DSM says CMO biz model out of step with market; sales drop in Q1

By Gareth Macdonald

- Last updated on GMT

Related tags Dsm pharmaceutical products Pharmacology

Royal DSM NV says its pharmaceutical contract manufacturing business model is ‘out of step with market needs’ after the unit’s Q1 performance blots an otherwise positive set of financials.

DSM’s pharmaceutical business, which comprises the contract manufacturing group DSM Pharmaceutical Products (DPP) and DSM Anti-infectives, saw sales for the first quarter fall 14 per cent to€163m ($242m).

The firm said that, although antibiotic higher feedstock costs and the positive impact influenza vaccine component sales had on last year’s figures played a part, the primary reason for the decline was a drop in volumes for DPP.

Spokesman Herman Betten told in-Pharmatechnologist.com that: “The business model of DPP [DSM Pharmaceutical products] and cost position is currently out of step with market needs, leading to unsatisfactory results​.”

He explained that, in the face of increasing regulatory and financial pressure, pharmaceutical companies are either focusing on ‘niche’ high value drugs and biopharmaceuticals or on high volume products for emerging markets.

Wider business

The performance of DSM’s pharmaceutical cluster differed markedly from its other core businesses, nutrition, performance materials and polymer intermediates, which all saw revenue and earnings growth.

In total for the quarter DSM’s revenue was €2.23bn, up 16 per cent with earnings increasing some 4 per cent and beating analysts’ estimates according to Reuters​.

DSM CFO Rolf-Dieter Schwalb told the newswire the gains reflected the effective implementation of the firm’s growth strategy, citing the recent purchase of Martek Biosciences as an example.

Schwalb went on to say that there would be ‘no pause’ in DSM’s acquisition strategy, highlighting nutrition and performance materials as areas for potential purchases.

Pharma strategy

However, while growth through acquisition is the plan for DSMs profitable units, the firm’s strategy for its pharmaceutical business is expansion through partnerships as Betten explained.

The focus for Pharma is on strategy execution, with specific focus on leveraging partnerships for growth. As announced the asset footprint optimization for DAI is close to completion, whereas DPP will further strengthen its asset footprint in Asia​.”

A big part of this effort, at least for DSM’s anti-infectives unit DAI, will be the soon-to-be-completed deal with Sinochem that will establish of a joint-venture in China.

Sinochem is an excellent partner for DAI given its proven track record to grow businesses in China. DAI is today underrepresented in China. The JV will strongly focus on expanding its position in China, also building on the announced investment into a new 6 APA plant in China​.”

Betten added that: “For DPP DSM believes it will drive positive results most rapidly if it partners with another company which has strengths complementary to its own​.”

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