European Fine Chemical Market Facing Increased Competition From Asian Suppliers

Production restructuring, innovation keys to future market growth.

The European fine chemical market must focus on niche marketing, production streamlining, and research and development in order to remain competitive with Asian fine chemical suppliers, according to a new report released by Frost & Sullivan.

Report findings show that the European fine chemicals market earned revenues of $10.44 billion in 2005 and is estimated to reach $12.96 billion in 2009.

These European fine chemical producers, due to lack of capability differentiation and relatively higher fixed costs and labor costs, are facing increased competition from Asian fine chemical suppliers.

Many European companies have been forced to either restructure or leave the market as a result of slower approval rates for new chemical entities which has lead to overcapacity and reduced profitability in the industry, the report noted.

"Production restructuring will revive the ailing European pharmaceutical fine chemicals market," notes Frost & Sullivan Research Analyst S. Shrikanth. "In fact, these companies should look beyond technology and become service providers for the pharmaceuticals industry, which includes consulting."

Restructuring efforts could already be beginning, as evidenced by the recent pharmaceutical production-restructuring announcement by Pfizer and Merck, which could lead to significant opportunities for the European pharmaceutical fine chemicals market. Preferred fine chemical suppliers will benefit from this.

The fragmented market is ripe for consolidation, as critical mass is a requisite for fine chemical manufacturers to attract pharmaceutical companies, according to the report.

Due to demand-supply imbalance, some of the pharmaceutical fine chemical companies are undervalued. The time is also suitable for private equity participation in the pure play companies. Asia driven acquisitions may prove to be a helpful exit option for the private equity participants.

Still, the trend of Asia driven acquisition enables Asian companies to offer services across the value chain. The lack of capability differentiation may force the pharmaceutical companies to bypass the European fine chemical suppliers and outsource to Asian companies.

"Notable among the acquisitions includes the Nicholas Piramal - Avecia Pharmaceutical deal, the acquisition of Rhodia Pharma Solutions by Shasun Drugs and Pharmaceuticals and the sale of Solutia Pharma solutions to Dishman Chemicals in May 2006," stated Shrikanth. "Evidence pointing to the likely bypass is that in May 2006, an undisclosed multinational pharmaceutical company had selected Dishman as the primary API manufacturer of the new drug."

If the fine chemical manufacturers that supply in Europe are to reach long-term success they must focus on niche technologies such as High Potency Active Pharmaceutical Ingredients (HPAPI), hazardous chemistry, customer service and quality, and collaboration with Asian firms. Prime considerations for continued profitability are confidentiality, first-class reputation, documentation, and product quality.

More in Global