Chemicals firm SAFC plans to avoid the backlash that could be on its way as the pharma industry continues to struggle in an ever-challenging environment, reducing its reliance on sector in a bid to maintain its position in the market.
More and more stringent regulation, pricing pressures, generic erosion and competition from emerging markets, have all meant that pharma firms are having a hard time of late, with a cascade of consolidation and cut-backs defining much of the sector's past year. Sigma Aldrich company SAFC, however, is determined that the problems befalling its customers will not affect its strong position in the chemicals market, and as part of an acquisition and expansion strategy that appears to be racing along at breakneck speed, is looking to diversify its business with less reliance on the pharmaceutical industry. "Today, most of the SAFC business is directed towards the pharma sector, and we all know the challenges the pharma industry is going through," said Sigma Aldrich CEO Jai Nagakatti at a conference during last week's Informex trade show in New Orleans. "So what we are looking at is diversifying our portfolio to make sure we are in other manufacturing businesses [as well]…At Sigma Aldrich, no single customer or product accounts for more than three per cent [of sales], so that itself spreads our breadth and diversifies our customer base." SAFC currently represents approximately 30 per cent of the Sigma Aldrich corporation, and over 2007 generated almost $600m in sales, a figure it intends to improve on significantly over 2008. Divided into four distinct segments (Pharma, Biosciences, Supply Solutions and Hitech), the Pharma and Bioscience divisions currently contribute almost 50 per cent of the company's revenues. With many manufacturers closing sites and looking to low-cost economies to get through this period of intense competition and increased regulatory scrutiny, chemicals firms could be in for a knock-on effect as their customer base struggles to maintain its footing in the shifting sands of the pharma industry. SAFC has taken steps to mitigate whatever effect these conditions could have on its business, for example diversifying in some of its other divisions, such at the recent SAFC Hitech acquisition of electronics chemicals firm Epichem for $60m in February last year. "We've done a number of acquisitions, most of them in the pharma services areas, but the one that really departed from that was the Epichem acquisition," explained SAFC president Frank Wicks.
"That actually diversifies somewhat our approach so that we had an area that wasn't dependent on pharma." Despite looking for additional opportunities outside the pharma arena, however, the company is by no means cutting back its involvement in the sector. The regular acquisition and expansion updates for the company's pharma and bioscience operations suggest that the company doesn't intend to neglect these markets, but is taking actions to cover its bases should the industry come under even more pressure in coming years. The latest expansion news came during the Informex trade show last week, with the pharma division announcing a $600,000 investment in its recently acquired Pharmorphix steady state chemistry facility in Cambridge, UK. The cash boost will go towards an additional 7,500 sq. ft in lab space at the site, due to be complete during the first quarter this year to augment the existing 12,500 sq. ft facility. Add this to the multi-million dollar expansions at SAFC Pharma sites in Ireland, Switzerland Israel, China and the US over the last year or so, and the company could hardly be accused of neglecting its pharma customers.
"We're just not standing still," commented Wicks.