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Synthetech is providing
the technologies and molecules that major pharmaceuticals need to bring their life saving
products to the market
Fine Chemicals
(NZYM.PK-OTC)
Synthetech, Inc.
1290 Industrial Way
Albany, OR 97322
Phone: 541-967-6575
Dr. Gregory Hahn
President and COO
Interview conducted by:
Walter Banks, Publisher
CEOCFOinterviews.com
Published – March 1, 2007
BIO: Dr. Gregory
R. Hahn joined Synthetech as its President and COO in September 2006. Since 1999,
Dr. Hahn was the Organics Global Business Director for FMC Corporation’s Lithium
Division, where he was responsible for worldwide organolithium and phosphine catalyst
sales, marketing and R&D into the pharmaceutical marketplace. His experience
before FMC was as Vice President of Sales at Sigma Aldrich Fine Chemicals and Marketing
and Development Manager at Koch Chemicals, a division of Koch Industries Inc. Dr.
Hahn received a Bachelor of Science degree in Chemistry from Pacific Lutheran University
and a Ph.D. in Organic Chemistry from the University of California, Davis.
Company Profile: Synthetech is a fine chemicals company
specializing in organic synthesis, biocatalysis and chiral technologies. Synthetech
develops and manufactures amino acid derivatives, specialty amino acids peptide fragments,
SPPS resins and proprietary custom chiral intermediates primarily for the pharmaceutical
industry.
Synthetech’s products support the development and manufacture of therapeutic peptides
and peptidomimetic small molecule drugs used for treatment of AIDS, cancer, cardiovascular
and other diseases. The company’s ‘grams to tons’ production
capabilities emphasizes its commitment to be a long-term player from the early phases of
pharmaceutical discovery and clinical development through approval, market launch and
commercialization.
Synthetech’s goal is complete customer
satisfaction in the cost-effective manufacture and delivery of pharmaceutical fine
chemicals and intermediate. Synthetech has assembled a key combination of people,
plant and processes to deliver the innovative technology, manufacturing capability and
consistent quality necessary to achieve this goal.
CEOCFO:
Dr. Hahn, please tell us how long you’ve been with Synthetech and what attracted you
to the company?
Dr. Hahn: “Synthetech is a fine
chemical manufacturer. I joined Synthetech about five month ago, but I’ve been in the
industry for about 21 years in a variety of roles. I am an organic chemist by training, so
I appreciate technologies and technology advantages and I saw that Synthetech was in a
position where they had a great deal of interesting and useful technology for the
marketplace that we serve. Although the company was not performing well, I could see there
was opportunity here and it is always of interest to do a turnaround.”
CEOCFO: What do you feel is necessary to
accomplish this turnaround and see the business grow?
Dr. Hahn: “To accomplish our
turnaround, sales are number one. The industry we serve is comprised of pharmaceutical
manufacturers—ethical pharmaceuticals in particular, meaning not the generic market.
These companies require a number of different technologies to produce intermediates, which
require us to be active in marketing our expertise. Therefore, number one is getting the
sales moving in the right direction and we’ve been able to accomplish that. The
market itself has been a little depressed. For example, the issues relating to Merck's
VIOXX® product have contributed to slowness in new drug development. In addition, a
number of fine chemical companies that serve the pharmaceutical industry that did not
survive the recent market downturn. The entire fine chemical and pharmaceutical market has
not been very strong for the past 6 years. Nevertheless, we do see the start of a
turnaround in the marketplace, with more pharmaceutical companies developing new products
and becoming customers again for the types of services that we provide. Therefore, the
market turnaround was another event that had to occur, and as a result of the upswing,
we’ve seen new sales. We have taken a more proactive approach on the sales side and
been more aggressive in the marketplace staking out new opportunities. Top line growth is
the number one issue; after that we have to execute well. Once we get the order there were
some ‘right first time’ issues that we could improve upon and we are focusing on
that as well. So, there has been a general quality improvement of performance, meeting
customer expectations and between the two factors of top line growth and ensuring that we
deliver product, which is just basic block and tackling, Synthetech’s performance is
improving.”
CEOCFO: Did that involve new sales people or
just a stepped-up program?
Dr. Hahn: “It is a stepped-up program
for the most part. We have some capable existing talent, but there needed to be a push
from leadership and there needed to be a refocusing on quarterly results, quarterly
performance and overall profitability.”
CEOCFO: Can you explain your industry?
Dr. Hahn: “We are in the fine chemicals
marketplace. The larger, well-known companies in this field include Lonza, DSM and Dow
Pharma. The market has been a little depressed over the last few years, mainly because of
reduced demand from our core customer base, which are the pharmaceutical manufacturers
themselves. Our major customers also include contract drug synthesis companies and some
new emerging pharmaceutical companies. It is not an easy market to understand because it
is a cyclical market. There are many ups and downs, mainly because we are at the mercy of
the FDA approvals of new pharmaceuticals products coming on the marketplace. If you read
about the pharmaceutical industry itself and the challenges that have occurred over the
past 5 or 6 years, you can see a lot of products have made it to late Phase III clinical
studies. These products should be going to commercial launch, but for various reasons,
many never make it to launch or make it just past launch and then fail. Therefore, the new
drug development market can be volatile and difficult to follow from a financial analysis
point of view. There are risks but the rewards are great, mainly when a fine chemical
producer participates in the launch of a new pharmaceutical product.”
CEOCFO: With that in mind, there is also
always the upside because of new drugs that are being developed by the Universities and
pharmaceuticals that will need your products to bring their products to the market.
Dr. Hahn: “This does create a limited
base load for our sales line and there is a general demand from University and
pharmaceuticals, research and development companies as well as major pharmaceutical
companies and their research and development groups. It is a steady stream of income with
reasonable predictability, but if you rely on that only, you are not going to have
compelling business performance in our case and for most fine chemical producers. This is
because we are equipped for larger manufacturing as well as the smaller manufacturing (we
say from "grams to tons" of products) and we must utilize the larger production
equipment to succeed in our model. We strive for commercialized ethical pharmaceutical
products produced in ton quantities to provide our business base load. The goal is to
maximize the number of our products participating in commercialized pharmaceuticals. Do to
this; we need to participate at every level of development to be successful."
CEOCFO: So whenever a product hits the
market that is effective and long lasting a company like Synthetech would benefit from
that.
Dr. Hahn: “Absolutely, we do not serve
the research and development marketplace to be our major profit driver. However, R&D
projects are a necessary requirement, because today’s development sale may become our
future commercial product that helps us generate significant business in a few years. In
addition, supporting drugs which are on the market creates a more stable sales platform
leading to more consistent Quarterly results, which is a key factor for
us—consistency.”
CEOCFO: Why do pharmaceuticals choose your
products over your competitors?
Dr. Hahn: “As far as differentiation,
that is always an interesting question and for the most part it always ends up being a
technology question. In simple terms, we have chemical capabilities unique in the
marketplace. We do not patent many of our capabilities, as patenting some technologies may
assist competitors in designing around the patent and acquiring unique technology.
However, we do have trade secrets, and some of the unique chemistries that we have allow
us to produce products for pharmaceutical companies that are not readily produced by
chemistries of our competitors. Therefore, the key for us is staying ahead of the
technology game. We have a scientific advisory board made up of a number of professors and
experts in the industry. We also have our own commercial development group and scientific
development group who try to stay ahead of the game and we see this as an avenue for
competitive advantage. The main interest for us is to create technological differentiation
that customers can recognize and that will encourage them to order product from us. There
are also other factors, such as GMP capabilities (good manufacturing practices, FDA
requirements for manufacture of pharmaceutical products), which is a requirement for
making a number of intermediates that go into pharmaceutical products. Many of our
competitors have that as well, but we have the tools and the unique chemistry that allow
us to make some products that other companies cannot readily make.
One unique technology for Synthetech that many of customers seek is chiral chemistry.
Chirality is a very common trait in biologically active molecules in living organisms.
Chiral chemistry is best explained in non-chemistry terms as imparting right or left
"handedness" to a product. In other words, certain molecules may actually have a
mirror image, a left hand or a right hand in the way that they are constructed. That is an
area where we have four to five unique technologies that allow us to make chiral
molecules. Many of our competitors that make chiral molecules may have only one technology
and be very good at that one technology to make a chiral compound. However, what we have
seen in the marketplace with various companies who specialize in chiral molecules is that
because they have only one technology, they tend to not do very well—mainly due to
the inability of that technology to be applicable to all types of molecules that the drug
companies seek. They essentially exclude themselves from many of the chiral molecules that
the drug companies want because of the inflexibility or the non-general character of the
technology itself. What we have seen is that our group of technologies provide the needed
flexibility in making these chiral molecules. If one does not work in a particular
case, we can apply another and generally get to that chiral molecule. Therefore, we have a
very specialized yet broad technology niche that can make a variety of these chiral
molecules. The most important factor is to have a technology toolbox that is valued by
pharmaceutical customers.”
CEOCFO: Are your technologies through
internal development or acquisition?
Dr. Hahn: “It is a combination as we do
have some relationships with universities and we also have some internal development.
Market demand drives technological development, as we are not in the business of making or
creating technologies for the sake of science. What we do is see a demand in the
marketplace and if we do not have the appropriate way or a competitive way of creating a
molecule, we will have to find it or develop it. Generally, the way that would work is to
analyze what is in the scientific literature, what precedents there are for that
chemistry, is it something that is patented or is it available. It may also be something
that we can develop internally. We are a technology company, but it is driven by the
marketplace.”
CEOCFO: What is the current financial
position of the company?
Dr. Hahn: “As you can see in our
quarter ended September 30, 2006 (FY2Q2007), the company has been profitable. It was
the first profitable quarter in recent years. This quarter just ended December 31, 2006
(FY3Q2007) has not been announced yet, but we previously disclosed a backlog of about $6
million of orders at the start of that quarter and we have continued to generate new
orders.”
CEOCFO:
In closing, please address potential investors and tell us about your management team.
Dr. Hahn: “Our Chairman of the Board
and CEO is Dr. Daniel T. Fagan, who has been on the board of Synthetech since 2001. Dan
comes with a wealth of experience, with 30 years experience in the fine chemical arena. We
have a great VP of Finance and Administration, Gary A. Weber. Gary has been with the
company about five years. He is a strategic player and knowledgeable about the company and
industry. On the production side, we have a very talented and experienced VP of
Operations, Joel D. Melka, who has been with the company about eight years. We have some
forward thinking, yet practical and experienced people from the industry on our management
team. Therefore, we have the right horsepower as far as the management team is concerned.
As far as the company and how it is being managed, the greatest change is the focus on
quarterly results, quarterly profitability and annual profitability, which is a key factor
for any company. That is our primary focus in the company now, to keep the company at a
good performance level, keep the stock moving in the right direction and improve
shareholder value. With regard to future strategic concerns, this is a cyclical market. As
a management team, we do have concerns about the drug development process, which are out
of our control, and how the success or failure of products we support in becoming
commercialized will affect our results. We continue to develop our strategic plan and
continue to look at ways to increase our ability to serve this marketplace and decrease
the financial fluctuations at Synthetech. This includes new chemical technology
capabilities and expansion into pharmaceutical markets we do not currently serve. However,
that is something that we expect to see coming into effect in 1 to 2 years and we have to
focus on today as well, so we are trying to be effective in both short- and long-term
performance and execute both well.”
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