EDITOR ' S LETTER
Too many bankers ?
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editor @ specchemonline . com JAN / FEB 2022
It was good to be at CPhI Worldwide last November : partly because it was good to be out meeting the industry again anywhere and partly because , at a thinly attended event , opportunities arose to have ad hoc conversations with senior people that are rarely possible in the rushed atmosphere of the event in normal times . One of the most illuminating came with two senior figures at a major European pharmaceutical CDMO about the way that private equity is transforming the fine chemicals and CDMO sector . CDMOs were always bound to attract investors , not least because of the need to invest in specialised technologies . The process has been going on for some time now , creating global giants and resurrecting the old cliché of the ‘ one-stop shop ’. The figures are stark . In the frenzy of acquisitions spurred by the infamous Deutsche Bank report of the late 1990s that burned so many fingers in the chemical industry on the back of projected 15 %/ year growth for five years , about $ 15 billion in transactions were done . Now , that is happening pretty much every quarter . Does it matter who owns what assets as long as the goods are delivered , you might ask ? Perhaps it does . This is not an industry where traditional economics of scale apply . Simply buying fine chemical and pharmaceutical assets and crunching them together is no easy feat . The different sites will have different IT , management , quality and safety systems . Harmonising them is no small feat , typically taking a couple of years . Moreover , managing the relatively underperforming sites will inevitably consume a disproportionate amount of management time . And management capacity is a big differentiator in this industry . The dynamics of private equity are also very different to those of fine chemicals . Generalising wildly – because of course there are exceptions – private equity invests with an ultimate exit in mind , often after about five years . Naturally it seeks a significant return on capital in that space but leveraging the value of the transaction in that time is very difficult . Most drug development and manufacturing projects last longer than that . The opposite argument is that sometimes it takes an outside investor to shake things up . These investors know what they are not industrialists ; they trust capable people within the companies they buy to deliver for them . Many senior managers have welcomed being unshackled from the ‘ dead hand ’ of traditional ownership in order to address the challenges of a new era . Another reason why asset ownership matters in the European CDMO sector is the dreaded ‘ C ’ word . Behind the pharmaceutical industry ’ s astonishing achievement in developing and delivering the vaccines that are combatting COVID-19 in such a short time-frame like European know-how , European technology and European manufacturing . Before COVID , for example , the world made about 5 billion glass vials / year . That has been doubled . One major vial manufacturer has done an IPO on the back of it - and so the story continues , as success and growth bring in money and expand the scope of the mistakes we can ’ t afford to make !
What do you think ? Your views are always welcome .
Dr Andrew Warmington
EDITOR – SPECIALITY CHEMICALS MAGAZINE
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