are becoming as so tions. Highest up on Wicks's wish list is in 2006. In May, the company bought Hon phisticated as the tools used in the process. a flexible plant in a low-cost production eywell's Iropharm pharmaceutical chemi "There is a need to find new compounds to region that can serve both its Hitech and cal plant in Arklow, Ireland, which filled a meet the physical requirements for chips," pharmaceutical businesses. "We need to capacity gap and added commercial-scale he says, "and those who can develop those make a decision on the China/India ques simulated-moving-bed chromatography. molecules are becoming more important tion," he notes. A few months later, SAFC picked up Pharthan the tool manufacturers themselves." morphix, which specializes in solidOther items on his list include form characterization. disposable bag manufacturing capa BUILDING A BUSINESS bilities for SAFC Biosciences and the Other moves included the comple SAFC has added a range of technologies capacity at SAFC Pharma to provide tion of an expansion of the former formulations for pharmaceutical cus Tetrionics facility in Madison, Wis., through acquisition tomers conducting clinical trials. and the opening of a medicinal chem YEAR TECHNOLOGY COMPANY istry facility in Bangalore, India, that Even without acquisitions, Silver Drug development services 2004 Ultrafine will work in tandem with the former steyn believes, SAFC can increase 2004 Tetrionics High-poteney API capacity Ultrafine chemistry development sales by 10-12% annually over the 2005 JRH Biosciences Cetl-cuiture supplies 2005 Proligo Genomics research tools labs in Manchester, England. next several years, driven by doubleIropharm 2006 Drug manufacturing capacity digit growth in its active pharma Silversteyn says these invest Pharmorphix 2006 Solid-form characterization ceutical ingredients business and ments underscore another strategic 2007 Epichem Electronic chemicals near-double-digit growth in the bioadvantage of SAFC: its decision to par SOURCE: Company announcements sciences division. Yet he also points ticipate in niche manufacturing and out that SAFC is expanding from a service segments where there is less relatively small base compared with some competition and less pricing pressure. SAFC Hitech, the business unit that of the big players in the fine chemicals In addition, SAFC has made a point of provides high-purity materials and custom market. The company itself is targeting targeting new markets that can benefit manufacturing to the electronics industry, 10% organic growth plus 5% growth from from the combination of its decades of ex accounted for just 5% of SAFC's sales last acquisitions. year. Wicks, however, is 'Very optimistic perience as a catalog company and its more about this area. It's a marketplace that is recent foray into custom services for the Despite an impressive track record, SAFC growing at about 15% per year." life sciences industry. "We don't want to get is not taking its success for granted. "There's not a sense that we've arrived," Wicks says. too diversified, but we are looking at where To that end, the company paid $60 mil there are faster growing markets where we The marketplace's improved perception lion last month to buy Epichem, a British have existing capabilities," Wicks notes. of the fine chemicals operations and the maker of organometallic precursor chemi cals used in computer chip manufacturing. smooth integration of several businesses One example is SAFC's mid-2006 launch show "we can do this," he says, but only an of its Supply Solutions business, which sup In addition to broadening SAFC's internal "passion for taking it to the next plies customized raw materials and services product portfolio, Epichem provides key level" will drive the business forward. • to the drug and diagnostics industries. This relationships with academia and industry. WWW.CEN-0NLINE.ORG
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