Fine Chemicals
Chemistry class
Zach System, a European f_i ne chemicals player, has spent the
past year digesting an acquisition and redesigning its organisation.
Jean-François Marcopoulos, the company’s CEO,
tells Caroline Richards about his longer-term plans
Q.
making these deals work is different. The
M&A/consolidation is a prominent
JEAN-FRANÇOIS MARCOPOULOS
partners must have very different prof_i les for
feature of the R&D-based pharmaceutical
collaborations to make sense: they should
industry. Should we expect similar
not overlap in terms of location, markets,
consolidation in the fine chemicals sector? technologies, or competencies, etc. Even
when companies do differ, working together
We should expect a similar trend because the can be tough; the parties’ interests are never
pharma industry needs fewer suppliers with exactly the same, and the company cultures
broader competencies and enhanced eff_i ciency.
are different. So a partnership requires a lot of
The pharma industry is experiencing not
energy from both sides.
only consolidation but also a revolution in
At Zach System we have been involved in
its business model, mainly because it has not
a range of partnerships, especially in Asia, but
been able to sustain historical levels of growth,
only one of these is currently of strategic value.
with fewer products now reaching regulatory
But going back to the consolidation angle I
approval. The US market grew by only 3.8%
mentioned earlier, a partnership might provide
in 2007 and 67% of prescriptions were for
a good precursor for a full M&A deal.
generics. So pharma’s blockbuster business
model will partly disappear.
Companies are changing their approach
Q. Is Asia a threat to your business or an
to R&D, embracing external partnerships
opportunity to be exploited? What is the
with biotech companies and start-ups. They best strategy for working in this rapidly-
are also changing their therapeutic focus
growing market?
and drug prof_i les. Today more than 40% of
potential drugs entering clinical development
Asia is not a threat per se but just another
are of biotech origin, more than one third
piece in the overall puzzle. Asia would be a
of the drugs in development are targeting
threat if its currencies were set to devalue
oncology indications, and less than 26% are
against the Euro and the US dollar and if
focused on CNS and cardiovascular areas, for
companies there were able to offer exactly the
example. On the positive side, big pharma will
same type of services as western companies
most likely outsource more work, although
do – but we don’t foresee this happening soon.
this switch will take time. At the same time,
One main issue for European-based
pharmaceutical multinationals are starting
suppliers is that a big chunk of the market is
to prioritise emerging markets, so they will
in US dollars. Even taking into account the
demand competitive supply chains to achieve
current f_i nancial crisis, which has pushed the
this new objective.
dollar more in line with the Euro, in Europe
All these changes will have a major impact
we have lost 40% of our competition since the
on f_i ne chemicals companies if they are not
beginning of the decade, when the Indian and
able to revisit their capabilities taking these
Chinese currencies were closer to the dollar.
shifts into account. Fine chemicals companies
As these countries’ currencies strengthen, their
that lack the scale and global reach needed to
companies may lose this competitive gap.
implement these changes will either disappear
Zach’s Asian’s strategy covers several
or be taken over. Small companies in the
fronts. Firstly, we will continue to buy from
$50-100 million turnover range, meanwhile,
Asia, despite expected long-term pressures
will have to specialise very much to survive.
So consolidation will come in the form of
on prices from rising costs in China and India,
medium-sized companies acquiring smaller
creating price inf_l ation for raw materials.
f_i rms or alternatively merging together.
Secondly, we want to manufacture in Asia,
particularly in the case of products that are
Q.
not convenient for our western facilities; this
Could partnerships with other
may be the result of lower added value or
chemicals companies be used as an
complexity or because they do not involve our
alternative to acquisitions? core technologies. Thirdly, we want to sell in
Asia! And we are starting to penetrate Asian
Partnerships are a diff_i cult alternative; they markets with products for which we have a
look very nice on paper but the reality of strong process advantage.
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