30 March 1998 00:00 [Source: ICB Americas]Two of the three leading US manufacturers of aluminum and magnesium antacid chemicals have been acquired at a time when the over-the-counter antacid business is coming out of a serious slump.
Two weeks ago, SPI Polyols Inc. bought Barcroft Corporation in Lewes, Del., and SPCA Barcroft in Septemes-les-Valons, France, from Rhone-Poulenc Rorer for about $20 million. The deal includes two plants that produce aluminum and magnesium hydroxide, used in roughly equal parts as the active ingredients in OTC antacids such as Mylanta and Maalox.
And in late February, General Chemical Group Inc. acquired Reheis Inc., a $60 million maker of aluminum and magnesium chemicals for the antiperspirant and antacid markets. Industry sources estimate that General paid in excess of $75 million for Reheis, which is based in Berkeley Heights, N.J.
The third main US producer of OTC antacid ingredients, Chattem Chemicals Inc. in Chattanooga, Tenn., was acquired by Elcat Inc. from personal care products maker Chattem Inc. several years ago. Germany's BK Giulini Chemie is a fourth major player through its Giulini Corporation subsidiary, which warehouses stocks in the US.
While two sales in close succession are unusual in a small, specialized, pharmaceutical intermediates business, the players involved do not see a connection between the deals and point out that the reasons for them are different.
The Barcroft plants have historically supplied raw materials for Maalox antacids, but in 1993, RPR sold the US rights to that brand to Novartis' subsidiary, Ciba Self Medication Inc., while retaining the Maalox name throughout the rest of the world.
"There was no strategic reason for RPR to maintain ownership of the plants since only part of the capacities were devoted to Rhone-Poulenc Rorer products," says Sylvain Visconti, RPR's senior vice-president for corporate strategy.
In fact, Rana Kayal, the head of SPI Polyols' newly formed Barcroft SPCA Company subsidiary, says that less than half the output of the two plants is devoted to the Maalox brand, thanks to a sales diversification program begun by RPR about three years ago.
In addition to being used as antacids, aluminum and magnesium hydroxides are also sold as vaccine adjuvants and for industrial applications.
The diversification program notwithstanding, it has been hard for RPR to sell raw materials to its competitors in the antacid business, but Mr. Kayal expects the job will be easier for a strictly merchant marketer like SPI.
SPI, a $100 million company formed from the old ICI polyols business, wants to expand in functional intermediates and excipients for the pharmaceutical industry. For instance, in the US, it will be able to combine aluminum and magnesium chemicals with the sorbitol and mannitol it already sells to antacid makers.
In Europe, Mr. Kayal says, SPI will use the French plant to build a stronger pharmaceutical presence. SPI's role in Europe is currently limited to a joint venture with starch processor Amylum that makes powdered sorbitol, mostly for the confectionery and oral care markets, but Mr. Kayal expects Barcroft will help propel the venture into pharma markets as well.
Whereas SPI's purchase broadens its presence in pharmaceuticals, for General Chemical, the acquisition of Reheis represents a downstream move into specialty chemicals. General says the purchase will expand its aluminum-based chemicals presence into new value-added markets, namely pharmaceuticals and personal care.
Executives at all three chemical suppliers concede that the OTC antacids market took a big hit in 1996 when the formerly prescription H2 antagonists Tagamet, Zantac and Pepcid went over the counter.
These products now command about 30 percent of the OTC antacids market, but Barcroft's Mr. Kayal contends that this wasn't entirely at the expense of traditional antacids, since the H2 antagonists have expanded the overall OTC antacid category.
Moreover, makers of the traditional antacids have been taking a new marketing tack, emphasizing their products' immediacy of action, while the H2 antagonists are being positioned more for chronic problems. This positioning may stem from the presence of companies such as Merck & Co. and SmithKline Beecham, which are involved in both markets.
David Fondots, vice-president of sales and marketing at Reheis, says his company has more than compensated for any slippage in US sales by increasing business overseas. Reheis' aluminum and magnesium hydroxide exports have grown in the past three years to account for more than half of total antacid chemical sales, he says.
Less developed countries that consume a lot of spicy foods--Indonesia, Thailand and Mexico, for instance--are prime antacid targets, he says, and consumers in those nations cannot afford the premiums that the H2 antagonists command.
Reheis is also forward integrating into the private label business, Mr. Fondots says, working with its own ingredients and a contract packager to produce antacids for pharmacy chains.
Barcroft's Mr. Kayal says his company will add value by offering its cGMP plants and its experience with high-viscocity liquids to customers that want to minimize their manufacturing exposure. The Barcroft plants also have spray-drying capabilities that SPI will make available.
ETHYLCELLULOSE--The Aqualon Division of Hercules Inc. is increasing the price of ethylcellulose and AQU D-3360 modified polysaccharide by 5 percent effective April 15, 1998.
POLYDEXTROSE--Cultor Food Science, Inc. and its parent company, Cultor Corporation, have filed a patent infringement lawsuit against A.E. Staley Manufacturing Company over Staley's Sta-Lite III series of polydextrose products. Cultor asserts that the Staley's products infringe Cultor's US Patent Nos. 5645647 and 5667593, which relate to a high purity polydextrose and processes for preparing high-purity polydextrose.
MONSANTO--Monsanto Company has entered into an agreement to sell its Orcolite optical products division to BMC Industries Inc. for $100 million. Monsanto reports that the sale is part of its focus on life sciences. Orcolite manufactures and markets optical lenses. The sale will be closed in the second quarter, pending necessary reviews.
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