Fine chemical manufacturers serving the pharmaceutical industry say competition is only getting tougher. Consolidation among major pharmaceutical manufacturers--exemplified by Pfizer's recent bid to purchase Pharmacia--and the drying up of R&D pipelines have combined to staunch the flow of manufacturing work to outsourcing firms, sources say. At the same time, overcapacity in cGMP contract manufacturing, driven by previous predictions of indefinite double-digit growth, has forced some major diversified chemical companies to try and divest their fine chemical businesses.

Key suppliers, including Clariant, Dow Chemical, and DSM, are going through a round of restructuring and reorientation. These and other firms are also studying new businesses in the high-growth biologics market, notably Avecia and Lonza. Meanwhile, firms such as Solutia's Carbogen division and Helsinn are building capacity for high-potency active pharmaceutical ingredients (HPAI's)--another area that is viewed as undersupplied and primed for growth.

"Overall, the fine chemical industry is in the process of restructuring," says Peter Nagler, president of Degussa Fine Chemicals. Producers are placing a greater focus on the pharmaceutical market as distinct from agricultural chemical and other life science and fine chemical markets in response to the pharmaceutical market going, "from a scattered to a condensed landscape" during the last five years, Nagler says. Degussa has built its position in pharmaceuticals largely through acquisition, most significantly that of Laporte.

Similarly, Dow established its newly formed pharmaceutical unit on the back of its acquisition of Ascot, included chiral technology in Ascot's ChiroTech division. Dow is building on its strength in research and the manufacturing legacy of the former Marion Merrill Dow to create a broad base of expertise in fine chemicals and biologics for the traditional pharmaceutical market as well as biotechnology and virtual pharmaceutical makers, says George Biltz, v.p./custom and fine chemicals at Dow. The unit has sales of $650 million/year, and is growing at double-digit rates in pharmaceuticals, Biltz says.

Companies such as Eastman Chemical, Honeywell, and Great Lakes Chemical elected to quit the business, although Eastman decided to keep its operation after failing to find a buyer. "Some American companies have lost their patience with fine chemicals," says Peter Pollak, an industry analyst.

- Chemical Week