BUSINESS
France's SNPE Chimie Diversifies as Part of Aggressive Growth Plan Chemical unit of French company aims for new business in such varied product areas as nail polish and industrial chemicals Patricia L. Layman, C&EN London
It's not unusual for an explosives company to branch out into chemicals and make a success of it. Du Pont and ICI, two of the world's largest chemical producers, each with strong roots in explosives, provide ready examples. The immediate ambitions of France's SNPE Chimie probably don't run quite so high, but it's clear that the company is working hard to diversify from its traditional base of explosives and nitro products into more specialized chemical fields. And it certainly does have ambitious growth plans, which managers are confident of achieving.
Diversification and expansion was the intent of the parent company, Societe Nationale des Poudres et Explosifs (SNPE), when it restructured itself into divisions last year. The largest is its defense and space division, representing about 50% of sales. The chemical division, with slightly less than 30% of sales, is next in size, and the materials and composites division is third, with about 20% of sales. Before the reorganization, all plant managers reported directly to the parent company's chief executive officer, opening possibilities of confused priorities. Moreover, the personnel attached to the chemicals operations had responsibility only for commercial activities and marketing, but not for any profitability. The reorganization, however, clarified the company's structure. For example Bernard Riviere, general manager of SNPE Chimie, has responsibility for the chemical division's plants, and for the chemicals
SNPE Chimie at a glance chemicals division of SNPE, French state-owned defense, chemicals, specialty materials, and engineering company
Major market positions: Second largest supplier worldwide of nitrocellulose; largest supplier of nail enamel base
Headquarters: Paris
Major industrial subsidiaries: Tevco (South Plainfield, N.J.), nail varnish; Propeptide, synthesis of peptide amino acid intermediates; Isochem, quinine and derivatives
I sales: $192.7 million, 27% of total group sales )fit: $16.5 million $31.9 million mployees: 1337 Operations: pharmaceutical and agrochemical intermediates; intermediates for polymerization catalysts; nitrocellulose and derivatives, including nail polishes; liquid fuels
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Joint ventures: Sud-Synthese, 50-50 venture with Shell Chimie to make fine chemicals involving nitration; Bupera, 67-33 venture with Italian company Snia BPD to make ammonium Perchlorate, a key ingredient in solid fuel for Ariane V rocket boosters
production of other SNPE plants. He coordinates expenditures for production, for research and development, and so on. And, as he states, "I am very responsible for the profits/' The restructured corporation, whose sales in 1990 were $726 million, has set itself a sales goal of $1.1 billion by 1994. At the same time, it plans to balance the size of its divisions so each will be roughly one third of the total. The chemical division, SNPE Chimie, wants to reach sales of about $370 million —2 billion French francs—by 1994. It topped the first hurdle in 1989 when its sales hit 1.07 billion francs. If it succeeds in doubling its chemicals sales, SNPE Chimie will have achieved another strategic goal: to be among the world's leading independent producers of fine chemicals. But 1990 put a slight snag in SNPE Chimie's plans. Sales were almost $193 million, down about 2% from 1989, and operating profits, at $16.5 million, were down 33%. However, as an indication of the company's optimism, its capital spending in 1990 was $32 million, an increase of 85% from the previous year. Despite that modest setback, SNPE Chimie's sales "will reach 1.4 billion French francs"—a bit more than $250 million—"by the end of 1991," predicts Riviere. "Two billion [francs] is not so difficult to reach by 1994." Helping the company toward that goal will be a series of small acquisitions to complement its product areas. For example, early in the year, the firm bought the chemical activities of IRCHA, a French research organization. It has taken over the 65% of shares outstanding in partly owned Isochem, a producer of fine chemicals for pharmaceutical markets. It also set up a joint venture,
example, decreasing military activity in France and elsewhere in Europe from 1986 to 1988 left the company with small losses, rather than its customary profits. However, it regained profitability in 1989, a prospect Riviere sees continuing as the company diversifies. Some of the defense interests will be retained, of course, because of SNPE Chimie's position with its parent. As Riviere points out, "We have to help the materials, space, a n d m i l i t a r y activity of S N P E . " For e x a m p l e , if SNPE's munitions operations develop a new military explosive, the chemical diviSchiff: not close-minded to joint ventures sion, with its expertise in chemical synthesis, is the Fashion Nail, a small cosmetics com- natural source. pany. And, similarly, the chemical diviThese add to SNPE's still impor- sion is involved in supplying the tant historical products—basics such defense and space division, as it in as nitrocellulose for powder, ammo- turn diversifies. Riviere cites a case nium Perchlorate for propellants, in point: The field of propellants for and hexamine for military explo- civil applications, particularly for sives. space, where SNPE—the major EuThose materials are not big in ropean producer of defense and terms of sales, but are strategically space propulsion materials—is inimportant—key raw materials for the creasing its market share because of group. However, the traditional mili- the European space program and tary business for SNPE is decreasing. Ariane V rocket boosters. To serve As many companies with major de- that application, SNPE Chimie is exfense contracts know all too well, panding its interests in ammonium they can be too undependable. For Perchlorate, and has just built a new Perchlorate plant in Toulouse, in southwest France, as a joint venture with Italy's Snia BPD. However, the division's internal sales to parent SNPE have been shrinking over the past few years. According to Riviere, internal sales now account for less than 10% of SNPE Chimie's total. To counter dwindling internal sales, SNPE Chimie has diversified in two major ways—consumeroriented intermediates and fine chemical products. For example, using its nitrocellulose chemistry expertise, the company decided to branch into nail polish products. And with its recent purchase of Durlin in the U.S., SNPE Chimie is now the world leader in the manufacture of nail polish base, with, by one estimate, a Riviere: building up fine chemicals 25% world market share.
SNPE Chimie began nail polish production in 1960, and now has capacity of 35 million lb per year, for bases and finished enamel formulations. Last year, nail polishes accounted for $18 million, nearly 10% of SNPE Chimie's sales, and a 500% increase over these products' contribution just five years earlier. In 1987 SNPE Chimie acquired about 90% of the U.S. company Tevco, which specialized in sale of nail polish, and early this year, added the Durlin brand. In 1990, it built and inaugurated a new polishes plant in South Plainfield, N.J., to bring together the activities of the two, explains Roland Schiff, managing director for the division's U.S. and Asian operations. That took a capital investment of about $7.3 million. Schiff says it also built upon the division's existing technology for nitrocellulose—used in surface coatings such as printing inks and wood finishes, as well as nail enamel—based at Bergerac, near Bordeaux in s o u t h w e s t e r n France. SNPE Chimie is also exploiting its in-house chemistry expertise in the field of fine chemicals, Schiff and Riviere point out. It has a variety of chemistry specialties on which to build: • Phosgene derivatives, including acid chlorides, carbonates, and chloroformates. • Nitro compounds, ranging from dinitronaphthalene for explosives and dyestuff intermediates, to musk xylol, an intermediate for perfumes and cosmetics. • Hydrogenated chemicals, such as diaminonaphthalene and m- and o-toluidine. • Miscellaneous others, including ammonium Perchlorate and hydrazine. Development products include alkyl hydrazines and derivatives, and h i g h l y specialized isocyanates, among others. And other areas in which the company is building a strong stake are peptides, for pharmaceutical markets—"in the future, this market will increase a minimum of 20% per year," predicts Riviere—and electrochemistry. Its electrochemistry is based on magnesium, and features ion-selective electrodes. "In fine chemicals, we have a lot November 18, 1991 C&EN
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Business of things to do to increase our business by extending our technology field/' says Riviere. Future directions include "not just the areas we have now, but all fine chemicals internally, using any classical reaction in organic chemistry. We are able to do that using new subsidiaries." A case in point is the division's new joint-venture subsidiary with the Belgian company Tessenderlo Chemie to produce oxalyl chloride and derivatives. Involved is a new plant just starting up, near Lille, close to the France-Belgium border. Another is Sud-Synthese, a joint venture with Shell Chimie. According to Riviere, the venture is the right size to maintain a business in nitrochemistry—significant investment, for example, is needed for acid storage for producing nitro compounds. "You must have a large partner in that field; otherwise it will be impossible to assume the fixed cost of the businesses. Shell Chimie can offer us many possibilities for producing nitro chemicals used in their own company." Indeed, the division is putting significant emphasis on small new subsidiaries, as the means to expand product areas and geographic markets. As Schiff notes, the division as yet does not have a geographical subsidiary outside Europe in fine chemicals. High on the list of countries it is interested in are the U.S., Japan, and South Korea. "There are two possibilities for entering these markets," Schiff says. "One, we can build new plants in new areas. Or, two, we can buy some companies in the field of fine chemicals in pharmaceutical or agrochemical markets." Riviere says, "We are looking for any [acquisition] possibility, especially in Japan. We have had good success there—our sales have multiplied three times in the past five years." However, he adds, "it is really difficult to continue to grow w i t h o u t producing in Southeast Asia. We are strongly looking for plants in Japan, Korea, or perhaps one or two other places. Our first step was selling outside what we make in France. But now, that is more and more difficult—we must produce elsewhere." And, despite the company's re12
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cent activity with joint ventures, acquisitions are the favored path. Schiff observes, "We are not closeminded about joint ventures, but each one has to be studied separateiy·" The way Riviere sees it, SNPE Chimie will be a "generalist" in fine chemicals, but each of its units and subsidiaries will have an expertise. The goal will be to develop a complete range of services for customers, offering "a very large plate of possibilities for anyone wanting to have a partner in developing new molecules." Schiff concurs with that policy: "Just offering phosgenation, for ex-
ample, is only a partial service. We wish to offer a total service." Both Riviere and Schiff think SNPE Chimie can do just that. As to the future, SNPE Chimie has clear goals for growth, and for maintaining its specialties. Says Riviere: "What we want to continue to maintain is our number two world position in production of nitrocellulose [second to Hercules]. We want to be the last in it, if necessary, to maintain our position in nitrocellulose. We also want to build our fine chemicals business by buying companies and increasing our companies all over the world. That is our general strategy." D
Cell receptors focus of new venture, Sugen Researchers from two universities have teamed with a New York City venture capitalist to form a new company to license research developments in cell receptors. The company, called Sugen, will be based in the San Francisco area by early 1992. It will have exclusive rights to technology and drug candidates developed in the laboratories of Joseph Schlessinger, chairman of the department of pharmacology at New York University Medical Center, and Axel Ullrich, director of molecular biology at the Max Planck Institute for Biochemistry in Martinsreid, Germany. Chairman of the company's scientific advisory board is Paul Greengard, head of molecular and cellular neurosciences at Rockefeller University. Stephen R. Evans-Freke, who describes himself as "having been around a bit in the biotechnology world," has raised about $4 million in seed capital to start S u g e n through his New York-based firm, International Technology Investment Managers. As former president of P a i n e W e b b e r D e v e l o p m e n t Corp., Evans-Freke has been involved in the financing plans of successful biotechnology companies including Genentech, Amgen, and Centocor. Equity interests in Sugen also are held by NYU Medical Center and Max Planck Institute. Because all discovery efforts are to remain at the research institutions, Sugen effectively has an R&D staff
of about 80 people with about 35 scientists in Schlessinger's laboratory and about 45 in Ullrich's. Sugen will fund research programs at both institutions and will conduct all clinical drug development and commercialization. This strategy of separating drug discovery and drug development efforts offers much value, says Evans-Freke, who serves as Sugen's chairman and chief executive officer, "because they are very different cultures." Sugen's focus will be on developments in the area of cell surface receptors. Such receptors, which respond to hormones and other factors, are involved in the regulation of cell physiology. The aim is to control cellular processes or dysfunctions as treatments for diabetes, cancer, and certain blood and central nervous system disorders. In Germany and the U.S., closely coordinated applied research programs are under way on two classes of receptors—tyrosine kinases (RTKs) and tyrosine phosphatases (RTPs). The complementary enzymatic actions of these receptor systems lead to their often being called biochemical "on and off" switches. The kinase receptor class, which was discovered first, includes a number of fairly well known receptors, says Evans-Freke, including the insulin receptor and other growth factor receptors. "Schlessinger and Ullrich estimate there could be as many as 200 or more different receptors and
