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Reach
Saga Continues
Industry remains concerned about the impact of
Europe's proposed registration, evaluation and
authorization of chemicals (Reach) policy, while the
European Commission (EC) and environmental groups want
to move ahead with the program. The EC recently
referred to a new KPMG impact assessment on Reach,
which suggests that a "balanced and workable
solution for Reach" can be achieved that will
also meet the requirements of Europe's Lisbon goals to
improve the region's competitiveness, according to the
EC commissioner. However, small and medium sized
businesses will be impacted by the policy. The study
also suggests that innovation will be stifled as
companies invest in maintaining market share. The EC
expects the Reach legislative process to be realized
by September 2006.
The cost of the Reach policy is anticipated to be
approximately $3.0 billion (Euro 2.3 billion) to
industry over 11 years, and $3.65-$7.56 billion (Euro
2.8 - Euro 5.8 billion) to the economy over the same
period.
Prioritization of substances, clarification of rules,
overlap with existing regulations, exemptions for
R&D, and confidentiality issues are key concerns
of industry. Cefic, the European chemical industry
council, says that the KPMG study shows that in some
cases it will not be possible for producers to pass
the costs of Reach along the supply chain. As a
result, certain product lines may become too costly
and will be dropped.
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Rhodia
Seeks Liability Compensation from
Sanofi-Aventis
Since December 2003, Rhodia has been trying to
recover the higher costs associated with
environmental and pension liabilities than
those provided for when the company was spun
off from Rhone-Poulenc in 1998. Rhodia's
latest action involves an arbitration
procedure against Sanofi-Aventis, which
followed a failed conciliation move it made in
February, 2005. Rhodia's minority shareholder,
Hughes de Lasteyrie, independently lodged a
penal complaint for Euro 2.8 billion in
environmental compensation from Sanofi-Aventis
in August, 2004.
Rhodia is also faced with an investigation of
its financial affairs between 1999 and 2002 by
Paris's public prosecution office, which is
focusing on alleged accounting irregularities
and insider trading. The investigation is in
response to complaints about the company made
by banker and former Rhodia board member
Edouard Stern, who was murdered in February.
The Autorité des Marchés Financiers (AMF),
France's stock market regulator, is also
investigating Rhodia for its failure to
disclose financial information regarding its
acquisition of Chirex in 2000. Separately, the
French Finance Ministry alleges that minority
shareholder Hughes de Lasteyrie attempted to
blackmail the company.
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High
Tin Prices Making Mark
Following years of low pricing and the decline
of tin mining in some producing countries, the
tin market has undergone dramatic changes
since 2002. Prices increased by nearly 150
percent from August 2002 to May 2004. Current
prices of $8,090-$8,255 per tonne are
significantly higher than the $3,500 per tonne
price that prevailed in the summer of 2003.
Because tin is a traded commodity, prices
cannot be negotiated. Companies using tin as a
raw material have been forced to pass the
price increases along to their customers. Tin
is largely used in stabilizers that replace
lead-based products that are being phased out
in Europe for environmental concerns. Asia is
also beginning to phase out the tin-based
stabilizers, and South America is expected to
do so in the future. New applications for tin
in solders, plastic stabilizers, and batteries
are driving up demand too. Projects in
Australia, Brazil, Egypt, Argentina, Russia
and the UK will contribute to the tin supply
(up to 25,000 tonne per year), but prices are
still expected to remain at their current
levels or climb slightly higher through 2006.
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Pfizer's new strategy will achieve $4 billion
in cost-savings by 2008, according to the
company. In addition to developing, licensing,
and acquiring new products, Pfizer will
maximize the value of its existing products by
conducting further clinical trials to identify
additional therapeutic uses. The company also
plans to leverage its scale for licensing
opportunities and procurement savings and will
sell-off several plants in order to streamline
its manufacturing capabilities.
President and COO Charles E. Bunch has been
named CEO of PPG Industries effective
immediately. He will take on the role of
chairman, as well, when Raymond W. LeBoeuf
retires from PPG Industries on July 1, 2005.
According to the company, the appointment is
in accord with PPG's long-term management
succession plan.
The French chemical industry trade group Union
des Industries Chimiques (UIC) expects that
the industry will experience a strong recovery
in 2005. Chemical and pharmaceutical sales
revenues are predicted to rise 5.4 percent,
with sales volumes increasing 3.9 percent.
France's chemical industry is faced with
several challenges, with the cost of
electricity a critical one. A task force set
up by economy and industry ministers is
developing proposals such as moving towards
long-term industrial contracts, sharing
electricity transport cots, and capping taxes,
to maintain competitiveness of the French
chemical industry.
High energy prices and tightening financial
markets in the U.S. could affect the global
chemical industry. Uncertainty in the U.S.
chemical sector is increasing as the growth
rate appears to be slowing down. The slowdown
is largely attributed to the impact of high
oil prices as raw material suppliers continue
to pass their added costs on down through the
chain. Western Europe and parts of East Asia
are also feeling the affects of high oil
prices. The strength of the Euro is also a
factor.
Avecia will close its commercial DNA medicines
manufacturing center at Grangemouth, U.K. by
the end of the summer due to lack of demand.
This closure follows the exit of Degussa from
the DNA drugs market. Avecia will maintain its
DNA medicine manufacturing facilities in the
U.S., where there appears to be more interest
in the business. The company invested $30
million to establish the two sites and as late
as mid-2004 expanded early phase capabilities
at Grangemouth. The loss of a key customer
whose candidate failed to go beyond phase III
clinical trials led to the closure.
Approximately 90 jobs will be lost.
According to a study commissioned by Europe's
biotech trade association EuropaBio, while
many biotechnology companies are started in
the region, a large percentage fail within 3-5
years due to lack of funding. There are about
60 biotech companies in Europe that are large
enough to invest in R&D at the level
necessary for continued value creation. These
'elite' companies can compete on the
international level. In general, however,
biotech companies in the U.S. employ twice as
many people, invest much more heavily in
R&D, and raise far more venture capital
than their European counterparts.
Leading biopharma companies such as Amgen,
Biogen Idec, and Genzyme are lacking in late
stage pipeline candidates. Like big pharma,
they are beginning to rely on in-licensing of
drug candidates from small biopharma firms.
Amgen does have current blockbusters on the
market and several strong candidates in early
phase studies. It also has cash and is in a
position to make significant acquisitions to
improve its portfolio. Biogen Idec's pipeline
is lacking in both early and late-stage
candidates and is struggling with decreased
sales of its leading drugs. Genzyme is dealing
with its recent $1 billion acquisition of
Ilex, has experienced market share erosion of
its leading products, and is struggling to
generate the cash flow needed to continue with
future acquisitions and licensing deals.
Genentech is one firm that is well positioned,
with both Rituxan and Avastin on their way to
becoming "super blockbusters."
Demand for Chlorine is rising faster than that
for Caustic soda in China. In the future, if
all additional needed capacity is constructed
in the country, China is expected to have an
additional 1.7 million tonne of Caustic soda
available for export, according to a recent
study by Tecnon OrbiChem. The country does not
possess the infrastructure to handle such a
volume. However, the issue may be a moot
point, as China may lack the energy and raw
material resources to supply the additional
Chlorine/Caustic soda capacity needed.
Instead, it may become a significant importer
of these commodity chemicals.
According to the National Property Fund (FNM),
the Czech state privatization agency, PKN
Orlen will complete its acquisition of a 63
percent stake in Unipetrol some time in May,
2005. The transaction has been approved by the
European Commission. The value of the deal
will be determined following a final audit of
Unipetrol's results. The contract price of
$558.6 million (Euro 432 million, Koruna 13
billion) may change depending upon the audit.
Analysts remain concerned about the deal and
PKN Orlen's ability to make the acquisition
work because the two companies have fairly
dissimilar portfolios. PKN will likely sell
off some Unipetrol units including
fuel-distribution centers, hotels and medical
centers.