Last week, the chemicals industry in Germany was struck a significant blow when the world’s largest company in the sector, BASF, issued a profit warning.
BASF suggested multiple factors for this, citing the downturn in the growth of the global automotive industry, the disruption caused by flooding and heavy rain on the North American agricultural sector, and the trade conflict between the US and China. All of these issues, the company suggested, created a market where “uncertainty remains high.”
Immediately after the announcement, BASF shares fell by 5%, but the impact was not limited to just this company.
Share prices of fellow German companies in the space also dropped, with Wacker Chemie down by 1.6% and Covestro by 4.1%, at the time of writing.
For Wacker, present market difficulties are compounded by falling sales of its Wacker Polysilicon business, revealed in 2018 annual reporting. For this period, sales in the division fell by 27% due to a decline in volume and a decrease in the price for polysilicon.
Such headwinds in the chemical sector have seen Wacker invest in other areas with strong growth, an MD for Wacker’s Biotech business outlined.
Wacker looking to Biosolutions
The contract manufacturing market for biologics is projected to hit $87.6bn (€77.68bn) by 2027, growing at a double-digit compound annual growth rate (CAGR).
Tapping into the development of this industry has seen the company invest in its Wacker Biosolutions unit, which contains Wacker Biotech.
In 2018 annual reporting, Wacker’s Biosolutions unit saw an increase in sales by 10%, though EBITDA was down by 37% year-on-year due to the integration of acquired sites in León, Spain, and Amsterdam, Netherlands.
The Amsterdam location was a recent investment for Wacker Biotech, having added the site through the acquisition of Synco Bio Partners in April 2018 to expand capacity for the production of biopharmaceuticals, with added live microbial product and vaccine capabilities.
During a recent site visit, Susanne Leonhartsberger, MD of Wacker Biotech GmbH, told BioPharma-Reporter that the acquisition was ‘capacity-driven’, as the company was close to full-utilization on the German manufacturing side – the unit has production sites in Jena and Halle.
Leonhartsberger explained that biopharma products market is strong domestically, currently making up 26% of the overall German pharma market.
As a result, Wacker Biotech has been expanding its capabilities through acquisitions and build-outs since its entrance into contract development and manufacturing organisation (CDMO) market, through the purchase of ProThera in 2005.
The investment saw the further acquisition of Scil Proteins in 2014, which gave the company a site in Halle, as well as the expansion of the Jena site to increase capacity.
The Amsterdam site added additional capacity; however, in first quarter financials, the company stated that it is currently ‘underutilized’, which weighed on the EBITDA generated by the unit and led to 42% lower results than the previous year.
Leonhartsberger explained that the acquisition was not solely motivated by adding capacity, with the site adding fill and finish capabilities to the unit, allowing it to produce final drug product.
She explained that the site also gave the company ‘additional experience’ in producing live microbials and vaccines.
Regarding potential further investment, whilst other parts of business faces difficulties, she said, “The company has some challenges on the polysilicon side, but we made the Synco acquisition last year, so the company has supported us when we required the capacity.”
“In the future, I think Wacker realizes that the business here is growing, and they want that alongside the more traditional chemical and polysilicon businesses,” she concluded.
The CDMO market for biologics is a competitive space, including the likes of large, established players, such as Lonza and Catalent that continue to invest in capabilities.
In addition, Wacker is not the only large multinational company that is eyeing up the potential of the biologics CDMO space, with Fujifilm deploying capital to expand offerings, including spending $890m on one site for the large-scale production of biologics.
When BioPharma-Reporter asked Guido Seidel, MD of operations for Wacker Biotech GmbH, why clients would choose the business over rivals, he replied that the unit operates in the niche of microbial expression systems, where it is “backed by good science and technology.”
Seidel noted that he would not expect clients to approach the company regarding full-length antibodies, “However, for other diverse proteins, such as bi-specific or antibody fragments, then customers usually tend to go for microbial expression systems. We believe that we are the leader in such technology, and this is why clients come to us.”
At present, Wacker Biotech has picked up partners that include Novartis, Roche, AstraZeneca, and Biogen to use its expression systems.
Jörg Lindemann, MD of Wacker Biotech B.V., explained that part of the appeal of the microbial approach is that “the manufacture of live microbial products requires fewer process steps than the [traditional] production of pharmaceutical proteins.”
According to Lindemann, the fewer processing steps allows for shorter production times, reducing cost, as well as the process seeing higher yields of native protein.
The Wacker Group announced as part of its full-year 2018 results that lower integration costs during 2019 will see the business develop its EBIDTA ‘significantly’ on the previous year. Wacker will release its second quarter financials on August 1, which will reveal whether the unit is on track to do so.
Beyond 2019, establishing Wacker Biotech’s position in the growing biologic CDMO market will require further investment, through capacity or acquisitions.
On being asked whether this investment looks likely, Leonhartsberger answered, “Both are possibilities, either to build more capacity, if needed, or to go via acquisitions. This isn’t the end of the growth story.”