Fine chemicals companies finished a strong year in 2017, and executives see strength following strength in 2018.
According to the Society of Chemical Manufacturers & Affiliates, a trade group representing fine and specialty chemical firms, sector sales volume increased 4.4% last year. The group expects comparable growth in 2018, thanks to product innovation in markets including pharmaceutical, agricultural, and industrial fine chemicals. For example, the U.S. Food & Drug Administration approved 46 drugs in 2017, more than twice as many as in 2016, and many of them are small molecules being manufactured by the fine chemicals industry.
Much of the growth in drug chemicals stems from customer needs for complex or highly potent molecules. The growth is spurring both investment and consolidation, according to producers. Indeed, the sector’s strong performance is attracting diversified companies such as PMC Group, which acquired two pharmaceutical chemical companies late last year.
“I continue to be bullish,” says Aslam Malik, CEO of Ampac Fine Chemicals. “More so this year because of tax reform.” The lowering of the corporate tax rate will encourage drug companies to invest in the U.S. and put U.S. fine chemicals firms in a stronger position to compete with Europe, he predicts.
Steven M. Klosk, CEO of the pharmaceutical chemical maker Cambrex, is also optimistic. “We continue to expect strong demand for CDMO outsourcing services,” he says, referring to contract development and manufacturing organizations. Klosk points to a global pipeline of over 5,000 small-molecule drugs in development.
While the sector appears to have broken from its traditional boom-and-bust cycle, some observers see certain types of bad behavior starting to recur. Consultant James Bruno, president of Chemical & Pharmaceutical Solutions, notes that the move of newcomers into the market is reminiscent of a similar failed rush some 15 years ago.
And the amassing of one-stop shops that combine pharmaceutical chemical and finished dosage manufacturing with other services works against the traditional business model of being small and specialized. “We are very cyclic,” Bruno says. “We do the same thing again and again. We screw up and we fix it. And we screw up again.”
