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Article / Nov 10, 2017

Learning From History: For CMOs the Cycle is Back

Guy Villax, November 10, 2017

What is happening to the CMO industry (particularly the pharmaceutical fine chemical industry) looks pretty similar to what it did almost 20 years ago. The attached 13 articles written between 1998 and 2005 -half of which were written by me- recount a well-known story: exuberance and over-investment results in write-offs and losses. What happened then was crystal clear to me when in 1998 someone came with a large cheque book convinced that a $500m API business could be built in 3-5 years. Shortly thereafter a well-known Deutsche Bank analyst’s report made sure the herd mentality took over. By 2005 most of the $15bn or so spent in M&A deals were mostly written off and a number of wonderful brands and several major companies had vanished.

It is interesting to note that at the time that some entered the CMO business Honeywell was exiting and said: “...pharmaceutical chemical manufacture is a highly capital intensive business plagued by over-capacity, clinical trial failures, limited new drug approvals, new drug marketing disappointments, and price wars…” 

Maybe there is an opportunity to learn from history. The challenge today is to check whether what looks the same is indeed the same, and whether what is really different can contribute to a different outcome. What remains to be seen is whether outsiders understand what they are getting into, and one thing is certain: when the dust settles you will have the usual suspects picking up the pieces.

If anything we should be concerned because as of today over $33bn have already been spent in CMO related M&A activity in the last 4 years – in exactly the same pattern as in 1995-7, 1998-2000.

Yours,
Guy

# Title  Type Author Date
1 The API Solution Provider article Guy Villax 1998
2 Aggressive goals - $500m in 3-5 years ppt Solutia 1998
3 Deutsche Bank analyst's report on CMO article DB 1999
4 Hovione in the CPHI show daily 2001 article Guy Villax 2001
5 Pharma Fine Chemicals - Nothing has changed! article Guy Villax 2002
6 Outsourcing: The dust has now settled  article Guy Villax 2002
7 European producers face unique issues article Maureen Rouhi 2005
8 Why Fine Chemical Business Development has failed  ppt Peter Pollak 2005
9 GMP fraud - largest ever penalties in criminal pharma  web www.infojustice.com 2005
10 Clients, competitors and Consultants  ppt Guy Villax 2005
11 Fine Chemicals Revisited  article Guy Villax 2005
12 5 years after its buying spree…  article Clay Boswell 2005
13 The Gold Sheet  article  Bill Paulson  2006

View the full set of documents (PDF, 8MB)

 

Guy Villax
Hovione
+351 917 888 899

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In an interview with Executiva, a portuguese media outlet focused on women´s leadership, Diane Villax, co-founder and long-standing leader of Hovione, reflects on her journey and the company’s development over more than six decades. Diane Villax’s career began at a time when few women worked outside the home. At 19, she joined a trading company as a foreign languages correspondent, where she developed essential business skills — including commercial correspondence, banking and export procedures — that later proved instrumental in helping her husband, Ivan Villax, establish Hovione in 1959. From its earliest days operating in the family home in Lisbon, Hovione adopted an international outlook. The company’s first major customers were in Japan, setting demanding quality standards that helped shape its long-term position in global markets. Over the following decades, Hovione expanded its footprint with the construction of its first manufacturing site in Loures (1969), followed by expansion to Macau (1986), the United States (New Jersey, early 2000s) and Ireland (Cork). The company grew into a global organization with more than 2,500 employees — including over 300 scientists — and a reputation as a preferred supplier to leading pharmaceutical companies worldwide. Throughout the interview, Diane highlights the values that have guided the company’s development: a commitment to excellence, a strong work ethic, and a focus on quality and long-term relationships. Although she did not have formal business training, she learned “on the job” and brought discipline, precision and structure to her role — particularly in the company’s early financial and administrative leadership. Now in her nineties and an active member of Hovione’s Board of Directors, Diane Villax remains engaged with the company’s evolution and governance, reflecting a continued commitment to its long-term development. Her story reflects entrepreneurial drive, resilience and long-term leadership — and offers insight into the values that have shaped Hovione’s trajectory for more than six decades. Read the full interview at Executiva.pt (in portuguese).    

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