Clariant cuts ties with life sciences and contract manufacturing

By Kirsty Barnes

- Last updated on GMT

Related tags: Chemical industry, Biology, Clariant

Clariant has cut its ties with the life sciences industry and will
no longer offer custom manufacturing services in this arena after
the sale of the last piece of its Lifesciences division.

The decision has been announced just when the company also reported "unsatisfactory"​ results for the first quarter, with its burdensome Life sciences segment partly to blame. The divested Customer Manufacturing business supplies intermediates and active ingredients for the agrochemicals, pharmaceuticals and polymers industries. Clariant said the sale is the latest step in its strategy to focus on its core competencies in colours, surfaces and performance chemicals. In its heyday, Clariant's Life science division consisted of three parts: the Customer Manufacturing business, which it inherited in 1997 after acquiring German firm Hoechst and the Pharmaceutical Fine Chemicals (PFC) division, which it also inherited after it bought UK firm BTP in 2000. After failing to reverse falling sales in its PFC division, this was the first of the Life sciences businesses to get the chop and Clariant decided to sell the unit to private equity firm Towerbrook for around CHF110m (€70m) in May last year. The third part of the Life sciences division, specialty intermediate chemicals, was considered to be more relevant to the company's core competencies and so Clariant has decided to keep it and integrate it into its existing functional chemicals division. "The Life science business was not performing well because it was rather fragmented and complicated to integrate it into our core business and there is a risk in pharmaceuticals as to whether products come through or not and therefore we haven't been able to run it on a successful basis,"​ company spokesperson Walter Vaterlaus told Outsourcing-Pharma.com. "We couldn't live with the underperformance of this segment and so we decided to move out of this area and we expect the profitability of our whole business to increase now."​ Indeed, the company just posted a 10 per cent drop in operating profit to CHF139m for the first quarter of 2007 upon a slight rise in sales of 5 per cent to CHF2.2bn, while profit margins remained stable. Jan Secher, Clariant's CEO, said: "Profitability in the first quarter was unsatisfactory, but we have seen the first signs of improvement in our cash flow. We are confident that the steps we are now taking will allow us to deliver on our strategic initiatives, with cash flow a priority for 2007." ​ These initiatives include the dissolution of the Life science division, along with the closure of several sites within Europe related to its other businesses, as well as a drive to reduce cost base, working capital and selling general and administrative (SG&A) expenses. However, over the next four years, the company also expects to take a CHF500m hit in restructuring costs, particularly over the first two years, said chief financial officer Patrick Jany in a conference call. Meanwhile, International Chemical Investors Group (ICIG) has bought Clariant's Customer Manufacturing business. ICIG is a group of industrial investors that over the past year has been focusing on building a conglomerate of pharmaceutical businesses by acquiring divisions of mid-sized chemical companies which are considered non-core. It now operates 14 production facilities located in Germany, the US, France, Belgium, Ireland and Poland. According to Vaterlaus, ICIG should have more success in running the acquired Customer Manufacturing business because the pharmaceutical industry is their core focus. Commenting on the purchase, Dr Achim Riemann, managing director of ICIG said: "The Clariant agrochemicals businesses are an important building block complementing our present portfolio of fine chemical custom manufacturing assets. With this acquisition WeylChem will become an important player in the non-GMP custom manufacturing sector with revenues of approximately €200m." ​ The organisation said it particularly plans to use the Custom Manufacturing Business to support organic growth within its German and the US businesses, as well as through further complementary acquisitions. Meanwhile, Clariant said it expects the deal to close by mid-year, at which time all assets and personnel will be transferred to the buyer and Vaterlaus said the firm expects to record a book loss of approximately CHF70m although no other financial details could be disclosed.

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