Copyright2002CONFIDENTIALManufacturingLifeScienceMolecules–TheFineChemicalsOpportunityFrankfurt,August2002Thisreportissolelyfortheuseofclientpersonnel.Nopartofitmaybecirculated,quoted,orreproducedfordistributionoutsidetheclientorganizationwithoutpriorwrittenapprovalfromMcKinsey&Company.ThismaterialwasusedbyMcKinsey&Companyduringanoralpresentation;itisnotacompleterecordofthediscussion.AndreasAppelhagen–GE/FRAJensRiese–GE/FRAFactpack2AGENDA•Marketcharacteristicsandoverview•Businessmodelsandkeysuccessfactors•Thebiotechopportunity3AGENDA•Marketcharacteristicsandoverview•Businessmodelsandkeysuccessfactors•Thebiotechopportunity4FINECHEMICALCOMPANIESPRODUCEINTERMEDIATESANDACTIVEINGREDIENTSFORLIFESCIENCECOMPANIESWORTHUSD12BILLION*Excludingcaptivefinechemicalsproductionbypharmaceuticalandagrochemicalcompanies-totalmarketsizeUSD48billionSource:McKinsey•Finechemicalsaresmallvolume(tens/hundredsofkg),highlypriced(USD300-1million/kg)chemicalandbiologicalintermediatesandactivesubstancesforlifesciencecustomers•In2000,theoutsourcedfinechemicalmarketwasworth~USD12billion*(USD10billionpharma,USD2billionagro)andhasbeengrowing~7%p.a.•Relativetootherpartsofthechemicalindustry,finechemicalshaveenjoyedhighergrowthprospectsandhighermargins•Thekeyuncertaintieswithrespecttothefutureattractivenessofthismarketarethepharmaoutsourcingstrategies,theroleofbiotechnologyandtheimpactoflow-costproducersMarket5MOSTFINECHEMICALSAREPRODUCEDFORTHEPHARMACEUTICALMARKET2810PharmafinechemicalmarketAgrofinechemicalmarketWorldmarketsizein2000USDbillionsSource:MerrillLynch(FineChemicalsmarketreport,April2001)TheglobalpharmamarketiswortharoundUSD300billionwithmanu-facturingcostsaround12.5%,orUSD38billion.Itisbelievedthatthecurrentvalueofpharmaoutsourcingisjustunder30%atUSD10billionTheglobalagrochemicalmarketiswortharoundUSD30billionwithmanufac-turingcostsaround30%,orUSD10billion.Itisbelievedthecurrentmarketvalueofagrochemicaloutsourcingisaround20%atUSD2billion28Captivemarket(producedbyPharmaceuticalcompanies)Merchantmarket(servedbyfinechemicalsproducer)6NORTHAMERICAANDEUROPEARETHEBIGGESTMARKETSEurope75637643753PharmaceuticaloutsourcingmarketAgrochemicaloutsourcingmarketSource:MerrillLynch(FineChemicalsmarketreport,April2001)NorthAmericaRestofworldThecurrentmarketforfinechemicalsisestimatedataroundUSD12billion,withUSD10billionfrompharmaandUSD2billionfromagrochemicals.Thisisconsistentwith20-30%oflifesciencemanufacturingbeingoutsourcedAsiaPacificEuropeAsiaPacificEstimatedglobaloutsourcingmarketin2000PercentNorthAmerica7FINECHEMICALSHAVEOUTPERFORMEDOTHERCHEMICALMARKETSEGMENTSSource:MerrillLynchestimates,CharlesRiverAssociates,Europeanchemicalnews,June2002Finechemicalsvs.othersectorsSectorBulkSpecialtyFineIndustrialgasesCapex/salesPercent86>1010-15TypicalEBITmarginPercent-5-155-1510-3012-20VolatilityofearningsHighLowHighMediumValuationoffinechemicalsplayersvs.specialtychemicalssector8INCREASINGCOMPETITIONANDPRICEPRESSUREARETHEMAINFORCESATWORKSource:McKinsey,CreditSuisseFirstBoston(Lonzaanalystreport)Barriersofentry•Highlevelofcustomerserviceandsupportisadeterrent•Compliancewithexistinglegislation(GMP,registration,environmentandsafety)•Highcapitalintensityforplants,marketingandR&DPowerofsuppliers•Limitedformostparts–mostinputsarecommoditytypechemicalsPowerofcustomers•Increasingmarketpressure(quality,spee...
