michigan,
I think you are right about CHRX and my guess is that
asymmetric synthesis could end up being more important than
enzymatic or some other routes and a key factor for them. I like
this co because the chemical business is more tangible than
biotech venture business. Even if drugs are under development
at least drug companies have to pay for research or scale up compounds. One can also sell to reagent houses. When I sold intermediates, we always made a profit on even small quantities of these chemicals because costs were factored in and pricing went down on volume. Margins were quite high. Usually competition was
much less severe than other industries I experienced. Quality of product and reliability of the supplier was usually much more important than price until volumes went large-scale commercial when the purchasing agents would butt in and try to fix what wasn't broke. Often the synthesis was tricky and we had no competitor who could supply in time or enough volume or according to spec. A usual lack of concern about price made sense at the development stage because our customers wanted to encourage us to spend on process R & D and facilities. I had one case where a totally new plant was built to accommodate an entirely new application for a chemical for which there was no significant production anywhere in the world. Our plant people had patented their process.......
The pharm co customer wouldn't even bother to nego the price for
the first year.....
Just "when can you deliver??? Your current facility can't
make anough? Please build the new plant!!!!"
There is good scope for making long-term supply contracts in
such an environment and if the business eventually becomes too crowded
or the product too much of a commodity you can drop it (like acetominophen in CHRX's case) or use your multipurpose plant to make something else. You have the luxury of selecting among many
projects, so you need good management too to evaluate them
properly.
Barrier to entry is that you need top-notch chemists and
production people, otherwise you can get killed with failed
projects, I saw such a case for an antibiotic that somebody
I knew tried to make, without any fermentation experience
though the co. was otherwise a good and very competant chemical co
They lost 10s of millions. I dont see CHRX in this category, they
are specialists in this biz. That's what I think one must look
for as investors : cos with strong niches
My experience was that
most of the fine chemical manufacturers were in Europe and
Japan. There is a very big import business to the U.S., which
is stronger in petrochemicals and plastics, though there are new
players (or a remodeled like CHRX which in effect is European
anyhow). A lot of these cos worldwide are privately held, but I will do more of a survey and let you know what I find out about attractive public cos. In the U.S. evidently CHRX has competitors like Mallincrodt, but I dont think these types of players have the upside potential like CHRX. Suggest you see the paragraphs on competitors in the SEC filings.
Another area of interest to me is glycobiology and carbohydrate and
protein chemistry, but again many of the players are in Europe or privately held like Pfanstiehl in Illinois. Some relevent cos like Protein Design Labs have already had a big runup. Biotech cos involved in such areas are for example Ligand (LGND) which by the way is I think a real bargain now (I hold some shares at bit higher price), though this is longer-term hold.
I have been following a couple of smaller public cos in Europe
but I would like to buy shares myself before unleashing them on this thread! (or if you think that's not very sporting, my other
explanation is that I want to watch them a bit longer so I don't
bring up any duds!)
Cheers
Dick |
