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Business

March 13, 2006
Volume 84, Number 11
pp. 24-26

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Custom chemical manufacturers showed renewed faith in their industry at this year's Informex

Lisa M. Jarvis

Cautious optimism for healthier times had been the mantra repeated over and over again at gatherings of the custom chemical manufacturing industry. Finally, after several long and challenging years, the spell appears to have worked its magic.

Photo By Rick Mullin

OPTIMISTICALLY CAUTIOUS Informex attendees were more upbeat than in recent years.

Companies attending the recent Informex custom chemicals exhibition in Orlando, Fla., reported renewed investment in their businesses, albeit in more measured terms than in the earlier heyday of pricey acquisitions and major capacity expansions. At the same time, the industry is adjusting to the reality of fierce competition from Asia, and several companies laid out their strategies for India.

Higher spirits at Informex came despite a slowdown at the custom manufacturing industry's primary customer base, the pharmaceutical industry. Though pharma companies have yet to make real strides to improve productivity-new drug approvals dropped to a 10-year low in 2005-many of them have started to cut back internal capacity and appear to be again recognizing the value in outsourcing.

With custom manufacturers also paring back manufacturing in recent years, "capacity is getting tight," said Ralf Pfirmann, global director of Clariant's pharmaceutical fine chemicals business. Though Pfirmann cautioned that "the really healthy portfolio will come several years down the road," he noted that customers can no longer expect short lead times for projects.

Companies are adjusting to the new world order in the custom chemical manufacturing industry.

As a result, custom manufacturers are finally in a position to put money back into their businesses. For its part, Clariant continues to make modest investments across its production network to support existing and future projects. Having recently completed a $5 million upgrade to its Springfield, Mo., unit, the company announced that it will put another $8 million into the site to prepare for the production of an antiviral intermediate. The expansion is scheduled for completion in June, and production of the intermediate should begin by the second half of the year.

At Informex, Italian custom synthesis company FIS unveiled both small- and large-scale manufacturing expansions, which add to the $120 million the company has invested over the past 10 years in its Montecchio, Italy, facility.

In 2005, FIS opened three current Good Manufacturing Practices (cGMP) kilo labs at the site to widen the range of services available to its customers. Kilo labs installed last April for active pharmaceutical ingredients (APIs) and steroids are currently in use, while a cytotoxics kilo lab is scheduled to be operational by the end of the third quarter.

The cytotoxics lab complements an existing commercial-scale production suite at Montecchio, installed in 2003 for a specific customer project. The addition of smaller scale production capabilities will help feed more cytotoxics into the company's pipeline, said Stephen N. DiSalvo, U.S. area manager for FIS's custom manufacturing division.

In a similar linkup, a commercial-scale steroid production unit is also being added at Montecchio to support a project coming out of the new kilo lab.

The company is also installing a cGMP production unit at its Termoli, Italy, facility, which previously had been dedicated to non-cGMP manufacture of intermediates. The new unit is expected to be completed by the end of the year.

Similarly, North American fine chemicals manufacturers announced the opening of new capacity for pharmaceutical chemical production.

Ferro Pfanstiehl Laboratories has commissioned a new Class IV containment kilo lab in Waukegan, Ill., for low-volume production of high-potency APIs. John A. Minatelli, senior director for commercial development, said Pfanstiehl's existing facility primarily serves pharmaceutical companies with drugs in Phase II or III of clinical development. The $4.3 million addition, he said, offers production quantities up to 5 kg for customers with preclinical or Phase I compounds.

Alphora Research, a specialist in API technology development services, also recently opened a kilo lab at its Mississauga, Ontario, site. Alphora was launched in late 2003 by Jan Oudenes, an entrepreneur who earlier started Torcan, a Canadian fine chemicals company that Avecia acquired in 2000. It now has 30 employees.

Unlike the one at Pfanstiehl, Alphora's kilo lab doesn't complement a larger facility, and Business Director Geoff Evans said the company has no plans to add capacity to try to serve all stages of the drug development process. "The one-stop-shop concept can work, but not for us," he said. "You run the risk that your science shifts to supporting the capacity, and you lose interest in the early-stage work."

Another niche player, American Peptide, said it plans later this year to invest roughly $10 million to expand a large-scale cGMP peptides manufacturing plant in Vista, Calif. New equipment will enable peptide production up to the 50-kg scale.

Although best known for its catalog peptides business, American Peptide is gaining recognition for custom peptides manufacturing. Currently, American Peptide is producing two commercialized peptide drugs. The drug master file has been completed for a third product, with a New Drug Application expected to be filed later this year. As such, "we expect to reach maximum capacity in 2007 and will need to build new capacity in late 2006/early 2007 to meet business demand," said Chris Bai, the firm's president and chief executive officer.

Back in Europe, Helsinn recently increased capacity at two European facilities, adding 8,000 L of reactor capacity in Biasca, Switzerland, and a 6,000-L reactor with receiving vessels and drying capacity in Dublin, Ireland, according to Gabriel Haering, commercial director. Helsinn is expanding its production to meet current customer needs and accommodate projects advancing from lab-scale production.

In parallel with investment in internal capabilities, companies are adjusting to the new world order in the custom chemical manufacturing industry. Indian companies have become formidable competitors, and some U.S. and European companies are reacting by establishing or expanding their strategies in India.

At Informex, Degussa's exclusive synthesis unit unveiled the next step in its India strategy, a long-term nonexclusive production agreement with Mumbai-based contract manufacturer Hikal. The pact allows a customer to tap into the cost competitiveness of an Asian supplier while also capturing the technology expertise Degussa can offer, said Rudolf Hanko, vice president of the exclusive synthesis business.

One product is already being manufactured in India under the agreement, with "more to follow," Hanko said.

Degussa's first step into India came in late 2004, when the company opened R&D facilities in Mumbai. The latest move is part of a greater push into the region. "As a next step, we want to be the majority owner of a manufacturing site in Asia," Hanko said.

International Specialty Products is also expanding in India. The company put down roots in the country in late 2005 with the opening of the ISP India Technical Center in Hyderabad, intended to provide R&D support for ISP Pharma Technologies and customer support for its excipients business.

On the basis of strong initial customer interest, ISP expects to quickly outgrow the Hyderabad facility, which currently employs 10 researchers. "We're now exploring larger sites with room to expand," said Albert W. Brzeczko, vice president of global pharma R&D at ISP. His goal in the next three to five years is to increase headcount at the site to 50. The company may even consider expanding its activities in India into commercial manufacturing, which could include formulation or finished-product operations.

Research Triangle Park, N.C.-based CiVentiChem, which has since 2002 performed contract research and custom synthesis in India through its subsidiary Indus BioSciences, is expanding its manufacturing capabilities in the region. CiVentiChem is making an initial $2 million investment in a cGMP pilot plant in Hyderabad, India, that should be operating by the end of the year, according to President Bhaskar R. Venepalli. Venepalli said customers, including Eli Lilly & Co., Cephalon, Novartis, and Amgen, are now more willing to work with contract manufacturers with operations in India than they were two years ago because of new laws protecting intellectual property. He says the company will eventually spend about $10 million on the facility.

While Western players are making modest investments at home and taking their first small steps in their Indian strategies, their efforts could be complicated by Indian companies that are themselves forging full force into the West.

For example, Nicholas Piramal announced at Informex its ambition of becoming a top-three player in the global custom manufacturing market. The company's custom manufacturing business currently brings in about $70 million in sales, a figure that Executive Director Michael J. Fernandes said would need to grow to the $350 million to $400 million range to put it among the top three.

As a first step, the company bought Avecia Pharmaceuticals late last year. Fernandes also sees finished-dose drug formulation becoming an integral part of a full offering to pharma customers. He said Nicholas Piramal, which already has formulation assets in India, is considering adding formulation capacity at the former Avecia API facility in Toronto.

The company believes such organic growth will take it a long way toward its ambition, but it is also looking at adding technology assets, particularly those that can bring down the cost of large-scale manufacturing, as well as alliances and acquisitions. "We need to look at other opportunities to create and complete this global footprint," Fernandes said.

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