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DSM continues CMO partner hunt as pharma earnings halve

By Nick Taylor , 01-Mar-2012

DSM is continuing its search for CMO partners to help it recover from the halving of fourth quarter pharma earnings.

A 57 per cent year-on-year drop in fourth quarter earnings (EBITDA), caused in part by unfavourable sales mix, brought a weak year at the DSM pharmaceutical unit to an end. Changes in the contract manufacturing market are partly responsible and DSM is repositioning the unit to recover demand.

We want to expand our assets base in Asia because we want to be able to manufacture more in low cost countries, but that does not have to be by our own investment”, Feike Sijbesma, chairman of DSM, told investors.

Single or multiple partnerships are possible but Sijbesma was unwilling to predict when DSM will ink a deal. Sijbesma spoke of efforts to find a partner last August but warned it would take longer than “a few weeks or months [because] it takes two to tango”.

DSM had almost $2bn (€1.5bn) in cash at the end of the year but appears unlikely to bolster its pharma unit through acquisitions. Sijbesma said the cash will fund an increased dividend and possibly acquisitions in the nutrition and performance materials sectors.

Internal actions

While pursuing a partnership DSM is continuing with internal actions to improve the unit. Sijbesma said conditions will “remain challenging” this year but a slight improvement in EBITDA is expected.

The expected uptick, which Sijbesma stressed is only small, is underpinned by efforts to win clients and orders. Sijbesma said the internal business development actions are “going reasonably well”.

Part of the strategy, and reason DSM is seeking a partner, is to reduce reliance on big pharma clients. The market is prone to “lumpiness and volatility”, Sijbesma said, and reducing client concentration is one way to combat this problem.

Expansion of biologics capabilities should also help DSM diversify. Work on a biologics manufacturing site in Australia is progressing and DSM expects to begin production at the facility next year.

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