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‘Ashland already has more than $1 billion sales coming from the Asia Pac region’

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Ashland has been in India since 1980. Where does the Pharmaceutical Centre of Excellence in Hyderabad fit into Ashland’s strategy for the India market?

Luis Fernandez-Moreno

We see India clearly as one of the growing economies of the world both in terms of manufacturing for local as well as for export markets. There’s a variety of chemistries and technologies in our portfolio of products that would be a very good fit for India. Pharma is one of the portfolios, it is a key market for us. And with India becoming the capital of the pharma industry, as least as far as generics are concerned, it is obviously an area where we want to invest. We have a very strong position in the personal care market with ingredients for personal care. And in this case we believe that India, more for internal consumption, will continue to grow as the number of consumers will increase as the middle class continues to grow in India. We have products that ‘go into coatings and construction and again we see opportunities for us to grow and get in products and technologies to get better products.

When it comes to the Pharmaceutical Centre of Excellence in Hyderabad, we see it as a very important piece of our strategy. This would be our second Centre of Excellence in India (we also have a Centre of Excellence for personal care in Mumbai, where we also have a coatings and constructions laboratory). We call them Centres of Excellence because that’s where we have scientists dedicated to an industry but they are a global resource. So even though the focus of research may be local, we see this as a global Centre of Excellence. We have nine of them across the globe, only three of them for the pharma industry (in Bridgewater, New Jersey, US, in Shanghai and now in Hyderabad, India). So this is definitely a milestone for us. We now have a world class, state-of-the-art laboratory with 20 top line scientists working out of Hyderabad. There’s an opportunity for it to expand even further in the current footprint.

Ashland has transformed from an oil refinery in eastern Kentucky, US, in 1924, to emerging nine decades later as one of the world’s leading speciality chemical companies. An important step was the acquisition of International Speciality Products Inc. (ISP) which has a wide portfolio of chemistries: from anti-aging ingredients for skin-care products, advanced styling and fixative polymers for hair-care products as well as active pharmaceutical ingredients with one of the broadest lines of excipients available. What were the global revenues in the last financial year and what is the share of the pharma business in this mix?

Ashland Speciality Ingredients (ASI )is $2.6 billion of the $8 billion company. Within this, we have the consumer specialities business which is a $1.1 billion business in global sales. Pharma together with personal care are the two core areas of this business. We also have the nutrition, agriculture, beverage businesses etc. as part of this business but pharma and personal care, in terms of size, make up the two core parts of this business.

The industrial specialities business represents $1.4 billion in sales with very significant products where we provide additives to our customers which improve the properties of their products like paints, or their blister pack, etc. as well as in many other speciality areas like graphic cards, etc. The core of this business is products for segments like coatings, followed by construction, adhesives and energy.

What is the geographical region wise breakup of revenues, which are the regions growing fastest?

We do not break up revenues by country but by region. Ashland already has more than $1 billion sales coming from the Asia Pacific (Asia Pac) region. So considering that an $8 billion company like ours has more than $1 billion coming from the Asia Pacific region, means that this region is quite significant for us. Europe and North America are similar in size and a smaller proportion comes from the Latin America market.

The Asia Pac strategy started around 30-40 years ago, with a presence in India as well as other South East Asian markets. It has evolved into a very strategic part of our business, where again we believe that the growth, predicted by most economists, together with the capabilities that this part of the world has, will continue to grow moving forward. So it is an exciting place to be.

On the regulation front, regulators are becoming more stringent on quality; not just of the finished product but also of excipients and APIs. How much does that add to the cost of manufacturing and how are companies like Ashland preparing customers to deal with these changes?

There is no question that as regulations continue to evolve, two things happen. It does add to the cost to doing business in this space and in that regard we are always conscious and working with the authorities to make sure that those regulations make sense and are not an over burden without achieving a benefit for the consumer.

The one thing that those regulations do is that they provide assurance to the consumer that the goods that they are buying, which are eventually going to be in or on their bodies, are safe for themselves, as well as for the environment. But there’s no question that they add certain costs to the business.

When it comes to Ashland, one of the things that we pride ourselves on and that we believe is important for us, is our expertise in understanding those regulations. In the end it is not only understanding those regulations but working with the authorities so the regulations are based on science, on really getting the benefit to the consumer, not just adding costs.

So as we see that evolving, we believe that Ashland is very well prepared and set to work with our customers to make sure that we all meet with regulations. We will continue to work with authorities anywhere in the world to provide science that is important for regulations to be not a burden but something that is in the interest of the consumer.

We see this a source of competitive advantage in whatever geographies we are present. We are very good at this and that is one of the areas where we strive to be better than the competitors. When you look at the importance of the consumer and pharma industries to Ashland, this is absolutely an area where we have to be better than the competitor and we take it very seriously. For many of our competitors, it may be a smaller part of their entire business and they may not take it seriously but regardless of local or global (competitors), our focus is very much on this industry.

What is the next transformative step and the vision for the company for the next decade, as Ashland approaches its centenary year?

We will strive to be the best speciality chemicals company in the world. I think we are well on the way to achieving this (goal). We are definitely today one of the best speciality chemicals companies and a recognised leader in certain areas. We expect to continue to grow in that space and evolve until we achieve that vision. Obviously I cannot reveal the specific steps that we are taking to achieve this goal but I will mention a couple of tenets of the company.

Our motto is that with good chemistry, great things happen. By good chemistry, we do not mean just knowing chemistry but also chemistry that is good for humanity.

Our sustainability programmes are very important, both in terms of the way we make our products as well as the products we make for the end user. If you see our portfolio of products, a good portion of them are based on natural raw materials. For instance, take our cellulosic excipients where we are the leader. We have the broadest product line and the raw material is either cotton or cellulose that comes from trees. And all of our wood is from renewable resources. So a significant proportion of our products is based on renewable resources. Another significant portion of our product portfolio does use energy but this energy, as we continue to evolve into renewable energy, will be a renewable resource.

When it comes to operations, reducing our footprint, either carbon or environment footprint, has been a continuous priority and we continue to work on that.

Very close together with our green philosophy comes the element of innovation. If you are going to be a speciality chemicals company, you need to continue to invest in new products,ever evolving products that are more efficient, that are better for the consumer and our customers. So we have continued to and will continue to invest in R&D. The perfect example of this is the opening of the new Centre of Excellence in Hyderabad to make sure we continue to develop the products required for the future.

When you talk about sustainability, many of the new drugs that are coming to market and that are being developed by large pharma companies are drugs that are difficult to process. For example they are not easy to dissolve, or not easy to have bioavailability in the human body. So what do our excipents do? They work in a way that either improves the solubility or bioavailability. So we are enabling the health of the world by making these active ingredients more effective when it comes to their usage in the human body. So it is a constant effort not only to be greener but to be better when it comes to society. And that is why we spend our money on R&D. Obviously with that comes not only organic growth but possibilities for M&As, investment in manufacturing and so forth. Those are parts of the vision. That is what will make us the best speciality chemicals company in the world.

A major milestone in Ashland’s pharma business is due to the acquisition of International Speciality Products Inc. (ISP) in March 2011, So what kind of a company would excite Ashland as an M&A opportunity at this point of time, in terms of complementary capabilities, etc.?

Good companies that would give Ashland wider access to technology or markets, that enable better capability to service our customers would excite Ashland. As you look at this vision, you can see the markets that we are playing in. Any time we see a company with complementary technology, or the capability to provide access to a market that we may not currently have access to, which will enable access to innovation faster, in the specialities space would interest us.What is your revenue target for the current financial year?There will be a dip from $8 billion to $6 billion as we’ve sold the water technologies business in February this year. But we firmly believe that though the company will be smaller, it will be a better fit into the specialities business. For the water business, it will be a good opportunity to be run by a private equity firm (Clayton, Dubilier & Rice) that will be able to grow it. And this will enable us to focus our resources more into the speciality chemicals business. So though in the short term we will obviously see is a reduction in the size of the company,.in the medium term we expect to see continued growth organically which will allow us to look in a more focused fashion at M&A activity in the future. We have invested over $250 million over the past seven years in the Asia Pacific region which gives an indication of the importance of the region to the company and the fact that it pays the necessary attention to this growth geography.

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