No recovery likely in pharmaceutical fine chemicals market until 2005

The market for pharmaceutical fine chemicals will remain static until 2005 and overcapacity will continue to be a problem, predicts Global Pharmaceutical Fine Chemicals - Industry and Market Analysis, a report from Urch Publishing.

'Our research shows that 2004 will be another difficult year; recovery is not foreseeable until mid-2005,' said Edwin Bailey, managing director, Urch Publishing. 'Although things are looking up, it is unclear how significant the improvement will be.'

The report says that companies will be forced to make difficult decisions in the next three years with industry-wide rationalisation and consolidation appearing to be inevitable as companies struggle to deal with overcapacity, competition from emerging markets and regulatory burdens.

However, there is some positive news on new drug approval, it says, which means the subsequent outsourcing of fine chemical intermediates and active pharmaceutical ingredients will pick up, though the market is unlikely to recover to previous levels. The US$10-12bn market for pharma fine chemicals could achieve growth of 5% a year or more, creating at least $500m a year of additional sales.

Overcapacity of between 25 and 40% remains a problem, and will continue to affect the market for intermediates and active pharmaceutical ingredients due to the substantial new capacity brought on-stream over the past five years. The excess capacity caused by fewer new drug approvals and the resulting in-sourcing by big pharma are other contributory factors, says the report.

Fine chemical overcapacity has led to two or more years of declining profitability, resulting in plant closures and goodwill write-offs; however, there is a general consensus that the bottom has finally been reached. Pressure on price will continue, particularly given the increasing acceptance of products from Indian and Chinese suppliers.