Euticals makes its global move

ARCHIMICA HAS BEEN around the block.The fine and pharmaceutical chemicals firm, in fact, has a lot of miles on it.

 

 

ARCHIMICA HAS BEEN around the block.

The fine and pharmaceutical chemicals firm, in fact, has a lot of miles on it. Operating since the 1970s in Origgio,  Italy, it was acquired by the British firm BTP in the 1990s and linked up with other BTP acquisitions in the U.S. and Europe. Clariant acquired BTP in 2000 and created a pharmaceutical chemicals business. By 2006, Clariant was disillusioned with the field and sold the business to the venture capital firm TowerBrook Capital Partners.
In Archimica’s latest change, Italy takes on more significance. In February, Archimica was acquired by Euticals, an active pharmaceutical ingredient (API) manufacturer that has its roots in the community of small family-owned drug chemical firms clustered around Milan.
The story of Euticals’ acquisition of Archimica encapsulates several trends in the API sector: serial ownership changes, the entry of venture capital into the market, the push to grow the API business geographically, and the broadening of service offerings by companies hoping to establish “onestop shops” for pharmaceutical clients.
It also features a high level of risk taking, even for the fine chemicals industry, as a regional Italian firm attempts to assimilate a diverse global operation all at once.
“I think the industry is changing,” says Maurizio Silvestri, chief executive officer of Euticals. “I think it is trying to simplify.”
By this, he means that customers in the drug industry are looking to manage fewer relationships. Suppliers, in turn, need to diversify in terms of geography, products, and services. Although amassing a comprehensive service offering is hardly a unique tack in the sector, Silvestri sees it as a near-revolutionary move in Italy and an opportunity to build a major player in the traditional home of the small API shop.
A former vice president for international technical operations at Bristol-Myers Squibb, Silvestri was hired as Euticals’ chief operating officer in 2002 by the Carinelli family, which owned the firm at the time. Part of his job was to integrate three acquisitions the firm had made in Italy: ProBioSint in Varese, Prochisa in Casaletto Lodigiano, and Diaspa in Pavia— the last of which was soon divested.
The moves expanded the company’s API portfolio, but Euticals had its eye on global expansion, Silvestri says.
The financial support to do it came in 2008 when the Carinelli family sold 85% of the company to Mandarin Capital Partners, a venture capital firm based in China and Italy. Silvestri, who by then had been promoted to
CEO, moved forward on the acquisition of Polichimica, another Italian API company, in 2010. The company also acquired a 30% interest in Tianma Tanji, a peptides and dosage-form drug producer near Shanghai.
Polichimica, a specialist in immunosuppressants and muscle relaxants, brought new technologies. “There is some fermentation, some steroids, and products like neuromuscular blockers— high-potency drugs,” Silvestri says. “The company was very close to our plant, so the integration has been quick and efficient.
From the point of view of our product portfolio and technology, we were improving, but we were really worsening our image in terms of being an Italian company, not a global company.”
ARCHIMICA, he says, presented an ideal opportunity to change that, beginning with its anchor in Origgio. There is little overlap in products, and Archimica brings with it specialized expertise. In Italy, Silvestri notes, Archimica manufactures minocycline, a tetracycline antibiotic that requires advanced hydrogenation.
Archimica’s site in Germany makes the reagent T3P using a high-yield, low-cost technology. In France, the company manufactures sterile products; in the U.K., it specializes in difficult reactions involving dinickel sulfate, iodine, and nitration; and in the U.S., controlled substances are the specialization.
Archimica facilities also provide capacity.
“And Euticals is running out of capacity,” Silvestri says. “There is still a lot of idle capacity in France.” Euticals has no plan to close down any of Archimica’s operations, he adds.
According to Silvestri, Euticals’ product mix will shift from 70% APIs to 65% with the acquisition of Archimica, whereas contract and custom synthesis will increase from 5% to 10%. Most of the APIs are generic drugs, and the rest of the production is drug intermediates and other fine chemicals.
Last year, Euticals’ sales totaled $133 million, compared with about $172 million for Archimica.
Silvestri says he is looking ahead to yet another acquisition, one targeting dosageform manufacturing in the U.S. or Europe.
The company has its eye on opportunities in Asia and Latin America, and Mandarin Capital, he says, has stated the objective of an initial public offering for the firm, perhaps as early as next year.
James R. Bruno, president of consulting firm Chemical & Pharmaceutical Solutions, is a bit taken aback by Euticals’ global push. “If it works, it will be a bold move on Euticals’ part that takes them from an insignificant player to a real global player,” he says. At this point, however, Bruno only sees a “global mess” spurred by an acquisition spree.
“Euticals was basic in a really niche market,” he explains. “Venture capital comes in and says, ‘Expand in the market because we are a venture capital firm, and we believe the only way you can grow is through acquisition.’ They have taken on a whole bunch of little pieces, and I question how well they really fit.”
Bruno’s misgivings in regard to the Archimica acquisition in particular are based partly on the size of the companies involved. “When I looked at Archimica’s product line and then at Euticals’, it was like the proverbial Goliath getting eaten up by David. I didn’t think Euticals was big enough to do it.” He adds that Archimica has experienced several ups and downs, including problems with the U.S. Food & Drug Administration, which will not make Euticals’ road forward any easier.
Silvestri counters that Archimica is in a better position to succeed under Euticals than with its previous owners. “They were not coming from the pharma industry,” he says. “TowerBrook was a private equity firm. Clariant was not a pharma company, nor was BTP.” He plans to draw on his experience with Bristol-Myers and notes that many managers at Euticals have international experience as well.
“Clearly this is a big challenge,” Silvestri says. His approach, he says, will be to instill a pharma industry focus across the company, injecting a current Good Manufacturing Practices ethic even into non-cGMP product areas, including agricultural chemicals.
“We may fail; this is clearly a possibility,” Silvestri acknowledges. “But we have a lot of ideas about how to develop Archimica within Euticals. And that is the story in the end.”

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