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The Green New Normal

 

Some of the things that people hoped would be turning around by midyear 2012 aren’t really turning around. Take the U.S jobs market, for example. Or the pharmaceutical chemicals market. In both cases, the statistics can be turned to illustrate solid headway being made (especially where isolated segments are viewed from particular angles). The fact is, however, we are still in the long stall before the turnaround in both cases—provided there ever comes a turnaround.

The contract active pharmaceutical ingredient (API) market is nowhere near returning to its pre-2008 level of profitability. Of course the economy has had a lot to do with prolonged struggle in the sector. A sea change in the world of manufacturing and R&D in the drug industry has had an even more profound impact on the market for chemicals. The reshaped pharma sector will create opportunities (where isolated segments are viewed from particular angles), and there are certainly companies that are pleased with business over the last couple of years. But producers agree the sector is dealing with a “new normal,” one in which the number of opportunities is decreasing, requiring contractors to increase their technical specialization or add services, including final dose formulation.

Meanwhile, the agricultural chemical sector keeps chugging right uphill. The market cycles have become a bit more dramatic in recent years, but the trend line running through these cycles is steadily moving higher. I recently spoke with Matthew Phillips, agchem market analyst with crop protection and biotechnology consultancy Phillips McDougal in the U.K. Phillips sees the stars aligned for steady improvement in the market—they have been since 2006, he says, with crop prices rising, demand for meat in China rising (bringing with it a dramatic increase in demand for crops to feed livestock), and markets developing in Brazil, Russia, and India.

The agchem business is vulnerable to weather, of course, as well as to commodity price swings—swings in the price of crops themselves as well as in the price of fuels. These affect each other at times, such as when hedge fund managers shift their bets to crop futures in the face of high oil prices as they did in 2008, notes Phillips. But he and others see a steady rise in crop pricing balancing the vagaries of the market in a continued upward push.

Walking through the exhibition hall at ChemSpec Europe in Barcelona last month, it seemed to me that the optimism over agricultural chemicals had tipped a balance. Firms such as AllessaChemie and Saltigo, major players in agchem and pharma, were putting their green feet forward. Saltigo’s amalgamation of what had been separate business groups for pharma and agchem seems like a step up in prestige for agchem—or a step down for pharma?

Let’s face it. Business in agricultural chemicals has always been eclipsed by the perceived dazzle of doing business with the drug industry—a perception that is partly a hangover from the overheating of the 1990s when most major drug companies tried and failed to get into the fine chemical/API business. But, thinking back, agricultural chemicals remained relatively steady through that bust. And they’ve stayed steady since…unless you count constant gradual improvement as a kind of tilting of the boat. Pesticide and fertilizer chemicals will probably never score as highly as drug chemicals on the glamour scale, but there is no doubt that the agchem section of the market is getting increased attention from the diversified fine chemical players this year.

And The Winner Is…

This week, a $1.7 million annual prize was awarded in the sciences. You will not read about it in Chemical & Engineering News

—this, despite the magazine’s once-in-a-lifetime opportunity to put the Dalai Lama on its cover!

That’s right, the Templeton Prize, recognizing high achievement in reconciling science and religion, has once again been awarded amidst a nice little fanfare on National Public Radio and Facebook.  And once again it has been treated by many in the science community as a quaint or nonsensical honor given every year to a particularly bright and courageous religious leader, or to a soon-to-be ostracized scientist.

I would argue that the Templeton is the most important award given in the sciences, weighing in somewhere between the science-oriented Nobel Prizes and the Nobel Peace Prize.  I argue this not because of any personal religious beliefs (mine are rather arcane and boring and I will spare the reader), but because the award recognizes the importance of the human being as both rational and spiritual in nature.  On a perhaps more practical level, it also hinges on success in translating science to the world community on the world community’s terms. It is less specialized than most awards in the sciences, awards that have gone to curers of disease and discoverers of the universe. But in its broad humanistic purview, it communicates a great truth about how science must enter the world.

It should be noted that the Templeton has been described as the most important award in religion.

OK. Where is the fine chemicals angle here? Saffron dyes and incense? Well, I don’t slice it that thin. But I’m quite comfortable banging my pot on the Templeton in a space reserved for any section of the healthcare industry. Asked and answered.

And I tread a different kind of Fine Line here. In essence, I feel the Templeton should be covered somewhere in Chemical & Engineering News

. Looking through our online archives, I found two references, one of substance: In 2008 coverage of the Priestley Medal, it was mentioned that Joseph Priestley might have been awarded a retro-Templeton. That is true! I have always greatly admired Priestley. A scientist and theologian who helped found Unitarianism in England, Priestley was essentially exiled for his support of religious dissenters. He was also held in suspicion in the science community on account of his religious views. He set sail for enemy territory at the time, the Colonies, where he hung out (and might have been hanged!) with Benjamin Franklin in Philadelphia. I am almost certain that Priestly would have preferred that the Templeton prize be called the Priestley Prize—not to be confused with the Priestley Medal.

Like most honors in this world, perhaps even more than others, the Templeton has been manipulated by politics—for God’s sake, Mother Theresa won it (1973)! And the great irony of the Dalai Lama, also an exile, is that he is inescapably a political figure. The radical nature of the award—daring to embrace both science and religion—has resulted in it being given to controversial if not radical figures (Freeman Dyson, 2000). This is one reason it doesn’t sit well at a science-only table. But in a world in which we need a $1.7 million award for someone brave enough to work for a reconciliation of reason and faith—the twin pillars of much of the western intellectual tradition—science should be made slightly uncomfortable from time to time. Moreover, the science enterprise should be humbled to the extent that it will communicate respectfully to the world at large. Rather than going the Dale Carnegie route of actively trying to influence public opinion, science might find that it does itself and the world a greater service by simply and fully informing public opinion, trusting the public to see the light.  The science enterprise is beginning to get this, it seems. I have noticed improvement in the thirty years I have covered science-based industry as a journalist. Much of it has taken place over the last ten years. There is, on the other hand, still a seemingly indomitable attitude of entitlement on the part of scientists on issues such as global warming, where science has nonetheless managed to make great headway despite plainly ignorant and manipulative political opposition.

And there is a Templeton Prize. And it is good.

One can highlight the Dalai Lama’s involvement in the sciences in telling the story of why he is awarded the Templeton this year. Surely we are all aware of his interest in astrophysics, behavioral science, neurobiology and quantum mechanics. Ditto his “Science for Monks” program in India. But I feel he brings an overriding quality to the fray and rift, a quality that transcends his science credentials and earns him the recognition of this award—humility. And what better examplar of the persuasive power of humility than this Nobel Peace Prize-winning monk.

Congratulations to Tenzin Gyatso, the 14th Dalai Lama, and the recipient of the 2012 Templeton Prize.

DCAT Notebook

Tables sold out many weeks in advance for this year’s Drug, Chemical, and Associated Technology (DCAT) dinner at the Waldorf Astoria. This is not surprising, as the speaker was a former U.S. president. George W. Bush, who will always be divisive figure in world history, found a sympathetic audience among the drug and drug chemical industry executives gathered for the feast. European attendees were particularly impressed with his interview-style presentation, given the ultra-negative picture of Bush painted by the media in Europe—not that the man gets much better treatment outside Fox News in the U.S. DCAT attendees, perhaps not big MSNBC fans as a whole, found W. folksy and earnest, if somewhat revisionist. Observations vary, however, as I was reminded by a small clutch of citizens on the sidewalk in front of the hotel

But certainly much of the enthusiasm and energy evident at the Waldorf had to do with business, which is picking up. Latest- quarter earnings were strong for the publicly-traded firms on hand, and most others say the close of 2011 was quite solid.

I ran into Brian Scanlan, CEO of Cambridge Major, on his way out of the DSM hospitality suite. “The by-word of the day is late-phase,” he said. “Phase II-plus.” The funding for projects further along in development is increasing, he said, and it’s reflected in Cambridge Major’s contracts last year. Accepted project values doubled, said Scanlon, though the number of projects dropped off from 400 to 300 compared to 2010. While the bottom line is a boost in revenues, there is some concern about the sluggish early stage, said Scanlan. “The pre-clinical market is a leading indicator for this industry,” he said. “And it’s not very pretty.” Scanlan notes that Cambridge Major is placing more emphasis on niche generics, which looks to be a growth market.

Pushing further into the DSM suite, I came across Luca Mantovani, president of DSM Pharma Chemicals, beaming in optimism. Business is good. “We are back to growth, which is the most important thing” he said. “We’re growing faster than the market.” And the company’s party was packed. Mantovani agreed with Scanlan that there is some softness in pre-clinical, however.

Mantovani was among the executives expressing real pleasure with doing business at DCAT, which for years has entailed a week of meetings and programs at the big hotel.  “Because of the set-up, it’s a very interesting event.” DCAT is “condensed,” said Mantovani. The suites of the Waldorf offer a better environment for business than the dispersed hotel rooms in the sponsor city of any of the many annual exhibitions for fine chemicals—events one of my sources at DCAT referred to as “meat markets.”

Moving on to the Siegfried suite, I scored a trifecta, coming across Saltigo managing director Wolfgang Schmitz, Hovione CEO Guy Villax, and host company CEO, Rudolf Hanko, chatting and sharing in the general exuberance of the evening. “Business is picking up,” said Schmitz. He was also happy to be at an industry event where there were no exhibit booths. He likes the “confidentiality” of DCAT, he said, and enjoys coming to New York, which is easier to reach than, say, Anaheim, where next year’s Informex is scheduled to take place. I would agree that, despite what has happened to 42nd Street in recent years, New York still distinguishes itself culturally from Disney World.

Hanko, whose firm has also finished a strong year, agreed, noting that DCAT has doubled in size since he first started attending—he did not say when that was.

Leaving Siegfried, I was button-holed by (or perhaps I button-holed) Allen H. Salerno, senior director of sales and marketing for contract research services firm Aptuit, where there was a rise in customer inquiries of late. There has been an uptick since September, says Salerno. “People are making decisions,” he said. “The key performance indicators are up and money is flowing to the smaller companies.” The firm’s integrated discovery and development services strategy is also starting to strike a chord with customers, he said. “We were a little bit ahead of ourselves.”

Toward the end of the evening, I made my way to the end of the fourth floor of suites to where a live DJ provided a musical backdrop to schmoozing in Lonza’s rooms. The scene was hot. In fact, Joseph R. Colleluori, senior vice president for corporate development, was throwing open the sashes, creating a wind tunnel in the foyer as I entered. Untangling himself from the curtains, he gave me the good word on DCAT and Lonza. “The general mood of the industry is optimistic,” he said. “New York brings a sense of optimism with it.” He, like others, prefers DCAT to the any of the expos on the long and growing list of fine chemicals gatherings. Indeed, many in the pharmaceutical industry view the meetings in the Waldorf suites as the key window for doing business with—some would say taking orders from—their chemical suppliers.

Colleluori commented on Lonza’s recent acquisition of specialties firm Arch Chemicals, calling it “completely on track.” Arch is performing as expected as a currency buffer, a geographic expansion of operations, and a portfolio-balancing play. “All the key drivers have materialized.”

In search of my driver, I passed Roger LaForce by the famous big clock in the lobby. We chatted about the synchrotrone solid state analyzer he has been working with at Zach System, the Swiss API-maker where LaForce recently signed on as board member and general manager. Watch this space and/or space in C&EN.

The big clock chimed as I made it to the door. The rank of protesters had already dispersed. Next stop on the Fine Chemical social calendar is, arguably, Chem Outsourcing in Long Branch, NJ, in September—a newish event that has risen swiftly in importance on the sector’s event roster.

There may be some even newer events between now and then. There probably are.

_____

Photos: Veterans for Peace by Rick Mullin. Luca Mantovani by Andreas Wagner for C&EN

 

Results

Quarterly and annual reports from the handful of publically-traded fine chemicals firms do not entirely coalesce as a neat narrative. They do, however continue to reflect a steady rebound from the sector’s post-recession bottom in 2010.

Ampac Fine Chemicals, a division of American Pacific, reported a 55% increase in revenues on undisclosed sales in the first quarter of fiscal 2012, which ended on December 31, 2011. Revenues increased to $21.5 million compared to $13.9 million in the first quarter of 2011. This reduced operating loss from $3.6 million in the first quarter last year to $1.2 million. Ampac attributes this reduction to an increase in production volume and improved gross profit. “Ampac continues to implement process improvements which are designed to increase manufacturing throughput rates and lower unit production costs,” the firm said in its earnings release.

Sales at Cambrex for the fourth quarter of 2011 reached $67.1 million, 5.7% over the same period in 2010. The company attributes the gain to increased demand for an API manufactured under a long-term supply contract, as well as a recent customer product approval and higher generic API sales. Increased business in controlled substances also lifted results.

The two Swiss companies in the group, Siegfried and Lonza, have published their annual results. Seigfried reported a 4% increase in sales in 2011 to $361 million. The company charted net profits of $10 million. Seigfried says it achieved growth in both exclusive synthesis and in the production of active ingredients in its generics portfolio. The year marked a return to profitability for the company, which, after two years of not paying a dividend, is proposing a $1.1 (1 Swiss franc) per-share dividend.

At Lonza, which made a major investment in acquiring specialties firm Arch Chemical last year, results are reported before and after the acquisition with sales at $2.8 billion before and $3 billion after. The firm reports profits of $209 million after the acquisition. Lonza, which fired CEO Stefan Borgas earlier this year, boasts of establishing itself as a clear global leader in microbial control, with the acquisition of Arch, and custom manufacturing, where it delivered sales growth despite challenges such as the strong Swiss franc and higher and more volatile raw material prices.

As  suggested in Cambrex’s breakdown, success in this sector is often tied to one or a few major contracts. There is still a lot of shuffling in the landscape, as drug companies bring business back from Asia and continue to evolve from in-house to outsourced API production. But overcapacity continues to cloud the view going forward.

Next stop, the annual DCAT dinner on March 15 in New York City—Deal-making Central in the suites of the Waldorf Astoria. We will see how the results above stack up with those shared by the many privately-held firms in the business.

This year’s headliner, former U.S. president George W. Bush, joins the coterie of top-dollar speakers, including former president Bill Clinton and former Duchess of York Sarah Ferguson (and former California governor Arnold Schwarzenegger), who have captivated the gathering in years past. Apparently W. is a big draw for this crowd, as the tables appear to be sold out!

Where Y’at?

Crew Babylon went early and often to their throws on St. Charles Avenue last night. Beads, caps, and cups rained down on enthusiastic Mardi Gras revelers, many with Informex name tags on strings of green, gold, or purple beads (courtesy of Chemical & Engineering News).

Informex still seems at home in New Orleans, the city that hosted the event every year in the late 1990s and early 2000s. The exhibition was lively, even if the aisles seemed a bit lightly traveled this year. Discussions centered on reorganization and consolidation—and the need for more of both.

There have been several changes of the guard following the surprise announcement last month of the departure of Stefan Borgas, Lonza’s CEO. Laura Coppi has been appointed general manager of Fabbrica Italiana Sintetici (FIS), taking the place of Roger LaForce, who surprised everyone in December with his decision to leave the company. A synthetic organic chemist, Coppi comes to FIS having held various R&D management positions at Zambon (parent company of drug actives maker ZaCh System), Davos Pharma, Wyeth, and Archimica. The last two positions ended rather abruptly when those companies were acquired. Coppi told me at Informex that she decided to enjoy the nice spring weather last year after the Italian firm Euticals acquired Archimica. Her sabbatical ended with the call from FIS.

LaForce, making the rounds at Informex, said he will take the position of managing director at his successor’s old employer, ZaCh System, later this. This will be LaForce’s third run in a row managing an Italian or Swiss-Italian family business. He left Helsinn in Biasca, Switzerland, before taking the job at FIS, where he is credited with strengthening the firm’s global marketing and establishing a sales arm in China. He also did the groundwork for the acquisition of Delmar Chemicals, a privately-owned company in Montreal that specializes in process optimization, scale-up, and small-scale cGMP synthesis of active pharmaceutical ingredients.

Why LaForce left FIS is the subject of some speculation. Much goes on behind closed doors at family-owned companies. But Informex attendees were more wrapped up in pondering the question of what happened to Borgas, given that Lonza did not have the kind of catastrophic earnings last year that generally result in the ouster of a CEO. Some speculate he is paying the price for the acquisition of Arch Chemicals last year, an attempt on the part of the world’s largest fine chemicals and biologics firm to add a solid third leg in specialties. The move still looks good on paper.

A more recent surprise is the exit of Uwe Brunk, managing director of Saltigo’s agricultural and fine chemicals business group. A company press release at Informex said Brunk left the company, “at his own request.” He has not yet surfaced. Meanwhile, Joerg Schneider will take his place at the helm of ag chem and industrial fine chemicals unit. Schneider, who joined Bayer in 1978, most recently managed the firm’s elastomers business in Brazil.

One other change at the top came up in discussions. Chiral Quest, which announced it will purchase a manufacturing facility in Jiangxi, China, will also appoint the current owner of the plant to the position of CEO, said Ian Lennon, senior vice president of business development. Chiral Quest has not disclosed which facility it is in the process of acquiring. Xumu Zhang, Chiral Quest’s founder, will step down from the position of interim CEO, which he took on with the exit of Joseph Marasco last year. Lennon says the company’s new chief has a lot of manufacturing experience, which is something Chiral Quest needs at the top.

The small pile-up of changes might be coincidental, or they might reflect the reorganization wave in fine chemicals. That wave, in turn, reflects efficiency drives at the big pharma companies, who were largely absent from the affair in New Orleans. Perhaps their travel budget have been cut back. Giles Cottier, CEO of Sigma-Aldrich’s SAFC business, says the big story this year is an old one: “Too much extra capacity.” The glut, he points out, is exacerbated by the continuing trend of big pharma exiting manufacturing.

The drug companies are, however, returning from Asia. Mark Griffiths, CEO of Carbogen Amcis, the Swiss firm, points out that the return of business from China and India seems like good news, except that it will likely mean that competition for the business will result in lower prices for contract API services. “So the cycle starts again,” he said.

Attendees were for the most part up-beat this year, some citing record sales growth for 2011. A lot of the good news, however, results from a rebound off the bottom in 2010, a year that for many companies marked a record low for sales. While others dared to rejoice, Cottier and Griffiths were among those scowling at the market fundamentals on the horizon. “There may have been a [sales] spike for some companies this year,” said Cottier. “But I am not sold on the optimism.”

Be that as it may, the clouds are breaking over the Quarter for the first time in a week, and Krewe of Endymion is getting dressed for the big parade tomorrow night. Oh, and welcome to Fine Line, C&EN’s new fine chemicals blog! This is post No. 1, right? Laissez les bons temps rouler!