FINE CHEMICALS ffirs.indd iffirs.indd i 12/17/2010 10:28:52 AM12/17/2010 10:28:52 AM FINE CHEMICALS SECOND EDITION Peter Pollak, PhD Reinach, Switzerland A JOHN WILEY & SONS, INC., PUBLICATION THE INDUSTRY AND THE BUSINESS ffirs01.indd iiiffirs01.indd iii 12/17/2010 10:28:52 AM12/17/2010 10:28:52 AM Copyright © 2011 by John Wiley & Sons, Inc. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. 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Pollak, Peter, 1934– TP200.F525 2010 660—dc22 2010033575 Printed in Singapore 10 9 8 7 6 5 4 3 2 1 ffirs02.indd ivffirs02.indd iv 12/20/2010 10:11:59 AM12/20/2010 10:11:59 AM To Maria, Barbara, and Paolo ffirs03.indd vffirs03.indd v 12/17/2010 10:28:53 AM12/17/2010 10:28:53 AM CONTENTS PREFACE TO THE SECOND EDITION xi PREFACE TO THE FIRST EDITION xiii ACKNOWLEDGMENTS xv PART I THE INDUSTRY 1 1. What Fine Chemicals Are 3 1.1 Defi nition 3 1.2 Positioning on the Value-Added Chain 5 2. The Fine Chemical Industry 8 2.1 Industry Structure 8 2.2 Fine Chemical/Custom Manufacturing Companies 9 2.3 Contract Research Organizations 15 2.4 Laboratory Chemical Suppliers 20 2.5 Mergers and Acquisitions (M&A) 21 3. Products 26 3.1 Small Molecules 26 3.2 Big Molecules 28 4. Technologies 32 4.1 Traditional Chemical Synthesis 32 4.2 Biotechnology 38 5. Facilities and Plants 49 5.1 Plant Design 49 5.2 Plant Operation 61 6. Research and Development 66 6.1 Objectives 67 6.2 Project Initiation 71 6.3 Project Execution and Management 71 vii ftoc.indd viiftoc.indd vii 12/17/2010 10:28:55 AM12/17/2010 10:28:55 AM viii CONTENTS 7. Cost Calculation 75 7.1 Investment Cost 75 7.2 Manufacturing Costs 76 8. Management Aspects 81 8.1 Risk/Reward Profi le 83 8.2 Performance Metrics and Benchmarking 86 8.3 Organization 88 Bibliography 91 PART II THE BUSINESS 93 9. Market Size and Structure 95 9.1 Fine Chemical Market Size 95 9.2 Market Breakdown by Major Applications 97 10. The Business Condition 100 10.1 Offer 101 10.2 Demand 103 11. Customer Base 107 11.1 Pharmaceutical Industry 107 11.2 Agrochemical Industry 115 11.3 Animal Health Industry 120 11.4 Other Specialty Chemical Industries 123 11.4.1 Adhesives and Sealants 126 11.4.2 Biocides 126 11.4.3 Catalysts and Enzymes 128 11.4.4 Dyestuffs and Pigments 131 11.4.5 Electronic Chemicals 132 11.4.6 Flavors and Fragrances (F&F) 134 11.4.7 Food and Feed Additives 136 11.4.8 Specialty Polymers 138 12. Marketing 141 12.1 Organization and Tasks 141 12.2 Target Products and Services 145 12.2.1 Exclusives: Custom Manufacturing 147 12.2.2 Nonexclusives: API-for-Generics 150 12.2.3 Standard Products 156 ftoc.indd viiiftoc.indd viii 12/17/2010 10:28:55 AM12/17/2010 10:28:55 AM CONTENTS ix 12.3 Target Markets: Geographic Regions and Customer Categories 156 12.4 Distribution Channels 162 12.5 Pricing 163 12.6 Intellectual Property Rights 169 12.7 Supply Contracts 170 12.8 Promotion 173 12.9 Network and Contact Development 175 12.10 Key Account Management 176 Bibliography 178 PART III OUTLOOK 179 13. General Trends and Growth Drivers 181 14. Globalization 184 14.1 Western Hemisphere 189 14.2 Eastern Hemisphere 192 14.3 Cooperation Models 195 15. Biotechnology 198 15.1 Small Molecules (White Biotechnology) 198 15.2 Big Molecules (Biopharmaceuticals) 199 16. Ethical Pharmaceutical Industry 203 16.1 Restructuring and Outsourcing 205 16.2 R&D Productivity 207 16.3 Business Impact 215 17. Generics 217 17.1 Small Molecule Generics 217 17.2 Biosimilars 221 18. Other Life Science Industries 224 18.1 Agro Fine Chemicals 224 18.2 Animal Health Industry 226 19. Contract Research Organizations 228 20. Conclusion: Who Is Fittest for the Future? 231 ftoc.indd ixftoc.indd ix 12/17/2010 10:28:55 AM12/17/2010 10:28:55 AM x CONTENTS Bibliography 236 Abbreviations 237 APPENDICES 241 A.1 Information Sources/Life Sciences 243 A.2 Checklist for New Product Evaluation 248 A.3 Project Schedule, Custom Manufacturing Project 250 A.4 Company Scorecard 252 A.5 Job Description for Business Development Manager 254 A.6 Checklist for the Selection of Outsourcing Partners 256 A.7 Checklist for the Manufacture of Nonregulated (or Basic GMP) Fine Chemicals 257 A.8 Checklist for Customer Visit 258 A.9 Outline for a Company Presentation 260 A.10 Overseas Expansion of Indian Pharma and Fine Chemical Companies 261 A.11 Asian Expansion of Western Fine Chemical Companies 263 INDEX 265 NOTE: US$ Exchange rates CHF 1 = US$ 0.966 € 1 = US$ 1.44 INR 100 = US$ 2.15 £ 1 = US$ 1.52 ftoc.indd xftoc.indd x 12/20/2010 2:19:04 PM12/20/2010 2:19:04 PM PREFACE TO THE SECOND EDITION This revised edition has been prepared in order to provide the reader with an updated view of the fi ne chemical industry and business. Actually, the most recent data used in the fi rst edition go up to 2005. Since then, both the fi ne chemicals industry itself and its customers have undergone substantial changes: The business as a whole is more competitive now due to the escalating impact of low - cost players from the Far East on the one hand, and the passing - on of the price pressure the life science industry is subject to itself on the other hand. Many Western fi ne chemical companies or divisions created during the “ irra- tional exuberance ” at the turn of the millennium have exited from the sector. As described in Section 5.2 , Plant Operation, the most progressive companies adopt lean production principles originally developed by the automotive industry. In this context, Section 7.2 , Manufacturing Costs, has also been refi ned. As described in the new Section 2.5 , Mergers and Acquisitions, the M & A scenario has inverted from a seller ’ s to a buyer ’ s market. Private equity fi rms have become owners of a number of fi ne chemical companies. The busi- ness model of the fi ne chemical industry has broadened and now often includes also contract research at the beginning and active ingredient formulation toward the end of the value - added chain. This development is not fi nding unanimous approval by industry experts. Biotechnology now plays a bigger role. In the synthesis of small molecules, the use of enzymes has become more widespread as it enables both a more sustainable and economic production. Big molecules have fi rmly established themselves as active ingredients in the life science industry. Thus, biopharmaceuticals now account for fi ve of the ten top selling pharmaceuticals. To the detriment of originator drugs and agro- chemicals, the market share of generics has increased. It now also comprises generic versions of biopharmaceuticals (see the new Section 17.2 , Biosimilars). Faced with slower growth, patent expirations of many lucrative blockbuster drugs, and stalling new product launches, leading pharmaceutical companies are facing challenges as never before. They react by implementing restructur- ing programs. These comprise, among others, reduction of their in - house chemical manufacturing and plant eliminations. Outsourcing of chemical man- ufacturing has moved up from a purely opportunistic to a strategic approach. Apart from restructuring, globalization is also affecting the fi ne chemicals industry (see Chapter 14 ) . In the pharm - emerging countries, double - digit growth of the consumption of pharmaceuticals and agrochemicals — and the production of their active ingredients — is taking place. With their combination xi fpref.indd xifpref.indd xi 12/17/2010 10:28:54 AM12/17/2010 10:28:54 AM xii PREFACE TO THE SECOND EDITION of 40% of the world ’ s population and the “ low - cost/high - skill/high - future ” industrial base, they represent a great challenge to the European and U.S. fi ne chemicals industry. A business condition could develop, whereby even “ best - in - class ” midsized, family - owned fi ne chemical companies with superior tech- nology portfolios and footholds in Asia could be relegated to producing small quantities of fi ne chemicals for new life science products in late stages of development (see Chapter 20 ). Peter Pollak fpref.indd xiifpref.indd xii 12/17/2010 10:28:54 AM12/17/2010 10:28:54 AM [...]... Type 500a 340 550a,E 950 240 550E Sales 2009 ($ million) Fine Chemicals Fine chemicals (a.o., ibuprofen) → API-for-generics → Care Chemicals 3405 Services Industrial Chemicals 1100 HMW/LMW = 84/16 Fine chemicals → Pharma Fine Chemicals (APIs), a.o HIV/ AIDS, sartans → Name Division 2005 665 73,000 18,300 235 1500b Sales 2009 ($ million) Leading Fine Chemical Companies (Resp Divisions) Albemarle Aubinda... 12/20/2010 9:00:59 PM PART I THE INDUSTRY p01.indd 1 12/17/2010 10:28:55 AM CHAPTER 1 What Fine Chemicals Are 1.1 DEFINITION The underlying principle for definition of the term “fine chemicals is a threetier segmentation of the universe of chemicals into commodities, fine chemicals, and specialty chemicals (see Fig 1.1) Fine chemicals account for the smallest part, about 4% of the total $2500 billion turnover... by one manufacturer for one customer, which typically uses them for the manufacture of a patented specialty Fine Chemicals: The Industry and the Business, Second Edition, by Peter Pollak Copyright © 2011 John Wiley & Sons, Inc 3 c01.indd 3 12/17/2010 10:28:22 AM 4 WHAT FINE CHEMICALS ARE Fine Chemicals Commodities C single pure chemical substances produced in dedicated plants high volume/ low price... $10/kg level Specialty chemicals are formulations of chemicals containing one or more fine chemicals as active ingredients They are identified according to performance properties Customers are mostly trades outside the chemical industry and the public Specialty chemicals are usually sold under brand names Suppliers have to provide product information Subcategories are adhesives, agrochemicals, biocides,... SAFC/delivery systems Fine chemicals and polymer additives → 250 370a 850a,E 350E 230 350 470 1370 580 300E API/CM = 70/30 → Pharmaceuticals and Active Ingredients (PSAI) → Pharma 1022 PFCs, CM Health and Nutrition 2300 Exclusive synthesis API/CM = 20/80 → Fine chemicals → Pharma and Life Sciences 650 CRAMS Custom Manufacturing 1370 HMW/LMW ∼55/45 Performance and Life Science Chemicals 1730 Life Science... acid Fine chemicals are complex, single, pure chemical substances They are produced in limited quantities (up to 1000 MT per year) in multipurpose plants by multistep batch chemical or biotech(nological) processes They are based on exacting specifications, are used for further processing within the chemical industry, and are sold for more than $10/kg (see Fig 1.1) Fine chemicals are “high-value chemicals. .. industry (see Section 9.1) Commodities are large-volume, low-price homogeneous, and standardized chemicals produced in dedicated plants and used for a large variety of applications Prices, typically less than $1/kg, are cyclic and are fully transparent Petrochemicals, basic chemicals, heavy organic and inorganic chemicals, (largevolume) monomers, commodity fibers, and plastics are all part of commodities... distributors and/or agents of integrated fine chemical companies Fine chemical/CM companies account for the largest share of the industry, followed by chemical CROs and laboratory chemical suppliers Fine Chemicals: The Industry and the Business, Second Edition, by Peter Pollak Copyright © 2011 John Wiley & Sons, Inc 8 c02.indd 8 12/17/2010 10:28:23 AM 9 FINE CHEMICAL/CUSTOM MANUFACTURING COMPANIES Discovery... fine chemicals account for not more than 15% of the division’s sales A similar situation is encountered with Albemarle The $500 million sales of the fine chemicals segment comprise, apart from exclusive synthesis and APIs (ibuprofen, naproxen), commodities such as bromine and derivatives, potassium and chlorine chemicals, aluminium oxide, tertiary amines, and specialties such as biocides, oilfield chemicals, ... side of the table), all the way to a C33 molecule, atorvastatin The indicative $2000 cost c01.indd 5 12/17/2010 10:28:22 AM 6 WHAT FINE CHEMICALS ARE TABLE 1.1 Example for the Value-Added Chain in the Chemical Industry: Lipitor (Atorvastatin) Parameter Commodities Fine Chemicals Specialty Intermediates Example Molecular formula Molecular weight Applications Price indication ($/kg) Production (metric tons/ . FINE CHEMICALS ffirs.indd iffirs.indd i 12/17/2010 10:28:52 AM12/17/2010 10:28:52 AM FINE CHEMICALS SECOND EDITION Peter. What Fine Chemicals Are 3 1.1 Defi nition 3 1.2 Positioning on the Value-Added Chain 5 2. The Fine Chemical Industry 8 2.1 Industry Structure 8 2.2 Fine