The Exclusive Synthesis & Amino Acids Business Line within Evonik's Health & Nutrition Business Unit supplies the pharmaceutical and other industries with high-quality fine chemicals. In line with the concept of horizontal integration, customers get an optimal combination in terms of a good cost structure for intermediates and basic active ingredients from the production plants in Asia and for intermediates and active ingredients of higher complexity from sites in Europe and the U.S. Beginning this year Evonik acquired a U.S. production site from Eli Lilly that further expands its technology portfolio and is currently being integrated into the existing production network. Dr. Michael Reubold spoke to Dr. Hans-Josef Ritzert, head of the Exclusive Synthesis & Amino Acids Business Line, about trends in the pharma market, technological progress, customer requirements, and the future strategy of the business in general.

CHEManager: In the middle of last year, Dr. Reiner Beste, head of the Health & Nutrition Business Unit, spoke of business being robust even in the crisis. Did business continue to be crisis-proof in the months that followed?

Dr. H.-J. Ritzert: The BU's business is indeed relatively crisis-proof, as is currently evident in the area of animal nutrition. In the Exclusive Synthesis & Amino Acids Business Line we observe that the pharmaceutical industry-our primary market-remains stable. But even here, we have noticed over the last few months an increasing optimization of net working capital, so that order postponements could occur in this area as well. Over the medium and long term, however, we will profit from the trend toward outsourcing in the pharmaceutical industry, and already see clear signs of growth here. In the electronics industry we are feeling the effects of the economic downturn more strongly and recorded a decline in business in the first half of 2009. Fortunately, order income for 2010 has once again improved.

How do you assess the innovativeness of your main market, the pharmaceutical industry?

Dr. H.-J. Ritzert: First, the pharmaceutical industry has traditionally been among the most innovative industries, because for the large pharmaceutical companies-the originators-there is simply no alternative. Second, We are seeing that more and more pharmaceutical companies are outsourcing part of their API and intermediate production. This is a clear trend, arising from the desire to focus on the core competencies of research & development, and sales & marketing. This opens up promising prospects for us to expand our business.

How do large pharmaceutical companies with their own research departments award projects? Do you recognize particular trends that might result in, for example, increasing your customers' requirements or expectations of you?

Dr. H.-J. Ritzert: For many pharmaceutical companies, outsourcing has become a strategic process leading to significantly closer collaboration with vendors. And the requirements on these preferred suppliers, as we call them, are clearly higher. This is exactly our approach. We are in discussion with the pharmaceutical companies for their early pipeline products. For example, we jointly develop suitable and robust processes that are feasible on a technical scale for active ingredient molecules developed in the research labs of the pharmaceutical customer. This is far from mere tolling production; it is rather process optimization that continues during product development and even after market launch of the drug. We then support the customer with the entire product life cycle. Due to the breadth of our technology portfolio and the flexibility of our production sites we are in an excellent position to do this.

Does entering the value chain at an early stage mean that you assume a certain share of risk?

Dr. H.-J. Ritzert: Yes, but we must find this balance jointly with the customer by coming in at the right time. Good entry points are phase II or early phase III projects in clinical trials-but that doesn't mean we can't be successful in introducing products even after market launch, or for off-patent applications. And we then provide support over the life cycle of the products by, for example, subsequently developing additional solutions for cost optimization-by optimizing processes, for instance, or even the production plants-and pass this efficiency gains on to the customer.

Where do you see your technological core competences?

Dr. H.-J. Ritzert: Our greatest "core competence" is the breadth of our technical expertise: We offer almost the complete range of chemical synthesis technologies. In the last few months We have further strengthened our position in this area by establishing a fluorine laboratory. An increasing number of active ingredients in pharmaceutical products, and also in agrochemicals, contain fluorinated building blocks and we are now in a very good position-in terms of research, with the new fluorine lab here in Hanau-Wolfgang, as well as our assets-to offer our customers optimized solutions.
We are currently also expanding our expertise in the field of crystallization, because we see crystal morphology is becoming increasingly important for pharmaceutical active ingredients, particularly in the scale-up from laboratory to production. In addition to chemical and optical purity, the morphology of active ingredients is playing an increasingly important role here. As reported crystallization science is an enabling science with a high degree of relevance to large-scale manufacturing. From my point of view, understanding of crystallization principles and techniques is an essential competence for developing large-scale API production. We will continue to develop these processes on a project-related basis together with our customers.

On the subject of active pharmaceutical ingredients, other technological trends like chiral technologies, biotechnological methods, micro reaction technology, and continuous processes are also becoming increasingly important. How are you positioned in these areas?

Dr. H.-J. Ritzert: In regard to these trends, we are supporting the developments of our customers in the pharmaceutical industry. In chiral synthesis, for example, we have synergies with other business lines within the Evonik group. In the last few years, we have worked together with our Catalysts Business Line to develop homogeneous catalysts that we can use to optimize processes, both for external requirements and, of course, also for internal chiral chemical syntheses. We have also pursued developments in micro reactors. Evonik Degussa has a long tradition to develop biotechnological methods for large-scale manufacturing. In the meantime some enzymatic platform technologies are available for production of chiral compounds. Continuous production processes could play a larger role in the future, but we expect that batch processes will continue to be important for API production.

You said that there are synergies within Evonik to offer pharma customers an even more extensive technology portfolio. How are these synergies enhanced?

Dr. H.-J. Ritzert: We pursue certain activities within Evonik that target the pharmaceutical industry as customers. We recognized early on that synergies do exist here. For this reason we have been maintaining for some years a pharmaceutical industry team that cuts across business unit boundaries and includes members from technology, marketing, and sales. The members of this experts team that belong to such business lines as Catalysts and Exclusive Synthesis & Amino Acids as well as Pharma Polymers exchange views regularly, develop synergies, and agree about joint activities that ultimately benefit our pharmaceuticals customers. We plan to strengthen this approach further in the future to allow us to increase our growth in this segment.

Can you give us an example?

Dr. H.-J. Ritzert: A good example is the development of homogeneous catalysts, for example for asymmetric synthesis, which I referred to earlier. A further example is provided by amino acids, where we can map the entire value chain, partly across business line boundaries. For example, we use amino acids as starting materials in chemical reactions for producing active pharmaceutical ingredients. And here, too, synergies exist in the business unit Health and Nutrition between Exclusive Synthesis & Amino Acids and the Bioproducts Business Line, which produces these amino acids by fermentation.

At the end of last year, you acquired a new production site in the U.S. Where does this fit into your production network?

Dr. H.-J. Ritzert: Our business line has two sites in Germany. First, here in Hanau-Wolfgang, we operate our research center as well as the production plant, and the site also houses our global key account management. The other site is Evonik Technochemie in Dossenheim, where we started up a new active ingredients production facility last June. In Europe, we also have another site for pharmaceutical amino acids in Ham, north of Paris, where we purify amino acids to pharmaceutical grade and also produce amino acid derivatives. In China we operate two production sites: Evonik Lynchem in Dalian, in the north of the country, and Evonik Rexim (Nanning) Pharmaceutical in Wuming, in the south. At this latter site we are creating a second base with an investment in an exclusive synthesis plant. Therefore, in the future this will not be purely a Rexim amino acid site; together with a customer, we have established a new plant for production of an active ingredient, which will come on stream early this year. And of course we now have the new U.S. site of Tippecanoe Laboratories in Lafayette, Indiana. So we have a network of production sites that is highly competitive and where we can map a variety of different processes, depending on customer requirements and technology. The sites, therefore, complement one another. We call this concept "horizontal integration."

Could you describe the concept and its implementation in more detail?

Dr. H.-J. Ritzert: After its synthesis, a pharmaceutical active ingredient is characterized by three value-creation steps. Standard intermediates are first manufactured; these intermediates are then converted to what is known as advanced intermediates, from which in turn the final active pharmaceutical ingredient or API is produced. In the last few years we have focused strategically on advanced intermediates and APIs because we have recognized increasingly intense competition in the area of standard intermediates. As a result, we divested the British site Seal Sands, which focuses on standard intermediates. We have instead expanded our position in APIs, first, with the acquisition of Tippecanoe, and second, with the new facilities in Dossenheim and Wuming. Horizontal integration in this context means that we produce simpler advanced intermediates and - to a less extend - APIs, where we are in a more competitive environment, in China, and we make more complex final steps close to the API-or the API itself-at sites in the West.

Do the sites in China already have the background for more cost effective production?

Dr. H.-J. Ritzert: Of course, cost structures in China are different from those in Europe or North America, but we have global ESH standards that we apply to all sites. Of course, we take national regulations into account, as well.

What was the crucial factor in the decision to acquire the U.S. site Eli Lilly?

Dr. H.-J. Ritzert: There were various reasons. The first of those, as I mentioned earlier, was to focus the production of advanced intermediates and APIs. The Tippecanoe site has both an excellent technology base and a featured quality management. The assets are of pharmaceutical standard, and that for a reactor volume exceeding 600 cubic meters of API capacity. Another important aspect was that the site has many years of experience in, and the appropriate assets for, production of high-potency API´s. So it allowed us to significantly expand our technology base in this area. Additionally, we have concluded a nine-year supply agreement with Eli Lilly. The company not merely had an interest in selling the site, but also in entering into a long-term supply agreement to be able to continue manufacturing key active ingredients at the site. That fitted very well with our own plans because it allows us to "grow into" these capacities with business for other pharmaceutical companies. It's very important for a pharmaceutical company that the outsourcing partner has a critical size and be as flexible as possible with availability of production capacities. For the acquisition of the Tippecanoe site, the decisive factor was the expertise of the more than 650 employees we took over together with the existing assets.

Exclusive synthesis represents a particular challenge for the plants due to order and production characteristics. How do you plan projects so as to use synergies optimally and ensure high capacity utilization and a competitive cost level?

Dr. H.-J. Ritzert: First, we have global production planning. New projects are assigned to production sites worldwide on clearly defined criteria. This is done in close collaboration with our customers. Many of our customers have clear ideas on where the intermediates or APIs should be produced - preferring Europe or the U.S. for the last stages, for example. Other customers prefer Asia due to its more attractive cost structures. In this regard, we can satisfy customer requirements with great flexibility. We use tools that allow us to assess the various options-by simulations, for example-very rapidly and transparent to the customer, in order to offer the economically optimal capacity assignment. Moreover, at each of our sites we pursue process development, which is globally managed. The focus is currently on rapid integration of the new site in Tippecanoe and of course also of the investments in Dossenheim and Wuming.

You mentioned off-patent products. Do you also target generics producers for collaboration?

Dr. H.-J. Ritzert: As already discussed our focus is customized project business. But there is also business that is to be regarded rather as product business. Here we produce advanced intermediates or active pharmaceutical ingredients that are off-patent. In this field, especially for technically more sophisticated products, we are able to be competitive with our organization and technologies.

How do you view the long-term prospects for your business?

Dr. H.-J. Ritzert: In the future Evonik Industries will, among other things, focus on pharmaceuticals and health care as growth topics, and this is reflected in the strategy of our business line. We will become, to an even greater degree, the partner of choice for pharmaceuticals customers, and we look to develop opportunistic business into strategic partnerships. After all, this represents a further logical step of the strategy that we have followed very successfully over the last few years.