10 March 2003 00:00 [Source: ICB]Success in the fine chemicals sector is increasingly going to come from targeting those segments with the best prospects for returns. The terrific growth spurt of the late 1990s/early 2000s, which attracted new players and allowed most companies to make good money, is well and truly over.
Participants at Socma's recent Informex meeting in New Orleans, US, highlighted two main areas of opportunity - early phase development work and biopharmaceuticals. In contrast, late stage production has been hard hit and looks likely to stay down. Drug pipeline failures and product withdrawals have resulted in overcapacity at pharmaceutical majors and fine chemical players alike, prompting capacity cuts for producers most exposed to this area.
So, as the fine chemicals sector comes to terms with growth rates of 'just' 8-10%/year - figures most in the chemicals industry would die for - there appears to be increasing differentiation between traditional small molecule pharmaceuticals and large molecule or biopharmaceutical opportunities.
The former sector is increasingly mature,with 6-8%/year growth, lower margins and a large number of players. The latter, on the other hand, is experiencing growth of 20%/year and more and offers, for those with the capabilities, much higher levels of profitability.
In his keynote address to Informex delegates, Andrew Liveris, head of performance chemicals at Dow Chemical, said that to continue to grow companies will need to make constant targeted investments in new technologies and to have a foot in both small and large molecule camps. But only the larger players, he asserted, will have the resources to compete in the currently more attractive large molecule segment. This he sees as slowing down its maturity; keeping margins higher than if the number of participants was greater.
And who will the winners be? Liveris caused a frisson of controversy at the event by offering Dow's prediction of the top players in another five years. He sees Akzo Nobel, Avecia, BASF, Degussa, Dow Chemical, DSM and Lonza winning out because of their 'breadth and depth and financial strength to make the required investments'.
The list invites comparison with the current leaders, which indicates that Liveris does not rate so highly the chances of Bayer, Rhodia, Clariant and Cambrex in his scenario.
But, he added, small niche players can and will survive by specialising or collaborating. These will be 'smart enough to be narrow and deep in a technology that turns out to have high impact and value creation'. And, not one to hold back, Liveris gave his winners here too:Albany Molecular Research, Girindus, Irix Pharmaceuticals, Ricerca, BioInvent Production, Biovitrum, deCode Genetics, and LCO Sante.
But, he warned, there are not enough niches for all the companies that exist today. The message from many at Informex is that we can expect ongoing consolidation in the fine chemicals sector. For many, survival will be a case of finding where the sweet spots are or finding partners with whom to form alliances.
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