Adaptability — A lot has happened in the world of custom manufacturing since Saltigo was carved out of Lanxess' fine chemicals business in 2006. Companies these days look to their CMOs as true partners to provide them with value-added services; the demise of pharma blockbusters; and a slowdown of APIs coming down pipelines are just a few examples of the "new normal" for custom manufacturers. Brandi Schuster spoke to Saltigo CEO Wolfgang Schmitz about the challenges his company faces and what trends play a role in the company's strategy.

CHEManager Europe: What do you see as the biggest challenge as being currently in the CMO business?
Wolfgang Schmitz: The current pharma market environment has certainly had a big impact, with blockbusters becoming free game for generics and with a lower number of APIs coming down the pipelines. Another aspect that makes the life of a CMO challenging is the long time to market, from the early development phases through product launch; and this also has a very high risk profile. Competition from Asia is also picking up.

According to a recent article by A.D. Little consultant Thilo Kaltenbach in CHEManager Europe, the amount of NMEs registered with the U.S. FDA has reached its highest level since 1997. How has this upswing affected your custom manufacturing business?
Wolfgang Schmitz: Over the last six months, two important projects have been completed where Saltigo played a pivotal role. One is for a novel drug for hyperkalemia from the late clinical-stage biopharmaceutical company Relypsa, which is currently in a two-part phase III clinical trial; we are expecting top-line study results soon. We also recently began a cooperation with one of Japan's largest pharma companies, Daiichi Sankyo, in preparation for the commercialization of one of their novel drug pipeline projects.

While we did see a peak in NMEs recently, it should be noted that the overall low number of NMEs has been challenging for CMOs.

Saltigo has become very active in the agro chemicals arena in 2013 with several new projects. What trends have you recognized in custom manufacturing in the agro sector?
Wolfgang Schmitz: First and foremost, we have a stable and sustainable business environment. Market researchers believe the average growth rate will be between 3-4%; this is not just in dollar terms, but also in volume. As a CMO, we see the development of new AIs becoming more and more cost intensive - upwards of hundreds of millions of dollars. The logical consequence is that less AIs are being introduced, which creates a certain challenge for CMOs.

What does that mean specifically for Saltigo?
Wolfgang Schmitz: We work proactively with these trends by maintaining close relationships with all the major agrochemical innovators from the early stages of product development. We have noticed a tendency for CMOs to become more intensively involved in such projects than in the past. The time-to-market requirements have also become very ambitious. It has become quite essential to save time and to be the first on the market with a new product solution; this is where agrochemical companies look for recognized CMOs who can support them. All in all, I see a positive trend in agrochemical custom manufacturing for the coming years.

Competition from Asian CMOs has been picking up over the last several years. European companies working with CMOs in Asia have often complained about time delays, which can quickly compound into a large problem when a player wants to be the first to market. How can Western CMOs use this to better position themselves?
Wolfgang Schmitz: We are able to accompany innovator companies through their product's lifecycle with very good cost management. We firmly believe that all major agrochemical companies are putting a lot of consideration into choosing a CMO to work with on a mid- to long-term basis. Customers want to have Western-based CMOs that are sustainable, reliable and able to keep product innovation strictly confidential. I believe that Western CMOs have a very good chance to maintain and to even gain position over Asian CMO companies.

Do you ever have customers who come back to Saltigo after trying out an Asian CMO?
Wolfgang Schmitz: Our customers don't mention this specifically, but my feeling is that yes, this does happen. Projects that were initially discussed for Asia will finally end up with a Western-based CMO for the reasons I just mentioned, particularly worries about intellectual property. My feeling for Saltigo is that our customers very carefully decide which molecule goes to which CMO. The more sophisticated molecules are usually given to the Western CMO because of, again, intellectual property concerns but also because Western companies like Saltigo have proven track records of being able to handle the challenge of very complicated molecules.

In mid-2012, Saltigo decided to concentrate more on Phase III products and products that are already approved in pharma; how has this strategy worked for the company so far?
Wolfgang Schmitz: It has worked out quite well, because we are able to concentrate our resources in a defined and efficient manner. Concentrating on Phase III products and products with rather larger quantities also improves our risk profile; there is simply too much risk involved in projects never making it past Phase I or II. We are convinced that this is the best strategy for Saltigo.

This is a different approach than with your agrochemical customers. What does your relationship look like with your pharmaceutical partners when Saltigo is coming into a project at Phase III?
Wolfgang Schmitz: Over the last two years, we've approached potential customers and discussed the advantages we have to offer. There are companies who are convinced right away that Saltigo is the right fit for them. Others might decide to continue working with the companies they have worked with in the early phases. These decisions are very dependent on the project at hand, and each project has different challenges to be mastered. There is no one size fits all approach for this.  

Saltigo's focus is very much on being a custom manufacturer, not a custom research and manufacturer. What are the advantages of this business model? 
Wolfgang Schmitz: While we're a young company as Saltigo, but we were already active in fine chemicals for agro, pharma and non-life science areas previously. In principle, we always had a very strong asset base. We now have nine plants in Leverkusen and one plant in Dormagen, and the plants have always been accompanied by a strong process development area. Our business model has always been synchronized around manufacturing. We are also constantly developing our Leverkusen site; Lanxess CEO Axel Heitmann announced at our annual general shareholder meeting that the company will invest €100 million in Saltigo through 2015. This will be invested in debottlenecking to free up synthesis capacity we already have. We are also going to invest in four plants to expand our isolation and drying capabilities.

Custom research is a totally different business model, where you have to try to earn profits out of projects where many of the developments will never make it to the production stage. We decided that we don't want to be running two business models. We'd much rather concentrate on process development and to support our manufacturing with synchronized process development resources. This is the best way for Saltigo to develop further.

Has the landscape of custom manufacturing changed over Saltigo's seven-year existence? 
Wolfgang Schmitz: Yes. We are now well-established and have developed a strong brand recognition, which was something we have had to work for over the last seven years. We had several phases of refocusing along the way; our concentration on Phase III projects is one example. Another example would be our stronger focus on agrochemicals and also moving into fine chemicals outside the life science area. And while there are definitely good CMOs in India and China, there is a certain tendency for projects to come back to Europe. Over the last seven years, we have seen a very positive development within Saltigo. I am proud of this, and our employees are, too.

Where do you see Saltigo on its 10^th birthday?
Wolfgang Schmitz: What do I see in my crystal ball for 2017? I see that we will continue to grow with our customers. I mentioned earlier that the expected average growth rate in the agrochemical area is 3-4% percent by 2018, which falls within our 10-year timeframe.

We will look to expand our activities in our multi-customer business, where we produce products for a broader range of customers. Examples of this include chloroformates, the product  1,2,4-triazole and of course our insect repellant Saltidin. We will also enhance and intensify our existing global marketing footprint.

I believe with the strong support of Lanxess, Saltigo will cement its position as one of the leading custom manufacturing companies.

Visit Saltigo at the CPhI 2013 in Frankfurt Oct. 22-24 in hall 5, booth F01.