Friday, March 28, 2014

An interesting comment on the fine chemicals biz

This week’s announcement that Albany Molecular Research Inc. will acquire Cedarburg Hauser Pharmaceuticals—a $41 million deal—has us on the verge of declaring a trend. You will recall that last October, AAIPharma purchased another Midwest active pharmaceutical ingredients (API) producer, Cambridge Major Laboratories. All we need is one more to feel that the black ice of overcapacity in pharmaceutical fine chemicals is finally starting to melt. 
[Note: The DSM/Patheon deal does not count as it has not, as of yet, led to any consolidation in API manufacturing stewardship.] 
Industry watchers have long bemoaned the need—some would call it the obvious-if-not drastic need—for consolidation in the contract pharma chemicals sector. The problem of too few jobs for too many producers is long-standing to the point of seeming sustainable. But action may be triggered now by the nature of those jobs. Customers, transitioning from the block-buster era into the age of targeted therapies, want much smaller volumes of chemicals than they did only a couple of  years ago. And the molecules they want have become increasingly more complex. The stronger contractors, such as AMRI, are on the lookout for ready-to-go advanced API synthesis capacity. Companies like Cambridge Major and Cedarburg are perfect targets, especially for diversified service firms such as AAI and AMRI that want to build out their API offerings.
I did not expect AMRI to be an acquirer, as opposed to the acquired. But what do I know? It's good news for them, I suppose, although I wonder how employees of Cedarburg feel. 

2 comments:

  1. I would describe the overall feeling of Cedarburg employees as cautiously optimistic. At least initially, AMRI has announced their plan to operate Cedarburg independently which should mean that most retain jobs. On top of that, AMRI has a significantly better benefits package. The picture should become clearer when the deal closes in early April.

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  2. "I did not expect AMRI to be an acquirer, as opposed to the acquired. But what do I know? It's good news for them, I suppose, although I wonder how employees of Cedarburg feel."

    As a survivor of multiple acquisitions, I would claim Albany employees have no reason to feel safer than Cedarburg employees (though the best may be asked to relocate). Unless Cedarburg is a pure take-out play (to rid Albany of a pesky competitor), the optimization of employment across the combined firm is strictly Darwinian. And if "AMRI has a significantly better benefits package", then that's one strike against employees in the acquirer before the competition has even commenced.

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