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MULTIPURPOSE PLANTS
Saltigo has been investing in its Leverkusen, Germany, site.
FINE CHEMICALS DIVERSIFY Custom manufacturers go beyond pharmaceuticals to bring AGROCHEMICAL and other industrial customers into the mix ANN M. THAYER, C&EN HOUSTON
“THE MAJOR PART of fine chemicals is,
and will always be, pharma,” says industry consultant Jan Ramakers. Nearly 70% of the roughly $100 billion-per-year market for fine chemicals is in active ingredients and intermediates for pharmaceuticals. In recent years, however, pharmaceutical markets have cooled off, and growth has slowed. In response, ingredient suppliers are increasingly looking toward the 30% of fine chemicals going into agrochemicals, food, cosmetics, and electronics. These nonpharma markets are growing decently, with agricultural and flavor and fragrance chemicals among the healthier ones, says Ramakers, whose Scottish independent consulting firm tracks the fine chemicals industry. Finding and working with new customers can be a challenge, but suppliers have good reasons—including growth opportu-
nities, revenue stability, and capacity utilization—to look outside their comfort zone. More and more, they are looking to agriculture. Agrochemical active ingredients and intermediates were a $7.7 billion market in 2012 that on average has been growing about 3% per year, according to Ramakers. “We have ongoing demand in the pharma industry from the early stage up to industrial production,” says Udo Steinhauer, fine chemicals market director at France’s Novasep. “But a target of the company is to cover a larger part of the chemical industry through a more diversified customer portfolio.” Steinhauer joined Novasep in September 2012, about six months after new investors came in, to help develop its nonpharma business. At present, about two-thirds of Novasep’s approximately $400 million in CEN.ACS.ORG
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annual sales is to pharmaceutical customers, and one-third is in agrochemicals and other areas, Steinhauer says. The company already envisions a place for its synthesis and purification capabilities in making complex and high-purity molecules for electronics, cosmetics, and polymer additives. “We see a big potential for the company to grow in these markets,” he says. LAST YEAR, the German fine chemicals
company Saltigo realigned its activities to emphasize custom manufacturing for agrochemicals after its pharmaceutical business failed to meet certain targets. The company also handles some non-life-sciences projects and makes multicustomer products. Overall, its approach is bottomup, rather than top-down. “We offer a toolbox of chemical reactions” to make customers’ molecules regardless of the
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services business. “For example, there are usually pretty stringent product specifications and rules for reactor cleanouts and the avoidance of cross-contamination.” AGROCHEMICALS FOLLOW a discovery
and development path similar to the one for pharmaceuticals but with about three years lopped off. And development costs are about a third of the amount required for bringing a new pharmaceutical to market.
One result of this cost structure is that companies selling generic agricultural chemicals can’t make inroads by dramatically lowering prices. That there won’t be severe price erosion when a patent expires is good for agrochemical companies that develop and launch the original products. In fact, many originators continue to make their off-patent products, which in turn can mean ongoing business for custom manufacturers. Their customers still seek price N OVASE P
end use, says Managing Director Wolfgang Schmitz. This toolbox includes fluorination, chlorination, and phosphorus chemistries through sister businesses that are also part of Germany’s Lanxess, Schmitz says. Except for one unit that operates under the current Good Manufacturing Practices (cGMP) required for pharmaceuticals, Saltigo’s dozen large plants are suited for multipurpose manufacturing. To meet growing fine chemicals demand, it is spending about $26 million to expand isolation and filtration capacities in Leverkusen, Germany. Saltigo supplies active ingredients and precursors for all three major agrochemical sectors—herbicides, insecticides, and fungicides. Although agricultural markets can be volatile because of regional, crop, and weather-related ups and downs, the overall trend has been up. That wasn’t always the case. The agrochemical market in the 1990s and early 2000s was decidedly mixed, says Matthew Phillips, a consultant at the Scottish firm Phillips McDougall, but since 2006 the industry has experienced real growth. A key driver has been improving crop prices as a result of tight supply and growing demand, including the rapidly rising need for corn in the U.S. for ethanol production. “The overall demand for crops, either for human or animal consumption, is increasing steadily year by year,” Phillips says. “Growth is not only being driven by volume but also by the increasing wealth of the farmer, which allows him to trade up to more advanced chemicals.” The actual production of agrochemical compounds is relatively easy for custom manufacturers who are accustomed to making pharma chemicals. Most active ingredients call for similar chemistries and processing methods, although the production requirements, development cycle, and quantities of materials can differ. Unlike pharmaceuticals, agrochemical active ingredients don’t have to be made under cGMP conditions, but custom synthesis firms still must maintain strict quality and purity standards. Because they are regulated products, little room exists for deviation in manufacturing, says David DeCuir, director of Albemarle’s fine chemistry
HIGH PURITY In agrochemicals and pharma, concessions but less so than for developers face similar uncertain- Novasep offers off-patent pharmaceuticals, supchromatography ties with regard to whether molpliers say. services for ecules will succeed. In both cases, fine chemicals. Although there is a market they screen thousands of comfor generics, “the patent cliff is pounds in the discovery stage for nowhere near as steep in agroevery one that makes it through chemicals as it is in pharma,” says approval and onto the market. Nigel L. Uttley of England-based Enigma “The agrochemical industry launches Marketing Research. Uttley’s research products faster than pharma does, and the shows that fully 42% of agrochemical active quantities of materials are comparably ingredients are off-patent but still sold as higher than those for a pharma molecule,” proprietary products by their originators. Schmitz says. For Saltigo and some other Only about 30% of agrochemical actives contract firms, these quantities are a good now sold have patent protection, and the fit for their larger-scale assets. rest are generic. Between 2002 and 2017, Although they make larger amounts of 137 agrochemical active ingredients will product, contract manufacturers must aclose patent protection, Uttley says. cept lower profit margins on agrochemical Despite good prospects overall, agroingredients than they do on pharmaceuchemicals have a downside for fine chemiticals. The cost of goods as a percentage cals suppliers. The number of active ingrediof the selling price is much higher for an ents on the market has declined—displaced agrochemical than for a pharmaceutical, by new technologies such as seeds geneticalPhillips points out. ly engineered to resist pests or withdrawn
“The agrochemical industry launches products faster than pharma does, and the quantities of materials are comparably higher.” CEN.ACS.ORG
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TWO DIFFERENT TRACKS Compared with pharmaceuticals, agrochemicals ofer a faster and cheaper means of bringing a new chemical entity to market.
◼ Discovery
Pharmaceuticals
{ {
Total out-of-pocket cost
◼ Registration
Cost ($ millions)
$219
$610
$44
Quantities needed
Grams
Kilograms to hundreds of kilograms
Metric tons
Time (years)
Agrochemicals
◼ Development and trials
1
2
3
4
5
6
7
8
9
10
Cost ($ millions)
$85
$146
$25
Quantities needed
Grams to kilograms
Hundreds of kilograms to metric tons
Thousands of metric tons
11
12
$873
13
$256
SOURCES: Pharmaceutical Research & Manufacturers of America, CropLife America, Nat. Rev. Drug Discovery 2010, DOI: 10.1038/nrd3078
because developers have opted not to pay to register them. Enigma tracks about 1,200 active ingredients, Uttley says, but only about 500 have any commercial significance. UNLIKE FOR HUMAN health, “a lot of the
needs in the agrochemical industry have been met,” Uttley says. As a result, instead of new active ingredients, agrochemical firms have put their efforts into developing new mixtures, formulations, and delivery routes. These new products can help them
extend or generate patent protection and maintain market share. Moreover, fewer companies are doing R&D, because, as in the pharmaceutical industry, consolidation has reduced the number of players. The six companies in the top tier—BASF, Bayer, Dow Chemical, DuPont, Monsanto, and Syngenta—each have annual crop protection chemical sales in excess of $3 billion. “The top six agrochemical companies have about 70% of the market,” Uttley says.
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Japanese firms actually generate more new active ingredients than European and U.S. firms, but they are mostly small companies, he adds. And the active ingredients that come from Chinese firms tend to be only minor variations on existing ones. The supplier side mirrors this limited customer base. Although hard numbers aren’t available, a smaller number of custom manufacturers serve the $45 billionper-year agrochemicals sector than the nearly $1 trillion pharma industry, accord-
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ing to suppliers and consultants. Among those serving both markets, Schmitz assumes that just a “handful of Westernbased contract manufacturers are certain to be around for the long run.” Albemarle’s DeCuir concurs. In North America, “there are not many fine chemicals firms that participate in the agrochemical industry in a big way,” he says. Several factors limit involvement. “Agrochemical companies like to manufacture themselves, and there are few new products each year,” he says. “The opportunity in pharma may be bigger.” CUSTOM MANUFACTURERS regularly
bemoan the lack of new chemical entities (NCEs) coming through the pharmaceutical pipeline and being approved. Yet the drug industry hit a 16-year high of 39 in 2012. In agrochemicals, just eight NCEs emerged last year, according to Phillips McDougall. “The trend in new products coming to the market is actually one of decline,” Phillips explains. The number of new agrochemical active ingredients introduced per year has steadi-
ly decreased from the most recent high of chain and manufacturing director. “We do 19 in 1997. Excluding China, “there are 28 all of our own research, process, and ananew active ingredients in the development lytical development, and the intellectual cycle, or within five years of introduction, property belongs to us,” he emphasizes. whereas back in 2000 there were 70,” PhilFMC began moving in this direction lips says. about 15 years ago. In 2008, it completed Not only are fewer companies inthe transition when it closed its last agrovolved in basic agrochemical R&D, but chemicals plant, in Baltimore, and began many among them have shifted focus. sourcing everything from partners in low“As a whole, the industry is spending more in seed and AGROCHEMICALS New active ingredients, trait R&D than it is on crop approved and in development, are on the decline. protection,” Phillips says. He believes that today’s stricter Number of active ingredients 80 regulatory environment is ◼ Approved 70 ◼ In development another hurdle to launching 60 products. “Altogether, the barrier to 50 entry is getting harder all the 40 time, and that has a negative 30 impact on R&D,” he says. 20 “The major companies, with 10 fewer products coming to the 0 market, are devoting a higher 1999 00 01 02 03 04 05 06 07 08 09 10 11 12 level of R&D expenditure SOURCE: Phillips McDougall than they were in the past to the defense of products when they go off patent.” cost manufacturing locations, such as Asia. Although the number of products is “We saw an opportunity, grabbed it, and it’s on the decline, consultants and suppliers been very successful,” Kisliuk says. say agrochemical companies seem to be Key to the effort has been putting energy outsourcing more. “Agrochemical compaand effort into effective communication, nies do a lot of development and scale-up according to Kisliuk. “We do go through a work internally and then go externally for pretty detailed and exhaustive checklist, manufacturing purposes,” DeCuir says. As and we start slow and test the relationa result, contract manufacturers often do ship,” he says. “It takes time to build it, and less process development work than they we look for long-term partners.” would for a drug product. Although costs may be rising in China Phillips agrees about the trend toward and other once-cheap locations, they’ve more outsourcing but cautions that it’s risen everywhere, and Kisliuk doesn’t think a matter of where. “China has become a that the gap between manufacturing inmajor manufacturing base for the major house and sourcing externally has closed agrochemical companies,” he says. At the much. same time, rising environmental regulation Syngenta draws on a mix of contract and labor costs in China are resulting in manufacturing relationships and in-house some movement of manufacturing to other active ingredient production at company countries, he believes. sites in Switzerland, China, India, the U.S., FMC’s $1.8 billion-per-year agricultural and the U.K. Notably, in 2010, the firm products business has a very clear-cut outagreed to invest about $65 million to help sourcing strategy. It has contract manufacsignificantly expand synthesis capability turers make all of its active ingredients, as at the Leverkusen site of longtime partner well as intermediates and some formulated Saltigo. products, says Marty Kisliuk, global supply Although Syngenta and Saltigo won’t
“Agrochemical companies do a lot of development ... internally and then go externally for manufacturing purposes.” CEN.ACS.ORG
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CHEMBRIDGE: say more about this relationship, it clearly demonstrates the importance of contract manufacturers to agricultural chemical firms, and not just ones in Asia. “Our customers need companies to support them, and they will strive for a mix of Asian and Western suppliers,” Saltigo’s Schmitz says. In agrochemical and other areas, Asian competitors have improved, especially with regard to safety, health, environment, and quality. “We take the top performers very seriously, and strong competition makes sure that you do not become too complacent,” he says. “Our customers want to have a stable group of strategic suppliers that are reliable and sustainable sources for years to come,” Schmitz continues. Saltigo, meanwhile, strives for a broad customer portfo-
lio including the big agrochemical companies as well as small and midsized firms. WHEREAS AGRICULTURE is an expanding
market for Saltigo, some custom manufacturers already active in the field are looking to other nonpharmaceutical markets for growth. Only about 10% of the custom manufacturing business at Germany’s WeylChem Group involves making pharmaceutical intermediates; about 50% is in agrochemicals. “Our five-year plan is to grow more in the polymer and specialty markets,” says Andreas Maier, managing director of WeylChem International, which oversees the marketing activities of the group’s five companies. The group created a polymers business about a year ago to produce
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Chemical Suppliers Pursue Sweet Smell Of Success Along with pharmaceuticals and agrochemicals, flavors and fragrances are one of the top three fine chemicals markets. In 2012, the demand for aroma ingredients amounted to about $7.9 billion, according to Jan Ramakers, an independent consultant. These chemicals find use in cosmetics, soaps, food, and household and personal care products. “Flavors and fragrances generally experience fairly healthy growth,” Ramakers says. During the economic downturn that began in 2007, however, sales growth slowed. Sales of high-end cosmetics and toiletries were stable, while a decrease in mid-priced consumer products was somewhat offset by growing sales of bargain-brand goods. End products are usually blends of fine and commodity chemicals that can range from
relatively simple to highly complex, Ramakers says. Many flavor and fragrance compounds are isolated from plant sources or synthesized by fine chemicals firms as catalog offerings or through custom manufacturing agreements. The synthetic and the natural are now converging in the form of a group of small companies that use microbial and enzymatic processes to produce flavor and fragrance chemicals (C&EN, July 16, 2012, page 25). This expanding group is both competing with traditional fine chemicals firms and being backed by them. For example, through its venture capital arm, BASF has invested $13.5 million in San Diegobased Allylix, an eightyear-old firm that makes terpenes and derivatives. Similarly, the Dutch company DSM spun off Isobionics in 2008
to develop isoprenoids. Emeryville, Calif.based Amyris has deals with the top three flavor and fragrance companies. It began working with Firmenich in 2010 and Givaudan in 2011. In March, Amyris expanded its relationship with Firmenich, and last month it signed a multiyear deal with International Flavors & Fragrances. Amyris’ strategy is to use its synthetic biology platform “to deliver new renewable ingredients to a range of industry sectors,” Chief Executive Officer John Melo says. Likewise, Switzerland’s Evolva is working with IFF to scale up a process to make vanillin, the key ingredient of vanilla, via fermentation rather than by extraction or chemical synthesis. Evolva also works with BASF on the biosynthesis of natural products for crop protection.
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intermediates, additives, and specialty monomers. Although agrochemicals is a good business, “we want to have a bit more balanced portfolio,” Maier says. Despite a desire to diversify, WeylChem isn’t turning down the opportunity to expand a plant in Frankfurt to make an undisclosed product for a large agrochemical customer.
“The patent cliff is nowhere near as steep in agrochemicals as it is in pharma.” Among WeylChem’s core chemistries are bromination, chlorination, fluorination, and phosgenation. Halogenated compounds are particularly popular as
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agrochemicals—about 30% contain fluorine. Handling hydrogen fluoride is becoming a lost art, Maier points out. “We are one of the last companies in the Western Hemisphere to still have some of these technologies.” OPPORTUNITIES in pharmaceuticals
and agrochemicals are relatively easy to identify, but they can be difficult to capture because of the limited number of projects and fierce competition to win them, he explains. In other custom synthesis areas, it may take more effort to find new clients, but manufacturing their products can be “very quick and straightforward” compared with the more regulated sectors, Maier says. Like WeylChem, France’s Isochem has embarked on a diversification strategy. About three years ago, soon after getting new owners, it began looking to expand outside pharma and agrochemicals, Sales Director Xavier Jeanjean explains. About 55% of its business is with the drug industry, and much of the remainder involves the production of an agrochemical at a dedicated plant. Isochem specializes in hazardous chemistries such as high-pressure hydrogenation and phosgenation. Last year, Isochem acquired a small U.K.-based company called Wychem for its technology and access to new customers. Wychem focuses on aromatic chemistry and makes intermediates in volumes ranging from 1 to 1,000 kg. “They have a lot of inquiries, and that may help us to have contacts with new customers and to produce bigger quantities for them,” Jeanjean says. Outsourcing is not as frequently practiced outside the drug and agricultural industries, but firms do come to contract manufacturers for specialized chemistries or to obtain relatively small quantities of material before deciding whether or not to invest in manufacturing themselves. “We are very flexible in terms of capacity and can make the first quantities and up to 100 metric tons,” Jeanjean says of Isochem. Large chemical companies are more accustomed to outsourcing than smaller ones, Novasep’s Steinhauer adds. Large firms “have huge capacities, but when it comes to scaling up small products that are maybe less than 100 tons they often out-
source,” he says. “If the product remains a specialty, production can stay with us over many years.” With less need for process validation or trial results, nonpharma and non-ag custom manufacturing projects can move from the kilo lab to pilot scale and then to production in months rather than years. Because the time frame is shorter, “you have a much more intensive exchange of information,” Steinhauer says. Customers outside pharma also have a “more handson mentality,” he adds. “The relationships are similar, but process development is a bit more open and flexible.” ALTHOUGH COMPETITION is growing
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from manufacturers in countries such as India and China, Steinhauer sees it mostly for large-volume, low-cost products. Customers still look to Western suppliers to make complex and niche products. “Specialty chemicals still have an important and growing role in Europe and the states,” he says. Novasep wants to expand in some of these niche markets, including electronics, cosmetic active ingredients, and polymer additives. It also has found growing interest for its services in processing biobased products. For example, customers that have developed lab-scale processes are looking for purification services so they can go through initial testing, sampling, and product development, he says. Albemarle also has seen more projects arising from renewable-product companies. Having produced a building block via a fermentation process, “customers often want to derivatize that chemical into something of higher value,” DeCuir says. This area is a good fit for Albemarle because it’s equipped to manufacture products at the thousands-of-tons scale. In late 2012, the company completed an expansion of its Tyrone, Pa., facility. “It was specific for one customer and one product,” DeCuir says. “Their demand was expanding, and we needed to expand to keep up.” Now under way is a broader $30 million expansion of infrastructure and reactor capacity at the site. “When finished, we will have a 40–50% expansion,” he adds. “We have had a lot of growth outside the pharma industry,” DeCuir says. “We are not just agrochemicals and pharma. We try to cast a wide net and look for customers that want long-term production of their products on the outside and where our technology and manufacturing match up well, regardless of the market.” ◾
