In the fine chemicals industry, a recurring issue has been whether size matters. The mergers and acquisitions by industry giants such as Clariant, Degussa, DSM, and Rhodia in recent years seem to imply that bigger is better. On the contrary, plant shutdowns could be the new wave in the industry, as the new conglomerates streamline operations, observes Peter Pollak, a fine chemicals business consultant based in Reinach, Switzerland.

"Big is not beautiful in this business," Pollak tells C&EN. In fact, he says, one-third of the business in custom manufacturing goes to small and medium-sized companies. And among those, the medium-sized, privately owned companies are the best placed: They have the technology, the production capacity, and the short communication paths for decision-making. And they are not forced into short-term profit expectations in the same way that the big public companies are.

Talk of overcapacity in the industry does not worry these companies as much as it does the big players. CU Chemie Uetikon, for example, just invested $20 million in a new GMP (Good Manufacturing Practice) facility.

"You have to pay attention when people talk about overcapacity," Heinz Sieger, the company's general manager, says. "Usually it's about old facilities that are not ready for intermediates and active ingredients for the pharmaceutical industry. There's no overcapacity in high-quality, GMP, state-of-the-art capacity. At the moment, our capacity is fully utilized, and we have a good pipeline."

That is not to say that such companies are immune to the difficult business climate.

It is well known in the industry, for example, that last year, Hovione lost the contract to supply nelfivanir mesylate (Viracept), an antiviral drug developed by Agouron. Agouron was bought by Warner-Lambert, which in turn was acquired by Pfizer. When the dust settled, manufacture of the active ingredient was brought in-house.

Yet Hovione's business grew by 15% last year, says the company's chief executive officer, Guy Villax. "Project cancellations and withdrawals from the market are hurting us; nevertheless, the market is healthy. The climate is tougher than before, but nobody is losing money."

FIS is another medium-sized private company that's prospering, despite problems unique to its base of operations, Italy. It wants to expand its portfolio of generic products but finds it hard to do so in Italy, says Vittorio Bozzoli, its managing director.

In Italy, a 1991 law extends drug patents for 18 years, much longer than the five-year extension recognized in the rest of Europe, Bozzoli says. "Generics are growing in importance worldwide, but we in Italy cannot participate fully in that market because of this law."

Still, Bozzoli expects FIS, which had sales of about $100 million last year, to perform well in 2002. "The claim that a critical mass of $500 million in sales is necessary is wrong," he says. "A $100 million company is ideal. It has the flexibility to react to market cycles and the size to easily meet demands of up to 100 tons. The problem is when the company is small and does not have the capacity to face a big demand. The only rule is to be flexible and to satisfy your customer."

Flexibility can turn the lemon of losing a big contract into lemonade, Villax says. "When one multipurpose building became empty because of the contract we lost, we took advantage of the equipment being idle to reengineer the building," he explains. "Where it used to be able to do only one production line at a time, it can now do three production lines at a time, with incredibly high standards of cross-contamination prevention. Those are the things midsized entrepreneurial companies can do. They are not restrained by long budget-approval processes."

FINE CHEMICALS

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