Akzo Nobel has unveiled a plan to 'fix' its troubled pharmaceuticals businesses, hit by patent expirations, safety concerns with some core product lines and a difficult operating environment for contract manufacturing of active pharmaceutical ingredients.
The company said today that it plans to integrate its two human pharmaceutical businesses, the contract manufacturer Diosynth and branded drug developer Organon, into one operating business unit.
Last month, Akzo Nobel posted a 7 per cent rise in net income to €112 million for the second quarter of 2004, but was once again let down by its pharmaceuticals businesses which saw sales slump 9 per cent and operating income shrink by a fifth to €117 million.
Organon has been under pressure on multiple fronts. Patent expiries for its top-selling antidepressant drug Remeron (mirtazepine) have eaten into sales. US turnover of the drug dropped 74 per cent in the second quarter, although it managed a 1 per cent gain on a global basis. However, competition in Europe and elsewhere is now starting to take hold.
More seriously, the US Food and Drug Administration (FDA) turned down Organon's planned replacement for Remeron - gepirone - at the end of June, leaving a gaping hole in the firm's near-term pipeline.
The company's hormone replacement therapy franchise has also been held back by concerns over the safety of HRT, in the wake of the much publicised Women's Health Initiative study which in 2002 found that women taking a combination of oestrogen and progestin had increased risks of heart attack, stroke and some forms of cancer.
Meanwhile, Diosynth has been suffering from a reduction in demand for its services - both from Organon and outside Akzo - and has been steadily reducing staff and shutting down production capacity as a result.
More staffing cuts seem to be on the cards with the new strategy, but Akzo Nobel says these will be limited to around 50 positions, spread between Oss in the Netherlands and the company's US unit in Roseland, New Jersey.
Akzo Nobel intends to invest €60 million at its facilities in Oss, the Netherlands, to build a state-of-the-art parenteral production facility, and it will also build a biotechnology research facility at Cambridge in Massachusetts, US.
Indeed, shoring up Akzo Nobel's biotech capabilities seem to lie at the heart of the new rationalisation, and it follows in the wake of the acquisition of UK biotech Celltech by fellow European pharmaceutical and chemical player UCB.
The move combines the biotech functions of Organon and Diosynth into a common platform, centred at the Cambridge site, which lies in close proximity to biotech companies, universities and hospitals.
Toon Wilderbeek, a member of Akzo Nobel's management board, insisted that the move is not simply a cost-cutting manoeuvre. "This is a logical move, following initiatives to improve profitability and a strategic shift to actively seek partnerships," he said.
The new organisation - which will take the Organon name - will have stronger focus on securing partnerships, boosting the sales and marketing function and strengthening management of the entire supply chain, claimed Akzo Nobel. Diosynth's third party business will continue to trade as normal under the same banner.
The company said that the investment in the new parenteral facility confirms its commitment to its pharmaceutical activities and the importance of the production site in Oss. Construction of the facility is expected to start early in 2005, and it should be operational in 2007.