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BUSINESS
COVER STORY
March 12, 2001
Volume 79, Number 11
CENEAR 79 11 pp.27-42
ISSN 0009-2347
[Previous Story] [Next Story]

ONE-STOP SHOP
The linking of early-phase and commercial-scale pharmaceutical chemical outsourcing is on the rise, but not everyone likes the idea

MICHAEL MCCOY, C&EN NORTHEAST NEWS BUREAU

From grams to tons and everything in between. That's the full spectrum of manufacturing outsource services that many fine chemicals producers want to offer to the drug industry. Several major pharmaceutical chemical companies are in the process of assembling such a spectrum of services. However, there are significant corporate holdouts to the one-stop shopping concept, and even among those firms embracing it, a number of business models are emerging.

cover1
ACQUISITION Torcan's Canadian operation is already working closely with Avecia in England.
Courtesy of Torcan
The concept is simple enough: All commercial pharmaceuticals start out as little more than an idea in a drug company lab. To test the idea, the company needs small quantities for in vitro and toxicological studies. Next it needs slightly larger batches for Phase I and II clinical trials, then even larger quantities for Phase III trials, and finally full-scale, long-term supplies for commercial launch.

Traditionally, the early-stage quantities were either made in-house by the drug company or supplied by small, independent outfits known variously as early-phase, process development, contract research, or "kilo lab" firms. But, seeing small-quantity supply both as a good business in its own right and as the first stop on the road to commercial-scale production, many of the major contract manufacturers have been setting themselves up in the kilo lab business.

 THIS INTEGRATION PROCESS is now in full swing through a surprisingly broad collection of means--acquisitions both "upstream" and "downstream," investments in independent kilo labs, looser strategic alliances, and organic growth through the "carve-out" of in-house process development units.

Rhodia's $545 million acquisition of ChiRex, announced last July and completed Sept. 1, put the integration trend in the spotlight. Rhodia executives said that they were buying ChiRex as much for its $30 million contract development business as for its $100 million commercial fine chemicals manufacturing business. They have since mapped out a plan for shepherding successful development-scale customers on to large-scale Rhodia ChiRex plants (C&EN, Jan. 1, page 14).

Smaller deals have been appearing as well. In March 2000, PolyCarbon Industries, a development-stage pharmaceutical chemical maker founded in 1996 by a former ChemDesign executive, formed an alliance with the larger scale custom manufacturer Hickson Danchem in Danville, Va.

Solutia acquired two Swiss process development companies--CarboGen and Amcis--in early 2000, marking its entry into the pharmaceutical fine chemicals business. Avecia spent $40 million in May to acquire Torcan, a Canadian firm specializing in early-phase development and small-scale commercial manufacturing.

In November, Degussa formed a three-year, $5.3 million alliance with MediChem, a Chicago-area drug discovery and services company. The alliance is intended to provide customers of both firms with chemical quantities ranging "from a few grams or kilograms to several tons from a single supplier."

And in February 2001, Dixie Chemical announced a partnership with Seres Laboratories, a California process development and kilogram-scale production firm. The deal, Dixie's third in the past two years with a small-scale manufacturer, includes a 30% investment in Seres and an option to buy the rest after three years.

Loose alliances between kilo labs and larger scale manufacturers have existed for some time, but what makes most of the new deals different is that they are outright acquisitions or involve a permanent financial link between the two parties.

All three of Dixie's manufacturing alliances involve a financial commitment, according to Dixie President Gary L. Mossman. Dixie began a concerted push into pharmaceutical manufacturing in 1997. It linked up with the manufacturers' representative SST Corp. in 1998 and then in June 1999 acquired Chemo Dynamics, a gram- and kilo-scale producer in Sayerville, N.J.

Dixie followed in May 2000 with the purchase of a minority interest in Cedarburg Laboratories, a Wisconsin-based producer of intermediates and active ingredients for clinical trials and smaller commercial markets. Mossman says the Seres deal adds a West Coast presence to the network, which is called the Continuum Group.

7911bus3.ce Although Dixie is also augmenting its own large-scale fine chemicals manufacturing capabilities--a $12 million current Good Manufacturing Practices (cGMP) expansion started up in October at its Houston complex--Mossman says investing in existing companies is the faster way to the early-phase market and gets Dixie there without duplicating existing efforts.

Mossman says Dixie's strategy calls for financial ties with its partner companies to ensure close cooperation as production technology is transferred from the lab to the pilot plant to commercial scale. "Investment creates a level of comfort for customers, compared to a loose alliance where the parties can't share all the details," he says.

Others in the contract development and manufacturing businesses point to a series of alliances formed and disbanded by Cambrex Corp. as another reason why they insist on strong ties.

 STARTING in the mid-1990s, Cambrex, then focused mainly on the large-scale end of the contract manufacturing spectrum, formed alliances with FineTech in Israel, Oxford Asymmetry in England, and Albany Molecular Research in Albany, N.Y. It paid these process development firms to carry out R&D services in exchange for manufacturing rights on successful compounds.

For example, the agreement with Albany Molecular, signed in May 1997, called for Cambrex to spend a minimum of
$2.3 million over three years with Albany, which would develop processes designed to fit with Cambrex's cGMP manufacturing capabilities. Cambrex paid $1 million a year to Oxford Asymmetry for similar services starting in 1995.

However, according to Ron D. Carroll, Cambrex's vice president for technology, the alliances have ended one by one over the past 18 months--Oxford Asymmetry in late 1999 followed last year by Albany Molecular and then FineTech--as Cambrex moved into the process development business on its own.

Cambrex started in this direction in 1997 with the construction of two small-scale cGMP plants and the purchase of the Chiragene chiral technology from Celgene. It capped the move in January 2001 with the opening of its Center of Technical Excellence in North Brunswick, N.J.

Headed by Carroll, the center focuses on optimizing drug leads and determining synthesis pathways. It houses both a kilo lab and Chiragene, which is now Cambrex's contract research unit; a somewhat larger pilot plant is scheduled to open about a year from now.

The plan, Carroll says, is to help customers develop and scale up at the new center and then transfer successful products to one of Cambrex's large-scale pharmaceutical chemical facilities in the U.S. and Europe. Cambrex is doing on its own what the three kilo lab partners did, Carroll says; although some ties remain, Cambrex is essentially now a competitor with the companies that were once its partners.

The partings represent more than just Cambrex's evolution, however; they are part of the larger industry restructuring in which both process development firms and large-scale manufacturers are sorting out their priorities and finding the right partners.

For example, while Cambrex was moving upstream into process development, Albany Molecular was moving downstream into larger scale manufacturing. In late 1999, Cambrex helped fund the management buyout of a Nycomed Amersham pharmaceutical chemical plant in Rensselaer, N.Y. Albany now owns 37.5% of the operation, renamed Organichem, and has an option to buy the rest of it after three years. It's intended as a potential home for Albany's lab-quantity customers that are looking to scale up.

Oxford itself was acquired in September 2000 by Evotec BioSystems, a German specialist in high-throughput screening. Evotec OAI, as the company is now called, wants to create "one-stop shopping"--not in grams-to-tons chemical manufacturing, though, but in earlier stage drug and biotechnology services.

GIVEN THE TRANSIENCE of the fixed-term, fee-based alliances that Cambrex formed with Albany Molecular and Oxford, some industry observers question whether the model will work for MediChem and Degussa.

Rajni Aneja, MediChem's vice president for corporate development and one of the company executives involved in negotiating with Degussa, says that MediChem purposely chose an alliance that offered flexibility--and a graceful exit if necessary--because it was a new approach to business for the company.

Aneja says MediChem had known Degussa informally for some time, but, having just completed two acquisitions and a public stock offering, it wasn't ready for permanent ties. "We decided we wanted to test the waters," she says. "We said, 'Let's try this for three years and see how it goes.' "

SO FAR, Aneja says, the alliance is serving its purpose admirably. MediChem's drug industry customers like the idea that a partner is available for scale-up, she says. And at the recent Informex custom manufacturing trade show in New Orleans, she notes, MediChem was approached by companies that might not have considered it previously.

"There are companies that would not have spoken to us because they would have figured, 'MediChem can only go to 10 kilos; then we'll have the headache of transferring the process,' " she says. "Now, companies know we have a procedure by which we can transfer, if and when it's needed."

With ChiRex and Torcan acquired, MediChem tied up with Degussa, and Albany Molecular moving downstream on its own, many of the major independent players in process development are in some kind of deal. And among at least some of those remaining, there's a big push to link up while strong partners are left.

James A. Scozzie, president of Ricerca, a company that provides chemical and laboratory development services to the drug industry, indicates that his firm is actively seeking an alliance with a contract manufacturer.

Ricerca's niche is offering a combination of laboratory services, such as drug safety and metabolism profiles, and chemical services like process development and kilo-scale manufacturing--all at one site in Concord, Ohio. In January, the company opened three new cGMP kilo-scale preparation labs, increasing the scope of its chemical offerings.

Ricerca has developed a good reputation in the early stages of drug development, Scozzie says, but the company wants to offer its customers more. In particular, he'd like to be able to assist small or "virtual" drug and biotechnology firms that have limited options in larger scale production. "We want to offer a continuum for clients that want to place work into a manufacturing facility," he says.

Scozzie says he's wary of informal agreements with contract manufacturers. "We've learned in the past that a loose alliance is not worth doing," he says, pointing to an arrangement Ricerca formed with a European environmental and safety lab that proved ineffective. "It's no more than a preferred vendor relationship," he comments.

Ricerca is currently in negotiations on an alliance with a contract manufacturer that Scozzie hopes will be completed in the next two months. He says the company is seeking a firmly written agreement that includes some form of financial commitment, be it monetary investment, business guarantees, or comarketing agreements.

 INDUSTRY SOURCES say Pharm-Eco Laboratories, a Devens, Mass., firm that's considered one of the top five players in process development, is up for sale and may be acquired by a larger chemical company looking to move its contract manufacturing business upstream.

Lee Piver, Pharm-Eco's vice president of marketing and business development, won't comment on the rumor, but he does say he considers it inevitable that early-phase firms in general will become part of larger organizations. "The whole trend is effective management of the supply chain," he says.

Interest is equally strong on the part of some of the big contract manufacturers that haven't partnered up yet. For example, Michael J. Reardon, commercial development manager with Dow Contract Manufacturing Services, says Dow is watching with interest as the business evolves.

Reardon notes that Dow entered the development-scale biopharmaceutical business through its November 2000 acquisition of Collaborative Bioalliance. The company, now known as Dow Contract Manufacturing Services, operates a fermentation plant in Smithfield, R.I., that supplies pharmaceutical proteins for clinical trials and niche commercial markets.

For small-molecule drugs, Dow has pilot-plant facilities of its own and some capabilities to do early-phase development in support of larger manufacturing opportunities, Reardon says. At the same time, it has been approached by kilo-scale companies that want closer ties with a large-scale manufacturer. "Our pilot plants are very busy right now," he says. "We will continue to look for collaborations that will allow us to do things faster."

The trick for larger companies entering the early-phase business is to maintain the entrepreneurial culture that made these companies successful and desirable in the first place.

According to Peter Jackson, pharmaceutical products business manager at Avecia, meshing two cultures was one of the biggest challenges for Avecia following its purchase of Torcan.

Jackson says Avecia started supplying kilogram quantities of intermediates and active pharmaceutical ingredients (APIs) a few years ago at the request of customers that were overwhelmed by the number of leads coming out of combinatorial chemistry efforts. "We were working with people on late-stage drugs who started asking if we can make small quantities for products early in clinical trials," he says.

Avecia obliged, he says, but soon realized that its business model didn't mesh with customer needs in this part of the market. In response, the company began to carve out a separate early-phase unit while searching for an acquisition that would cement its efforts in this area.

The result, Jackson says, was the Torcan purchase last May and the creation, in January, of a new unit in Avecia's fine chemicals business. Called Chemical Technology, the unit is made up of Torcan and the early-phase business that Avecia developed in-house.

Jackson acknowledges that the traditional Avecia fine chemicals business and Torcan serve different markets using different philosophies. "We see the world populated by large pharmaceutical companies with whom we have very good relationships," he says. "Torcan sees the world as hundreds of smaller companies that it can call on."

GIRL
READY SUPPLY Sigma-Aldrich's kilo-scale customers can benefit from its base in standard reagent production.
Courtesy of Sigma-Aldrich

But the early-phase development business thrives on small and virtual pharmaceutical producers, and the last thing Avecia wants to do is kill a business culture attuned to serving them. After all, many of tomorrow's successful drugs will come from this kind of firm.

To ensure that nothing's lost, the chemical technology unit is staying under Torcan's president, Jan Oudenes. Also, the chemical technology operations at Avecia's British plants are being set up as "mini Torcans," Jackson says. They will operate outside the prevailing "functional" model at these sites in which engineering, quality assurance, and the like work across all site operations.

 THE TORCAN APPROACH, he says, ensures that things get done quickly and that the special climate of the early-phase business is preserved. "The chemical engineer sits next to the chemist, who sits next to the analyst," Jackson says. "Speed of response is critical in early development."

Jay F. Stearns, chief executive officer of Seres, the company that is now aligned with Dixie Chemical, says he will be interested to see how companies like Torcan fare under new, big-company owners.

Stearns says he started considering an alliance for Seres about two years ago. The one-stop shopping concept was coming into vogue, and a few potential kilo-scale customers had opted not to go with Seres because it couldn't offer larger volume production down the road.

But despite many discussions and several offers--generally from midsized, publicly traded companies--Stearns was reluctant to sell the company outright. He had assembled what he believes is a strong group of chemists with the flexibility to tackle everything from process discovery to commercial-scale production of APIs. "I felt there would be a big culture change pretty quickly," he says.

Dixie then approached Seres suggesting a graduated deal--the purchase of a 30% interest with an option for more later on. "I liked it," Stearns comments, "because it preserved the culture, and I have a strong commitment to keeping my team together."

Stearns and Dixie's Mossman say the upside of the deal is apparent already. For example, Dixie recently signed a five-year contract to perform multiple steps of a complex drug synthesis for a company that did its early development work with Seres. The product in question is expected to go commercial later this year.

Likewise, Avecia's Jackson says a recent multistep synthesis on a Japanese company's Phase I drug shows the Torcan acquisition at work. Avecia handled the first five stages of chemistry, when raw material volumes were high, at its facilities in England. The later, lower volume stages were conducted at Torcan's Aurora, Ontario, plant. Now that the drug is approaching Phase II, Jackson says, the scale exceeds Torcan's capability, so the whole process will be carried out in England.

Despite such success stories, a significant group of companies on both sides of the business is resisting the call to link up. These firms argue that ties between the two industry tiers are simply not in their own or their customers' best interests.

Edwin Moses, president of Evotec OAI, says he has learned from experience that the cultural differences between development firms and large-scale contract manufacturers can be so great as to render any kind of exclusive ties unproductive.

Moses says OAI entered an alliance with Cambrex and a similar one with Eastman Chemical with the view that ties to a large-scale manufacturer were necessary for a development firm like OAI. Since then, he says, "our view has changed quite a bit."

"We learned a lot, and they did, too," Moses says of the two pacts. "But we saw some pretty major cultural differences between two organizations working in different parts of the product development chain. It wasn't Cambrex-based or Eastman-based. It had to do with the difference between the large production companies and a rapid process development firm." Both deals ended in 1999.

 FIRMS LIKE OAI are set up to move rapidly from the moment a client approaches them, Moses says, often delivering a gram- or kilo-scale production proposal in just a week or two. Large-scale manufacturers, in contrast, tend to be more "considered," he says, because the economics of manufacture are so critical for them. "We run on speed and innovation," he says. "They have to make the molecule at an economical price."

Although OAI doesn't want to enter the commercial-scale manufacturing realm, it does want to be able to accompany its clients up to that point without having to turn to third parties for help, especially on high-volume drug intermediates.

To that end OAI has built a pilot plant adjacent to its existing laboratory in Milton Park, England. The facility, which started up earlier this year, quadruples OAI's capacity and enables it to provide clients with batches of up to hundreds of kilograms.

After clinical trials are complete and a drug's success seems ensured, OAI will work with clients on transferring production, without bias, to a long-term commercial-scale facility. "Phase III is transferable to a lot of manufacturers," Moses says. "There's no need to lock ourselves into one. It's better for us and for the client to be flexible."

While Moses believes alliances with large-scale manufacturers aren't critical, he has an even dimmer view of the recent acquisitions of early-phase companies. "It seems a little like pharmaceutical companies buying biotechnology companies to get at innovation," he says. "Pretty well in nearly every case, those have turned out to be disastrous. You are acquiring people, a culture, and an attitude, but those people don't hang around in a big corporate organization. You lose the very things that you wanted."

Moses' views have been shaped by experience, but some newcomers to early-phase development feel the same way. One is IRIX Pharmaceuticals, a four-year-old company founded in Florence, S.C., by former Hoffmann-La Roche executives.

Peboc Kilo Lab
CUSTOMER SUPPORT New Eastman kilo lab in Llangefni, Wales, includes a 100-L Buchi reactor.
Courtesy of Eastman

Gary McGhee, IRIX's vice president for sales and marketing and a one-time SmithKline Beecham employee, says he and other IRIX staffers have "taken our 'big pharma' experience and tried to turn it into a company that provides services in the fashion that we desired when we were on the customer side."

For IRIX, this means lots of chemists and chemical engineers, and it means speed. McGhee claims IRIX is unbeatable in proposal responses, providing them in two to three days.

 BUT SPEED is also important when it comes to installing new chemistries and new facilities. IRIX, for example, opened a six-station pilot plant in December after just six months of construction, he says. A commercial facility for production of niche APIs is being designed now.

Several large contract manufacturers have inquired about buying IRIX, McGhee says, but the company intends to stay independent, possibly making a public stock offering later on. "Speed comes before everything for customers with tight clinical programs, so we think nimbleness is very important," he says. Whether the newly acquired early-phase companies will be able to maintain this nimbleness "is a question mark," he adds.

Regis Technologies, a midsized manufacturer of APIs and intermediates ranging from grams to low-ton quantities, is another early-phase company going it alone.

Lori A. Hoffman, a senior project manager, says Regis' owners have been approached by several large-scale manufacturers about being acquired, but want to keep it in family hands. At the same time, she adds, the company is hesitant to enter an alliance that would link it closely to another firm over which it has no control.

Regis has transferred products to other vendors when the scale of production exceeded its capabilities, Hoffman says. "But we feel it's the customers' right to choose them."

Plus, she notes, Regis couldn't easily police the activity of a partner company that may or may not have the same standards. "Customers like our interaction and communication, and we're afraid others may not give the same level of service or GMP," she says. "If customers are disappointed in someone we chose as a next-step vendor, they will be disappointed in us as well."

Regis is taking steps to accommodate internally at least some of its customers that would go elsewhere with successful pharmaceuticals. The company recently commissioned a 500-gal reactor at its Morton Grove, Ill., plant that can turn out as much as 2 tons of a typical bulk API or intermediate.

Holdout early-phase firms like Oxford, IRIX, and Regis have like-minded brethren in the commercial-scale business. Companies such as Eastman, Lonza, and DSM have decided that they will stick with what they know best: making medium to large volumes of intermediates and APIs on a long-term basis.

Mark Frishberg, commercial development manager at Eastman Fine Chemicals, says his business' expertise is the scale-up of laboratory processes to pilot-scale and commercial production levels. Eastman tries to differentiate itself with innovative route development and use of proprietary technology in carbohydrate and epoxybutene chemistry and drug delivery.

That's not to say that Eastman doesn't do kilo-scale manufacturing. In fact, the company opened cGMP kilo labs at its Batesville, Ark., and Llangefni, Wales, facilities last year. But Frishberg says these plants are intended to support Eastman's commercial customers, not put the company into the early-phase market. "They are there because certain customers have business that starts out at that level," he says. "They say, 'If you want to be there at the end, you have to be there at the beginning.' "

 LIKEWISE, LONZA has no plans to become a contract research firm, according to Simon Edwards, director and key account manager for Lonza's exclusive synthesis unit. "That's not our business, and I don't see what we can add to it," he says.

Lonza does operate pilot-scale facilities that are used to make small-scale quantities for customers, Edwards says. However, these facilities aren't employed on a fee-for-service basis as they would be at a dedicated early-phase company. Rather, Lonza uses its pilot capabilities largely to aid in the synthesis route development process.

Edwards acknowledges that contract manufacturers with an early-phase subsidiary or alliance may get an early look at products that are coming through their customers' pipeline. But he argues that big and small drug companies are going to evaluate their commercial manufacturing independent of any development work that went on beforehand. That's where Lonza, a large-scale specialist, will make its case, he says.

DSM Fine Chemicals takes a similar view of the development-phase business, according to Nitin Parekh, the firm's vice president for business development and technology in North America.

As a full-service pharmaceutical chemical supplier, DSM has the developmental and pilot-plant capabilities needed to supply gram- and kilo-scale quantities. However, the company is selective in the way it offers these capabilities to its customers, seeing them mainly as steps on the road to full-scale production. "We want to understand the logic behind the 5 kg," Parekh says.

With its acquisition of Catalytica last year, he notes, DSM offers outsourcing services from chemical development all the way to the manufacture of finished tablets, capsules, and injectables. But this very breadth means selection is critical for DSM. "Sure, we can do preclinical and kilo quantities," Parekh says. "But the question is, do we do it for everyone or selectively based on complementary technology"

 OUTSIDE OBSERVERS of the custom chemical industry say that, in the final analysis, whether or not the early-phase and manufacturing pieces of the business are integrated is often a minor consideration for pharmaceutical makers, in light of the myriad factors that go into their outsourcing decisions.

Peter Pollak, a former Lonza executive now doing consulting work out of Reinach, Switzerland, points out that the two pieces of the business are fundamentally different. "It's two different pairs of shoes: whether you are making small quantities for initial tests or industrial quantities," he says.

Generally, he notes, the research department of a large pharmaceutical company is buying the samples or kilogram amounts, and the materials management group is buying industrial quantities for approved drugs. The materials group has different purchasing criteria that it weighs independently of relationships that exist with the research department.

"It's not a deciding factor whether one has it or not," Pollak says of the early-phase business. "It's nice to have but not a must. Other elements decide whether one goes with, say, Clariant or DSM."

A similar view is held by John Thottathil, director of process R&D at Bristol-Myers Squibb's Pharmaceutical Research Institute in New Brunswick, N.J. Thottathil is involved in outsourcing intermediate and API production for Bristol-Myers, and over the past two years he has visited many companies in both the early-phase and commercial-scale sectors.

Thottathil acknowledges that pharmaceutical industry demand for early-phase services is rising rapidly. In order to weed out the dead ends as quickly as possible, companies want to screen a wide variety of drug candidates; to accomplish this, they often require outside help in synthesizing the needed test quantities.

But he also points out that sourcing decisions made about these trial amounts aren't necessarily linked to commercial production. "The big pharmaceutical companies aren't going to pick a fine chemicals supplier just because it is linked to an early-phase company," he says. "Conversely, when I choose a company to make the first 50 kilos of a molecule, I'm not picking it with the next 5,000 kilos in mind."

Describing the chemistry side of new drug development, Thottathil says a pharmaceutical company's initial need is typically for 10 to 30 kg of an active ingredient or advanced intermediate. The company will want this supply very fast but won't be highly concerned with the economics of the synthesis route.

If the drug proceeds successfully, the company will want another 50 to 100 kg several months later for further tests and trials. If it continues to do well, the company might seek another 100 to 250 kg some time after that. With each order, speed of response and reliability are key factors.

Thottathil says most drug companies will want to stick with the same supplier through its various kilo-scale orders. However, it becomes a new game for those few compounds that make it through years of tests and clinical trials and are poised for long-term production. "The rules change," he says.

Suddenly, the cost of outsourced production becomes much more important. Multiple other variables such as the number of synthesis steps to be outsourced, taxes, patent considerations, location of finished production, and technology and capacity fit all come into play.

Generally, Thottathil says, two or more commercial-scale companies will be asked to bid on a significant outsourcing project. Competition is fierce, he says, because the new drug pipeline isn't dispensing as many products as the pharmaceutical industry hoped it would.

In those cases where the early-phase production was handled by a company that can also offer commercial-scale manufacturing, Thottathil says, that firm will likely be given the opportunity to bid on the commercial business--in competition with others. "We are giving them a chance, an opportunity, that's all," he says.

Some in the industry aren't convinced that getting that chance is reason enough to tie two very different parts of the pharmaceutical outsourcing business together. But for the companies doing the tying, a chance is all they want.

Top

HOMEGROWN
Some Seek To Develop An Early-Phase Business In-House

Acquisitions and alliances aren't the only ways to create a contract development business. In the case of companies like Sigma-Aldrich, Clariant, and ChemFirst, the business was carved out of existing assets.

PHOTO1
ADDITIONAL STEP Sigma-Aldrich can help customers scale up at its recently expanded plant in Sheboygan, Wis.
In one sense, Sigma-Aldrich has been in the early-phase production business for more than 25 years through the well-known Sigma, Aldrich, and Fluka catalogs where laboratory chemists can buy some 85,000 compounds off the shelf.

Jai Nagarkatti, president of Sigma-Aldrich Fine Chemicals, says the company's base in lab reagents is a first step toward the larger scale custom manufacture of intermediates and active pharmaceutical ingredients (APIs).

Nagarkatti notes that Sigma-Aldrich can readily supply bulk quantities of its standard reagents. The company manufactures roughly 40% of the catalog items itself and has close ties to its suppliers of the rest. As a result, he says, customer requests for unique compounds can often be met by a synthesis that has its roots in an existing Sigma-Aldrich product.

Sigma-Aldrich currently produces 15 APIs for various pharmaceutical customers. All of these firms, Nagarkatti says, started out as typical reagent customers and continued with Sigma-Aldrich for the development of unique synthesis routes and production scale-up.

A few of these products are commercial drugs today, but Sigma-Aldrich is most comfortable supplying compounds for drug discovery and clinical trials, Nagarkatti says. "We haven't intentionally gone into commercial API manufacture," he says. "I'd rather have many singles than one home run."

Clariant entered the custom manufacturing big leagues--and the contract development business--early last year when it acquired BTP, a British firm that had earlier assembled, mainly through acquisition, a fine chemicals business known as Archimica.

Graham Howe, a former Archimica executive and now general manager of the development business, says the unit was launched early last year as an Archimica initiative. Clariant began its takeover of BTP soon thereafter, though, so the unit wasn't formally debuted until November.

The business, called the Clariant Life Science Molecules Synthesis Center, draws on Clariant facilities in Frankfurt as well as former Archimica units in Morecambe, England, and Gainesville, Fla. It provides discovery and development services for drug, agrochemical, and specialty chemicals companies, Howe says, making quantities ranging from 5 g to as much as 200 kg.

Although the center is part of the broader Life Science Molecules organization, it is a stand-alone global business unit, Howe says, with its own profit-and-loss statement (P&L). "It's run as a profit center," he says. "We have to be stand-alone competitive against others in the market."

Howe says synthesis center customers with successful products are encouraged to scale up within Clariant but aren't in any way pressured to do so. "We have relationships with customers that don't go on to manufacture with Clariant," he says.

For those that do, however, Howe says Clariant provides a much smoother transition than can be offered by a mere development firm-contract manufacturer alliance. "There's a huge difference between an alliance and being part of one organization," he says. Such company-to-company transfers, he points out, can come with royalties or other finders' fees that render them uncompetitive.

ChemFirst Fine Chemicals, a smaller U.S. custom chemicals manufacturer, created a similar contract research organization about two-and-a-half years ago, according to its president, Scott Martin.

At the time, Martin says, ChemFirst considered purchasing a small development firm, but asking prices were too high. "So we carved out an R&D group, put a director over it, and gave it its own P&L," he says. Managers were handed their own marketing budget and started actively promoting ChemFirst's capabilities in kilogram-scale synthesis.

Although still small compared with ChemFirst's commercial-scale custom manufacturing unit, the research unit--based in Dayton, Ohio, and called Chemical Services--is growing rapidly. Martin says sales last year were up 60% over 1999, and he expects a jump of another 50% this year.

The contract services unit is a moneymaker in its own right, Martin says, but it also serves to bring business into ChemFirst's larger custom chemical reactors. Already, two intermediates--for which ChemFirst came in as a drug company's secondary supplier--have gone from the services unit to larger scale production.

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DCAT DINNER
Helping People Do Business For 75 Years

On March 22, some 2,000 drug, chemical, and nutrition industry executives--many of them involved in the outsourcing industry--will don tuxedos and formal dresses and meet for a 75-year-old dinner event at the Waldorf-Astoria in New York City.

Sound anachronistic Perhaps it is, but getting together is precisely the point of the dinner and its sponsor, the Drug, Chemical & Allied Trades Association, or DCAT as it is generally known.

Formed in 1890 as the drug trade section of the New York Board of Trade, DCAT is among the country's oldest trade associations. The annual dinner, held since 1926, is one of the largest black-tie affairs to take place in New York City.

Percy C. Magnus, a DCAT official in the 1920s, saw the event as a "get-acquainted dinner where people from within the drug, chemical, and related industries would have an opportunity to become personally known to each other." That first dinner was attended by 150 men from an industry that was largely based in and around New York City.

Today, DCAT is made up of 375 companies with operations in 30 countries. The world and the way it communicates has changed vastly, yet the desire of people to meet face-to-face, shake hands, and talk is as strong as ever.

George M. Simmons, president of First Chemical Corp. and chairman of DCAT's 75th dinner, says the event remains unparalleled as a place for buyers and sellers in the drug and chemical industries to meet in this way. Simmons has been involved with DCAT since 1971 and is in line to become its president in November.

Simmons readily acknowledges that DCAT is not a typical trade organization. "We're not an advocacy group and have no plans to become one," he says. The industry has other organizations--such as the Synthetic Organic Chemical Manufacturers Association and the American Chemistry Council--that fill that role, he notes.

Rather, DCAT sees itself as the industry's premier business development organization, providing forums like the dinner where people can meet and exchange ideas on various subjects. Simmons admits that, in some circles, this is known as "networking."

In fact, DCAT is more than just a networking group. In addition to the dinner, DCAT hosts annual education programs in chemical processing and purchasing. It sponsors a health and nutrition seminar and annual meetings for both Western members and the association as a whole.

Proceeds from an annual golf tournament support scholarships for children of DCAT member company employees and provide grants to the National Science Teachers Association. To date, more than $500,000 has been awarded to students.

In all, some 200 volunteers from DCAT companies are involved on a board of directors and on standing committees working to make these and other events happen. Despite these efforts, though, the name DCAT continues to evoke one main thought among drug and chemical executives: the annual dinner in New York. As Simmons says, "It's a must-attend event."

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