DSM seeks CMO partner to diversify beyond big pharma

03-Aug-2011 - Last updated on 04-Aug-2011 at 07:31 GMT

DSM wants to form a CMO joint venture to become less reliant on big pharma clients and revive the flagging business unit.

The pharmaceutical products unit at DSM, which provides manufacturing services, has struggled in recent quarters. Last year DSM partnered its anti-infectives unit with China-based Sinochem to boost its fortunes and a similar deal is being sought for its contract manufacturing organisation (CMO).

“We need to make a deal but that takes a little bit of time, so don’t expect it to be done in a few weeks or months. It takes two to tango”, Feike Sijbesma, CEO of DSM, said in a media conference call.

Sijbesma has spoken in the past of seeking a CMO partner that can help DSM expand in Asia but put a slightly different slant on the potential deal in the latest call. “We need to make our business less dependent on the big pharmaceutical companies we supply”, Sijbesma said.

Adding sales from Asia and smaller clients would help DSM return its CMO unit to growth. In the second quarter sales fell nine per cent year-on-year, in part because of low volumes at the CMO unit. Efficiency initiatives are being adopted, improving margins sequentially, but more needs to be done.

“Pharma sales and results improved compared to [the first quarter], but DSM is conscious that overall performance of the cluster remains below acceptable levels”, the company said in its second quarter report.

Strategic partner

Another element of DSM’s CMO strategy is the pursuit of more strategic deals. Speaking in September 2010, DSM said “it can deliver most value when it operates as a full-service strategic value chain partner” and is pursuing deals of this nature.

Forming a joint venture with an Asia-based CMO could help DSM win such deals by giving it the scale and global reach, particularly in lower cost emerging markets, to handle all a client’s production needs.

In its second quarter results, fellow CMO Patheon also noted increased interest in more strategic deals, as seen when Aesica joined with UCB, and predicted consolidation will accelerate.