February 2005 Generics Patent Law in Effect in India New patent laws that apply to generic    drugs launched after January 1, 1995 are     now in effect in India. Approximately 12,000 patent applications have been filed by global pharmaceutical companies that have active patents for drugs that are currently on the market in India as generic versions. Generics make up about 15 percent of the Indian pharmaceutical market. Under the World Trade Organization (WTO) rules agreed to by India, the generic drugs must be withdrawn from the market immediately. A large number of patent suits are expected in India in the near future.   Famous Quotes of the Month - Love is the triumph of imagination over intelligence (H.L. Mencken) - I think knowing what you cannot do is more important than knowing what you can do. In fact, that's good taste. (Lucille Ball) - Getting older is no problem. You just have to live long enough. (Groucho Marx) - A vegetarian is a person who won't eat anything that can have children (David Brenner) - The moment of victory is much too short to live for that and nothing else (Martina Navratilova) Why Don't Cigarette Butts Burn? Even cigarettes without filters don't burn quickly. If the shredded tobacco is packed tightly enough, not enough oxygen is available to feed the combustion process. The degree of burn is also regulated by the porosity of the paper surrounding the tobacco. On a filtered cigarette, an extra impediment is placed on the combustion process. This is because the filter is attached to the tobacco by a special paper which is essentially non-porous. This paper acts to extinguish the burning coal by reducing the amount of available oxygen. So, in effect, there is a barrier between the tobacco and filter but it is around the cigarette, not actually between the tobacco and the filter in the interior of the cigarette. Arkema Plans Job Cuts Total's recently spun off chemicals business Arkema announced that it will reduce its chlorochemicals workforce in France by 548 jobs over the next two years. The largest number of positions will be eliminated at the company's facility in Saint-Auban in Alpes-de-Haute-Provence. Arkema will also invest Euro 37 million to increase production of Chlorine and Vinyl chloride and make other improvements at three sites in France. Dow Chemical Receives Notice from Indian Court Dow Chemical received a notice from the District Court of Bhopal in India asking the company to explain why Union Carbide Corporation (UCC) will not participate in a continuing court case regarding the Bhopal gas release in 1984. The court issued the notice in response to an application filed by the Bhopal Group for Information and Action, which is seeking justice for victims of the disaster. Dow has responded in the past that it did not own or operate the UCC plant in Bhopal and therefore did not have any responsibility for the tragedy. The company has also stated that the issue of responsibility was previously addressed in a 1989 settlement between the Indian government and UCC. Dow is expected to respond to this new notice by February 15, 2005. ExxonMobil Wins Appeal Regarding Sabic Joint Ventures The Delaware Supreme Court denied Sabic's appeal regarding overcharges of $416.8 million (Euro 319 million) to ExxonMobil Chemical. The court initially ruled in favor of ExxonMobil in March, 2003. The licensing fees pertain to two 50:50 joint ventures between Sabic and ExxonMobil Chemical (the Kemya complex at Al Jubail and the Yampet complex at Yanbu ) that produce Monoethylene glycol (MEG) and Polyethylene (PE). Merck to Set Up Indian Subsidiary After being absent from the Indian pharmaceutical market for 18 years, Merck applied for approval from the Indian Government's Foreign Investment Promotion Board to set up a wholly owned subsidiary. The company plans to invest $15 million (Euro 11.3 million) over five years and will import and produce drugs for sale in the Indian market as well as source raw materials and pursue R&D efforts. Sanofi-Aventis Faces Law Suit from Rhodia Rhodia has filed a law suit against Sanofi-Aventis regarding environmental liabilities at sites in Silver Bow, Montana and Cubatao, Brazil that Rhodia acquired from Aventis. Sanofi-Aventis indicated that an agreement signed by Aventis and Rhodia in 1998 settled all claims in connection with environmental indemnification, and final payment was made in 2004. Rhodia has begun the legal proceedings to claim additional environmental liabilities identified based on new international accounting standards requiring estimates to be made over a 15-year period rather than five under previous rules. The company expects to incur additional liabilities of $92 million (Euro 70 million) after considering the payment received from Aventis. Zeon Chemicals Agrees to Price Fixing Charge Zeon Chemicals, the U.S. affiliate of Nippon Zeon, agreed to one charge of price fixing of Acrylonitrile-butadiene rubber (NBR) from May to December 2002. The company will pay a $10.5 million fine to the Department of Justice. If approved by the court, the agreement will resolve all charges against Nippon Zeon and its affiliates with regard to NBR business in the U.S. Valspar Appoints New CEO Richard Rompala will be replaced by COO William Mansfield as president and CEO of Valspar effective February 23, 2005. Rompala will remain as chairman. China Offers Investment Risk and Opportunity While there is tremendous opportunity for growth in China, (growth in company sales of 20 percent or greater per year is predicted by many in the industry), companies also face the risk of misunderstanding the market. The high growth of both the domestic and export markets in China are attractive to investors in the chemical industry. Companies tend to either form joint ventures with existing Chinese companies or acquire existing facilities. Risks include the overheated economy and governmental policies, particularly during a time of large-scale reform. The huge size and complexity of the Chinese chemical industry and the associated logistics issue also pose a challenge for foreign investors. Concerns about intellectual property protection also loom for many potential investors. Foreign Patents Important in All Countries According to intellectual property protection expert and patent attorney Mark Kassel, obtaining patent protections is important even in countries that are not known for having strong patent enforcement policies in the past. These countries are currently seeking to become part of the global business community, and their governments can be expected to recognize the value of strong intellectual property protection. Companies that seek patent protections in these countries will be in a good position when the governments do begin playing by the same rules. Japanese Imports and Exports Increase in 2004 Japan's chemical imports climbed 10.2 percent and exports increased 10.8 percent in 2004 as compared to 2003. Chemical imports totaled Yen 3.812 trillion ($36.94 billion, Euro 28.23 billion), while chemical exports reached Yen 5.223 trillion ($50.62 billion, Euro 38.72 billion). The largest imports were organic chemicals, plastic materials and medicinal products. Top exports included organic chemicals, plastic materials and non-metallic inorganic chemicals. Petrochemicals Sector Poised for Strong 2005 Tight supply and improving global economies, particularly in the U.S. and China, will contribute to significantly increased profitability for petrochemical producers in 2005. Wall Street analysts expect that 2005 and 2006 will be very strong years for petrochemicals following a good recovery year in 2004. Commodity chemical companies are predicted to achieve profit gains of 55 percent or more, while highly leveraged companies will experience much greater growth. Specialty and diversified firms are projected to see gains of approximately 20 percent. Slowdown in Chemicals Possible in China Contracting margins, weaker demand growth and new capacity may contribute to an economic slowdown for the Chinese chemical industry. High raw material prices and slowing domestic demand are impacting margins after the tremendous highs of 2004. Despite these conditions, most analysts expect margins and utilization rates to remain high through 2007, but peak levels are passed. Chemical prices in China fell during the end of 2004, but rebounded a little at the start of the new year. Inventories of many chemical products also remain low, which suggests that the potential slowdown may not severely impact the industry. Slowing Asian Economies May Impact Chemical Industry Global economic growth is predicted to drop from 4 percent in 2004 to 3.2 percent in 2005. Growth of China's gross domestic product (GDP) is expected to decrease from 9.1 percent in 2004 to 8.5 percent in 2005. In Japan, GDP growth is predicted to drop from 2.9 percent in 2004 to 1.7 percent in 2005. South Korea will experience the greatest decline in growth, with a rate of 3.2 to 4 percent expected in 2005 as compared to 5 percent or more in 2004. India could be one exception, with GDP growth forecasted at 6.5 percent in 2005, up from 6 percent in 2004. Despite the slowing economy, petrochemical margins are expected to remain healthy, but will not be as great as in 2004. Demand for petrochemicals will also remain strong despite higher raw material prices. Strong Growth in 2005 Expected for Brazilian Chemicals Market The chemical industry in Brazil is expected to see a growth of 8 percent in domestic demand (volume sales), according to Lafis, a Brazilian consulting company. The improving economy and increased demand in the automotive and civil construction markets are attributed with the strong demand. The consultancy also expects prices of chemicals and feedstocks to continue to rise in 2005. Exports are predicted to remain stable, while imports into Brazil will rise approximately 5 percent, as much of the industry is running near capacity. Avecia to Form New Drug Development Company Avecia will launch Reaxa, a new drug development company focused on discovering and developing "easier, faster and cleaner" synthetic processes. The company is based on a six-year collaboration between Avecia and Professor Steven Ley of Cambridge University. Avecia vice president Pete Jackson will be CEO of Reaxa. Funding for the new company is currently being finalized. Reaxa is expected to generate $20 million (Euro 15.3 million) in revenues by 2009. Avecia's EnCat encapsulated palladium catalyst technology will be part of the company's initial portfolio. Bayer Finalizes Roche OTC Business Acquisition Bayer finalized the $3.24 billion (Euro 2.38 billion) acquisition of Roche Consumer Health, the global over-the-counter (OTC) consumer health business of Roche. Bayer's new consumer health business has sales of approximately $3.27 billion (Euro 2.4 billion) and is one of the top three OTC consumer health companies in the world. With global headquarters in Morristown, New Jersey, Bayer's new business will be run by Gary Balkema, president of Bayer's global consumer care division. BMS to Put Consumer Medicines Business On the Block Bristol-Myers Squibb announced that it will sell its U.S. and Canadian consumer medicines business, including the brands Excedrin, Keri, Choice, and Comtrex. Sales for the business in 2003 totaled approximately $240 million (Euro 181.8 million). The Japanese, Chinese, Latin American, European, Middle Eastern, and African consumer medical businesses are not included in the sale. FDA Approved Macugen The FDA approved Macugen (Pegaptanib sodium injection) under fast track designation for the treatment of neovascular (wet) age-related macular de-generation (AMD). Co-developed by Eyetech Pharmaceuticals and Pfizer, Macugen is the first in a new class of opthalmic drugs that target vascular endothelial growth factor (VEGF) and are based on an anti-angiogenesis approach. Regulatory Process Under Review Resulting From Vioxx, Celebrex Difficulties The unexpected problems recently identified with Cox-2 inhibitors such as Vioxx and Celebrex are expected to lead to revisions in the drug approval process at the FDA. Many analysts predict that a new pharmaceutical regulatory system that involves more extensive clinical trials and a new process for tracking marketed drugs will be introduced. It is possible that comparison trials for drugs within the same class will also be required. Overall these changes will contribute to higher costs and higher risks for all pharmaceutical companies. Medium sized companies will face the greatest impact. DSM Increases Position in Chinese Vitamin Market Shanghai Pharmaceutical Group (SPG) agreed to sell its 35 percent share in Roche (Shanghai) Vitamins Limited (RSVL) to DSM for $13.8 million (Euro 10 million). Once the acquisition is complete, RSVL will become a wholly owned subsidiary of DSM and will be named DSM Vitamins (Shanghai) Ltd. The deal is expected to close by the end of the first quarter of 2005, following receipt of regulatory approvals in China. Sucralose Now Leading High Intensity Sweetener Sucralose (brand name Splenda), has become the largest selling high intensity sweetener, beating out both Saccharin and Aspartame, with US sales totaling greater than $172 million and growing at over 9% per year. Consumers may perceive Sucralose as being safer since it is synthesized from sugar. Producer Tate & Lyle PLC, is spending $182 million on a new facility in Singapore which is expected to come on stream in early 2007. The company acquired its McIntosh, AL site from McNeil Nutritionals in February 2004 for $134 million, and immediately began expansion projects worth about $75 million. These efforts are expected to be completed by April 2006 and will approximately double the capacity at that facility. Sucralose has done well in Japan, and Tate & Lyle plans to expand to other parts of Asia. Final approval for Sucralose in all member states of the European Union takes place in February of 2005, with significant opportunities for market growth anticipated in this region of the world as well. Agrochemicals Sector Forecasting Growth in 2005 The agrochemicals sector appears to be headed for improved conditions in 2005 due to low grain inventories, evolving demographics, and reduced available acreage. Early sales of seeds indicate that this segment will see a large benefit from the growth of the sector. Monsanto has forecasted higher projected earnings and higher corn seed sales for 2005. Smaller companies like Syngenta are expected by analysts to benefit significantly in the seeds market as the demand for higher yielding seeds continues to grow. Wacker Acquires ProThera Wacker-Chemie acquired recombinant protein therapeutics process development and contract manufacturing company ProThera. With the purchase, Wacker gains a position in biologic drugs, adds pharmaceutical proteins to its fine chemicals product line, and expands its contract manufacturing services for the pharmaceutical industry. Akzo Nobel, Atofina and Hoechst Fined for Monochloroacetic Acid Cartel Akzo Nobel, Atofina (now Arkema), and Hoechst were fined $284 million (Euro 216.9 million) by the European Commission for operating a cartel in the market for Monochloroacetic acid (MCAA). Akzo Nobel was fined $110 million (Euro 84.28 million), Hoechst $96.62 (Euro 74.03 million), and Atofina $76.35 (Euro 58.5 million). Clariant gained immunity from the investigation after the company informed the EC of potential price fixing activities. Atofina and Akzo Nobel received penalty reductions for information provided. The three companies control over 90 percent of the MCAA market in the European Economic Area according to the EC, and the cartel established volume quotes, agreed upon price increases, exchanges sales information, and developed a compensation system during the late 1990s. Site for New Shin-Etsu Integrated Chlor-Alkali Facility Identified Shintech, the U.S. subsidiary of Shin-Etsu, announced that it will build its $1 billion (Euro 770 million) integrated chlor-alkali facility in Iberville Parish, Louisiana on a site that was previously owned by Ashland Chemical. The company expects to begin construction in 2006, with completion late in that year or early in 2007. The complex will produce 53,720 tonne/year of Chlorine, 499,092 tonne/year of Caustic soda, 748,638 tonne/year of Vinyl chloride monomer (VCM) and 589,836 tonne/year of Polyvinyl chloride (PVC). Very Positive Outlook for Chloralkali Market Continued growth in economies across the globe is driving the construction market, which in turn is placing increasing demands for Chlorine based products such as vinyls and polyurethanes. As the demand grows, the tight supply in the Chloralkali market has led to dramatic increases in pricing for both Caustic soda and Chlorine. The U.S. contract price for Caustic soda for the first half of 2005 settled nearly three times higher than the price for the second half of 2004. Shintech Inc., the North American subsidiary of Shin Etsu, announced plans for a $1 billion integrated Chloralkali complex on the U.S. Gulf Coast that will produce 1 billion pounds of Chlorine, 1.1 billion pounds of Caustic soda, 1.65 billion pounds of Vinyl chloride monomer and 1.3 billion pounds of Polyvinylchloride. The company plans to add capacity by the end of 2006 and the remainder by the end of 2007. Yukos Business Paid for By Rosneft Rosneft, the Russian state owned oil company, made full payment for Yuganskneftegaz, the main oil producing unit of Yukos that was auctioned off by the Russian government in order to reclaim back taxes owed by Yukos. Baikal Finance Group was the winner of the auction for 76.8% of Yuganskneftegaz with a bid of $9.4 billion (Euro 7.0 billion). Rosneft bought 100 percent of Baikal and then paid for Yuganskneftegaz in full. The government will transfer the assets of Yuganskneftegaz to a new 100 percent state-owned firm. A 20 percent stake may be offered to China National Petroleum Corporation. Profit Margins to Increase in Plastics Market A tight supply and strong demand for most plastics products are leading to increased profit margins for producers. Price hikes throughout 2004 in response to rising energy and feedstock costs did not slow demand growth for many plastics, and this trend is expected through 2005. If oil and natural gas costs stabilize, plastics manufacturers expect to experience significantly improved profitability. Sales of Polyethylene rose 9 percent in 2004 as compared to 2003, and Polypropylene demand grew nearly 6 percent despite a 30 percent hike in prices from January through October 2004. Polystyrene and Acrylonitrile demand is growing at approximately 4-5 percent, with the supply-demand balance tightening for both plastics. Nylon, ABS, Polycarbonate, and Polyethylene terephthalate also appear to be positioned for growth and improved margins in 2005. Asian Textile Imports Pose Challenge for European Fiber Producers With the removal of the final quota restrictions on global trade in textiles and clothing (effective January 1, 2005), European synthetic fiber producers are now faced with significant competition from Asian manufacturers. European producers are already contending with high raw material costs and negative price pressures due to significantly reduced cotton prices. Their ability to pass on price increases has been hampered by the high value of the Euro, which has decreased export volumes. A flood of Chinese imports would be a further blow to the European synthetic fiber industry. Producers in Eastern Europe, who offer similar products to those manufactured in Asian countries, could be hardest hit. Celanese Acquisition of Acetex Approved by Shareholders Nearly all (99.95 percent) of Acetex shareholders approved the acquisition of the company by Celanese for $498.5 million (Euro 377 million). Celanese will make the acquisition through its wholly-owned affiliate, HNA Acquisition. The deal still requires regulatory and judicial approval. Prices Rise for Epoxy Resins Increasing demand and continuing high raw material costs have driven epoxy resin producers to raise prices. Both Dow Chemical and Resolution Polymers are seeking to recover acceptable margins that will enable them to sustain their businesses. Price increases have applied to monomers, polyols, and curing agents in addition to the resins. In This Issue Featured Article Famous Quotes Imponderables Companies Personnel Business/Finance Pharma Fine & Specialty Chemicals Agrochemicals Biotech Commodity Chemicals Plastics Specialty Polymers Corporate HQ: 9101 LBJ Frwy.,    Suite 310 Dallas, TX 75243 USA Tel: (214) 349-6200 Fax: (214) 349-6286