INTERNATIONAL BUSINESS
European Custom Chemical Makers Shift Focus to Specialization Switzerland's Lonza builds fine chemicals complex, and UJL's Fine Organics doubles amines, mercaptans capacity in moves to broaden sales Patricia L. Layman, C&EN London
Customized, or contract, manufacturing is nothing new to the European chemical industry. Such producers have been around, in fact, for years. But increasingly, contract manufacturers are finding they have to offer more than just the convenience of basic chemical synthesis. Specialization, particularly in exotic chemistry and processes that customers don't want to become involved with, is emerging as the key to successful marketing. It is specialization, for example, in such areas as low-temperature processing, hydrocyanic acid and ketene/diketene chemistry, and oxidation using ozone that the Swiss chemical producer Lonza Ltd. is relying on to fill the $50 million plant it dedicated late last month at its major complex at Visp. The Visp plant is nestled in the Rhône Valley at the base of the Swiss-Italian Alps. In somewhat less glamorous new facilities at the petrochemical complex at Seal Sands, on England's North Yorkshire coast4 the U.K. producer Fine Organics Co. has doubled its capacity in such esthetically unattractive areas as amine, mercaptan, and—eventually—phosgene chemistry. Expertise in these areas, among others, the company predicts, will help boost its sales from an estimated $15 million this year to nearly $37 million by 1990. For Lonza, the new plant started out basically as a gamble. When it 30 May 27,1985 C&EN
was first proposed in 1977, it was a plant without customers. But, says Paul Walther, Lonza's president for corporate development, the firm had adopted a strategy that placed heavy emphasis on specialty chemicals and fine chemicals. For Walther, who at the time was president of the company's organic chemicals division, the plant was the culmination of that strategy, a commitment backing the division. The plant also was designed to be dedicated to custom manufacturing for client companies. The decision to build the new fine chemicals complex at Visp meant, for one thing, that Lonza would have to keep tight control over its costs. As Hans Jucker, Lonza's president and chief executive officer, wryly notes, it costs roughly $10 per ton to transport material from anywhere overseas to Rotterdam harbor, another $14 to $18 per ton from Rotterdam to Basel—the company's headquarters—and $20 to $30 per ton from Basel to Visp. Spending on the complex so far
Lonza's sales makeup has changed dramatically | Commodities
Intermediates
Specialties
Fine chemicals
.7% 17%
3%
.9%
12% 20%
25%
1970
1980
1985
$163 million
$467 million
$610 million
Note: Sales figures based on $1.00 — 2.57 Swiss francs on May 15,1985. a C&EN estimate.
has run about $35 million. When the facility is finished, and all equipment has been installed, the total will be roughly $50 million. That's spread over a three-section, five-story production plant with, at present, three production lines, one of which is open-air. A significant chunk of the spending also has gone to analytical equipment. Visitors at the dedication festivities, many of whom are in the pharmaceutical industry, were clearly impressed by the batteries of highly sophisticated equipment, such as high-resolution NMR units, for example. "These are common for pharmaceutical companies," said one observer, "but very unusual for a general chemical company." Visitors also were impressed by the breadth of the chemistries and technologies Lonza has decided to invest in at the plant. Most comments regarded the low-temperature work the company plans. The reaction vessels it has at present can handle -20 °C, although the company has done work at - 6 0 °C. And Lonza is working to go below that, says Leander Tenud, vice president, R&D, in the organic chemicals division. Low-temperature work, especially with liquid nitrogen, is particularly attractive as a capability, observed the director of the corporate research department of one potential U.S. customer. "Most companies don't want to do it because it is difficult and very expensive, so they might not even bother to make a specialty compound, particularly if you need only 50 tons—or even 500. It probably requires production of at least 5000 tons to do it economically. This way, Lonza will be doing an agglomeration of production for customers." Lonza also plans to offer capabilities for reactions under pressure and
One of the company's problems, then, when it came to expanding, was finding somewhere it could expand with that chemistry, and possibly begin phosgene and cyanide chemistry as well. "Some of these chemicals are nasty and smelly," says Hollowood with cheerful understatement. Fine Organics thus jumped at the chance to acquire from Rohm & Haas a 26-acre site with existing labs, offices, and engineering workshop at Seal Sands, which will quadruple the company's capacity. The company purchased the site for less than $700,000, and is spending another $10 million on two new production units built to U.S. Food & Drug Administration standards. That's an indication of where Hollowood is targeting his sales. Visp complex, nestled in Rhône "We're very keen to develop the Valley, is site of Lonza's new plant American market," he says. Last year oxidation with ozone, as well as sales to the U.S. accounted for about more-conventional hydrogénation, 5% of the company's sales, and by the alkylation, and chlorination tech- completion of the fiscal year ending nology, among others. The company Sept. 30, that proportion is expected has expertise in other chemistries as to reach 15%. A financial infusion the result of the production at its from U.K. chemicals producer Lamassive Visp works of basic feed- porte Industries, which last October stocks such as hydrocyanic acid and acquired a 75% shareholding in Fine cyanogen chloride, and ketene and Organics, has helped give the smaller diketene. It also is working to de- firm the wherewithal to tackle the U.S. market more seriously. velop biotechnology skills. Thus far, Lonza has about one As Hollowood sees it, there are third of the fine-chemicals complex three ways for a company such as fully equipped, with plans to con- Fine Organics to generate sales. It can tinue installing equipment as it gains do true contract manufacturing, customers. At last count, it had making a compound for a specific projects involving eight different compounds, six of which are proU.S. is major target market duced exclusively for specific customers. for U.K.'s Fine Organics Fine Organics, based in Middles$ Millions brough, Cleveland, near its new Seal 40 1 Sands site, has taken a slightly different tack. For example, only about Total , ^ L sales ] H } U . S . half its production is in contract 30 portion manufacturing; the rest is merchant production. But specialization, again, has provided the key. 20 Fine Organics has been running its present factory, on 11 acres at Peterlee, County Durham, flat out, says 10 managing director John Hollowood. The plant handles primarily thio chemistry—carbon disulfide, mercaptans, dimethyl sulfate, and vari1984 1990 1985 ous other sulfur-containing organNote: Fiscal year ending Sept. 30. a Based on £1 ics—for pharmaceutical and agro$1.27 on May 15,1985. b Estimated. chemical intermediates. 3
π
b
6
customer using the customer's pro cess, under secrecy, for one. That is certainly the easiest and quickest way to sales, but the least reliable. If a product takes off, the customer may elect to make the intermediate or component itself, and a hefty chunk of business can vanish overnight. There also are some indications that pharmaceutical companies, in par ticular, are becoming increasingly reluctant to divulge information, even under secrecy agreements. Alternatively, a company can identify a chemical it thinks may be vital to important or up-and-coming compounds, work out its own syn thesis, and sell it on the merchant market. Or if a potential customer asks it to make a particular material but gives no details, the custom manufacturer can do its own R&D on product synthesis, production re finement, and so on, to bring the material to market. "These ways take lots of R&D," agrees Hollowood, "but we're prepared to do that. We have to be." Indeed, it was through identifica tion of a potential new market that what eventually emerged as Fine Organics got its start. Hollowood and Alistair Anderson, now operations director, identified a new technology for cysteamine hydrochloride, one of the key intermediates in Tagamet, the antiulcer drug that was to be launched in 1977 and that the two suspected would be a major success. The two began talking with SmithKline in January 1977, and by year's end were producing the cys teamine hydrochloride, a bridging moiety for many antiulcer drugs. Given the unappealing area in which it has acquired its expertise, Fine Organics believes it has only one serious competitor in the U.K., and few if any in the U.S., because of the worries over environmental constraints. This goes back to the theory that, with competition be coming more intense, and with po tential customers increasingly re luctant to move out-of-house, the successful custom manufacturer has to have compelling expertise in areas its customers find unattractive—if not downright repellent. But if the company can find those areas, it is well on the way to marketing suc cess, π May 27, 1985 C&EN
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