Differentiation key to success in pharmaceutical fine chemicals
Focus on niche marketing, production streamlining and r&d will lead to success in the European market for fine chemicals, according to strategic market consultancy Frost & Sullivan.
Focus on niche marketing, production streamlining and r&d will lead to success in the European market for fine chemicals, according to strategic market consultancy Frost & Sullivan.
European companies face intense competition from Asian fine chemical suppliers, due to lack of capability differentiation and relatively higher fixed cost and labor costs. Moreover, slower approval rates for new chemical entities have led to overcapacity and reduced profitability in the industry, forcing participants to either restructure or exit the market.
Frost & Sullivan puts revenues in the European fine chemicals market at US$10.44bn in 2005 and forecasts a figure of $12.96bn in 2009.
'Production restructuring will revive the ailing European pharmaceutical fine chemicals market,' notes research analyst S. Shrikanth. 'In fact, these companies should look beyond technology and become service providers for the pharmaceuticals industry, which includes consulting.'
The restructuring of pharmaceutical production announced by Pfizer and Merck could mark the beginning of the restructuring efforts of pharmaceutical companies, bringing about substantial opportunities for the European pharmaceutical fine chemicals market.
Furthermore, as fine chemical manufacturers require critical mass to attract pharmaceutical companies, the fragmented market may see consolidation. Due to demand-supply imbalance, some of the pharmaceutical fine chemical companies are undervalued.
However, the trend of Asia driven acquisition enables Asian companies to offer services across the value chain. The lack of capability differentiation may force pharmaceutical companies to bypass European fine chemical suppliers and outsource to Asian companies, Frost & Sullivan warns.
'Notable among the acquisitions are the Nicholas Piramal - Avecia Pharmaceutical deal, the acquisition of Rhodia Pharma Solutions by Shasun Drugs and Pharmaceuticals, and the sale of Solutia Pharma solutions to Dishman Chemicals in May 2006,' states Shrikanth. 'Evidence pointing to the likely bypass is that in May 2006, an undisclosed multinational pharmaceutical company had selected Dishman as the primary API manufacturer for a new drug.'
The fine chemical manufacturers that supply in Europe need to focus on niche technologies such as high potency APIs and hazardous chemistry, must enhance customer service and quality, and collaborate with Asian firms to maintain a stable position in the long term. Confidentiality, first-class reputation, documentation and product quality will remain very important factors.
