PPG Finalizes Coatings Acquisition and Reappoints CEO for Auto Glass Business
PPG Industries finalized its $3.2 billion (Euro 2.2 billion) acquisition of SigmaKalon. The deal is expected to boost the company's annual sales by $3 billion, and increase its coatings sales to nearly 75 percent of its total business operations.

Meanwhile, following its failure to sell its auto glass business to Platinum Equity - who recently brought a lawsuit against PPG in conjunction with that sale - PPG appointed ex-employee Frank Archinaco as CEO of the division. Archinaco was executive vice president for the glass and chemicals division when he retired in 2002.

Specialty Chemicals Becoming Focus for Dow Chemical
Dow Chemical's $19 billion (Euro 12.2 billion) olefins and polymers project with Petrochemical Industries Co. (PIC), a wholly owned subsidiary of state-owned Kuwait Petroleum Corp., is its last action under the company's "asset light" strategy. Advantageous feedstock positions and vertical integration with Dow's performance businesses is critical, because these businesses will be central to the company's performance from now on, according to company head Andrew Liveris. Human health, energy, infrastructure and transportation, and electronics and communications will be the four key business platforms. Selective acquisitions of specialty companies are expected. Liveris predicts that Dow will achieve annual sales of $50 to $60 billion in five years, with specialties accounting for 70 to 80 percent.

Chemicals Attract Investors in Singapore
According to the Singapore government, the chemical sector in the country will attract significant investment, as will the semiconductor, biomedical and aerospace industries. Projects announced n 2007 include ExxonMobil Chemical's mega cracker and Neste Oil's renewable diesel plant

Chemical Industry Faces Challenges in Russia
Russian chemical firms hope that foreign investors can help the industry address the critical issues it faces. According to some Russian industry players, there is a severe need for introduction of new capacity and modern infrastructure. Existing facilities are physically worn out, inefficient and technologically inferior, and they must be replaced if the Russian industry is to take advantage of growth opportunities. Injection of capital from foreign investors will be required if these necessary changes are to take place. New Russian complexes will have access to cheap feedstocks and significant natural resources, and they should be attractive to investors.

M&A at Peak in 2007
The value of chemical industry M&A deals in the first three quarters of 2007 totaled $38 billion (Euro 26 billion), and the value for deals in the full year is predicted by Young & Partners to be higher than the $42 billion reached in 2006. In the first three quarters of 2007, eight deals worth more than $1 billion were completed, and 63 transactions valued at more than $25 million were closed.

There has been a significant slowdown in activity, however, since the beginning of the financial crisis in the third quarter, and this trend is expected to continue in 2008. Smaller deals will still be made though, particularly in the European chemicals market, which was the location of the largest percentage of deals in 2007. Companies such as Cambrex, Calumet Specialty Products, Airgas, Arkema, Lanxess and Johnson Matthey have received coverage related to recent M&A activity. The most notable change will be the lack of deals initiated by private equity, which has largely exited the market.

Political Uncertainty Plagues Thai Petchem Industry
Players in the petrochemical market in Thailand fear that the newly installed People Power Party (PPP) will not stay in control for more than a year. With further upheaval expected so soon, they recommend that foreign investors stay away from projects in the country. The economy has suffered during recent troubling times, and it is not expected to improve in 2008. Few have faith that the new government will be able to have any impact, despite the many promises it has made to rejuvenate the economy.

U.S. Chemical Industry Responds to Lead Paint Ruling
The American Chemistry Council (ACC), the National Association of Manufacturers (NAM) and the National Paint and Coatings Association (NPCA) have joined forces to fight a lower court ruling in a recent lead paint case in Rhode Island. The ruling finds paint manufacturers liable for the removal or remediation of lead-based paints in homes, office buildings, schools and other structures throughout the state, a decision that could add up to $4 billion (Euro 2.7 billion) in liability costs and set a precedent with the potential to open all product manufacturers to similar liability exposure. The industry argues that the product, which was produced prior to the passing of a ban on its use, is not defective and was sold legally. Property owners or landlords who fail to maintain the coatings should be held liable, not the manufacturers, the industry maintains. The case is expected to be heard by the Rhode Island Supreme Court in May 2008.

U.S. Producers Recovering Rising Costs
A favorable exchange rate for exported goods and an ability to pass through price hikes to their customers have made it possible for U.S. chemical manufacturers to recover much of the increases in raw material costs that occurred in the fourth quarter of 2007. Shell Chemicals reported an increase of 11 percent in operating income that was achieved through improved margins and lower fixed costs. For Eastman Chemical, income was up 44 percent in the fourth quarter of 2007 due to higher selling prices, a decline in some energy and raw material costs and an improved product mix. For 2008, companies are concerned about global economic uncertainty and the continued rise in raw material and energy costs.

FDA Acknowledges Need for International Offices
The U.S. FDA announced that it will send inspectors to foreign countries on a permanent basis, particularly in countries where exports of active pharmaceutical ingredients and formulated products to the United States are high. The announcement mentioned China and India, as well as the regions of Central and South America and the Middle East. The agency's presence abroad will be "ongoing and continuous" rather than "episodic and periodic," according to FDA commissioner Andrew C. von Eschenbach. The FDA must arrange funding for the inspectors and work with the State Department to determine how its inspectors will relate to other parts of the U.S. government. Host nations must request the presence of these inspectors before they can be sent abroad, which is another hurdle to be addressed.

This announcement comes after the FDA faced criticism about its limited number of inspections of foreign manufacturers despite the fact that as much as 80 percent of active pharmaceutical ingredients used to formulate generic and over-the-counter drugs in the United States are now imported. Ex-FDA officials, a representative from the General Accounting Office, and spokepersons from the Synthetic Organic Chemical Manufacturers Association (SOCMA) and the Generic Pharmaceuticals Association (GPhA) also testified about this subject before a congressional oversight committee in November 2007.

Pharma Companies Visited by EU Antitrust Regulators
Leading drug manufacturers, including Pfizer, AstraZeneca PLC, Sanofi-Aventis SA, Teva Pharmaceutical Ind., Wyeth and GlaxoSmithKline PLC are under investigation by European Commission antitrust regulators who are looking to determine if these companies tried to prevent generic drugs from being introduced to the market. Inspectors are looking to determine if patents and lawsuit settlements are being manipulated. Information about intellectual property rights, litigation and settlements in patent disputes was seized. The EC states that there are "indications that competition in the pharmaceutical markets in Europe may not be working well."

Chemtura Sells More Businesses

Chemtura has divested two more of its specialty businesses. DuPont purchased Chemtura's fluorochemicals operations for an undisclosed amount. PMC Group has agreed to acquire Chemtura's oleochemical business, also for an undisclosed amount. The business includes fatty acids, fatty esters, pharmaceutical-grade glycerin, glycerol esters, amides, bisamides, stearates, and triglycerides. These two transactions are part of the company's strategy to focus on its core businesses. In 2007, Chemtura also sold its organic peroxide, Ethylene-Propylene-Diene monomer (EPDM) and optical monomers businesses.

Enzymes Receive Growing Attention for Production of Chiral Compounds
Producers of fine chemicals increasingly employ biocatalysts for the synthesis of chiral molecules, key intermediates in the synthesis of complex pharmaceuticals and other specialty products. Enzymes can be used to catalyze the synthesis of a wide variety of highly pure, optically active compounds including alcohols, natural and synthetic amino acids, esters, carboxylic acids and many others. Types of enzymes include dehydrogenases, hydrolases, transferases, oxido-reductases, carbamoylases, etc. The use of enzymes often makes it possible to produce complex molecules in high selectivity and purity in fewer steps. Many involved in the sector predict that enzymes will replace a significant number of more traditional synthetic organic techniques for producing chiral intermediates. Companies developing enzymes for biocatalysis include Evonik, Lonza, DSM, Nicolas Piramel and Biocatalytics.

Great Future Predicted for Specialty Chemicals in India
The Indian government expects its specialty chemicals sector to grow at 15 percent per year until 2010 to 2011. It is currently valued at $10 billion. According to Ernst & Young, exports of specialty chemicals from India will total $13 billion in 2013, growing 22 percent annual from $4 billion in 2007. Key specialty chemical segments in India include paints and varnishes, adhesives, dyes and dye intermediates, flavors and fragrances, surfactants and pharmaceuticals. Increased outsourcing to India is a big contributor, as access to a skilled workforce and low labor and equipment costs will continue.

In the custom research and manufacturing sector (CRAMS), strong process chemistry skills, low operational costs and access to a skilled workforce have lead to rapid growth. Companies are faced with several challenges including learning to manage global organizations, rising labor and material costs and the need to retain trained workers. Many realize that cost savings is no longer enough to attract western outsourcing business. Companies are expanding to add services for the production of higher value-added and more complex products such as biologics and sterile APIs, as well as integrated drug discovery capabilities.

Investment in Biologics Paying Off
After a slow period for contract manufacturing of biologics that resulted in the closure or sale of some business and facilities, demand is on the rise and producers are positive about the future. Some predict the market for custom manufacturing of biologics will grow from $56 billion in 2006 to $115 billion in 2012. A rapid increase in the number of approvals of new biological entities (NBEs) by the U.S. FDA has been pointed to as an indicator of future growth. Others fear that the introduction of biogenerics to the market will impact the level of outsourcing for brand-name biologics. But most believe there is plenty of opportunity despite the expected approval of biosimilar products.

Recent actions by leading pharma companies also support the expectations for growth of biopharmaceuticals. Roche recently announced that it will invest $391 million to expand its biologics R&D and production sites in Switzerland and Germany. Meanwhile, Teva Pharmaceuticals agreed to acquire CoGenesys for $400 million, a spinoff of biopharmaceutical company Human Genome Sciences, in order to gain access to its biologic drugs pipeline.

Nanotech Still Holds Much Promise, but Regulation an Issue
For the first time in 2006, corporate and venture capital spending on nanotechnology research surpassed that of government investment and was growing at nearly double the rate as the commercialization of nanotech-based products. Major chemical companies such as DuPont, Bayer MaterialScience and BASF all have products on the market that incorporate nanotechnology. Many start-up companies in the energy, automotive, electronics and life sciences areas will soon be bringing new technologies to the consumer.

Consumers, while fascinated by the idea of nanotechnology, also are placing significant pressure on governments to regulate the impact that nanotech products might have on health and the environment. Many believe that it is important to evaluate potential risks before too many products containing nanomaterials make it to the commercialization stage. Both the U.S. EPA and the European Commission are investigating how to handle this issue. Particular difficulties include the large number of different forms of nanomaterials and the lack of instrumentation available for making appropriate measurements.

The U.S. EPA recently announced a voluntary reporting program for manufacturers, importers, processors and users of nanomaterials. The agency hopes to collect information over the next six months as part of its Nanoscale Materials Stewardship Program (NMSP). It also plans to develop test data for assessing the "hazards, exposures, and risks of nanoscale materials." In response to the announcement, both industry and environmental groups indicated that they believe the EPA is moving too slowly to establish an appropriate regulatory framework.

Outsourcing M&A in 2007
Consolidation among companies that provide outsourcing services to the pharma industry (contract manufacture, contract research, drug discovery, clinical trial management, etc.) continued in 2007, with private equity firms very active in acquiring non-core businesses divested by organizations looking to be more focused. Most deals were smaller in scale and many were global in nature. Approximately 120 transactions took place in 2007. Experts predict that because of the highly fragmented nature of the industry, M&A activity will continue in the outsourcing sector, but may move at a slower pace in 2008 due to the current economic climate.

One particular acquisition has many people taking notice. WuXi Pharmatec, the leading pharmaceutical and biotechnology R&D outsourcing company in China, recently purchased U.S.-based AppTec Laboratory Services, Inc., a provider of high-value testing, contract R&D and cGMP manufacturing services. The acquisition provides WuXi with access to FDA-approved facilities and an established customer base in the West, and it enables the company to provide an integrated and comprehensive set of outsourcing services to the global pharma industry. According to WuXi vice president Hai Mi, the two companies will be able to offer complementary and higher value-added services and expertise over a broad platform covering chemistry and biologics, while establishing a footprint in the United States and extending the company's customer base. He sees outsourcing as "global collaboration or networking," and believes its value is in the ability to develop higher numbers of drug candidates efficiently and cost effectively. Location - West versus East - isn't a factor.

Paper Chemicals Fighting Digital Movement
While many Americans are already weary of the current presidential race, paper chemical producers are happy with the extended timelines of recent elections, because they often result in increased demand for their products. 2008 is expected to be no exception. Bans on plastic bags in various cities around the world are also being viewed as a potential source for growth in the paper industry. Even so, the reduction in paper production that has taken place over the past several years will be difficult, if not impossible, to overcome. And as the move to digital media continues apace, suppliers to the paper industry will continue to face challenging market conditions. Consolidation and a focus on growth markets in Asia and Latin America have been the answer for paper chemical manufacturers. According to the Freedonia Group, Brazil, Chile and China are three countries that will experience strong volume demand.