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Strong Q3 Growth in Fine Chemicals Drives New Branding Strategy at Sigma-Aldrich

Sigma-Aldrich on Monday launched SAFC, a new brand for its fine chemicals segment, which will be headquartered in St. Louis.

The move came after the chemicals catalog marketer on Thursday announced year-over-year growth of 8.4 percent in total revenue — reflecting a 4.6-percent benefit from currency exchange rates — for the third quarter ending Sept. 30. Some 50 percent of the company’s sales are in currencies other than dollars. The company forecast currency-adjusted growth of 4 percent for the fourth quarter and 3 percent for the year, Sigma managers said in a conference call with analysts.

For the quarter, St. Louis-based Sigma-Aldrich reported net sales of $341 million, up from $314 million for the same period last year. The company reported a gross profit of $182 million for the period, compared to $164 million for the year-ago quarter.

Sigma-Aldrich is a growing presence in the molecular biology tools sector, primarily as a maker of synthetic DNA, and a distributor of other chemicals used in genomic and proteomic research. The company operates three business units - scientific research, fine chemicals, and biotechnology. The SAFC unit, with some 650 employees, will be divided into three segments - SAFC Pharma, SAFC Specialties, and SAFC Hitech. SAFC Specialties will sell into three market segments: flavors and fragrances; diagnostic OEM and raw materials; and raw materials for pharmaceuticals, biopharmaceuticals, and other high-technology industries. SAFC will include the recently acquired Tetrionics of Madison, Wisc., and Ultrafine, of Manchester, UK.

For the third quarter, the fine chemicals unit had $64.4 million in sales, up 17.7 percent from $54.7 for the year-ago quarter. Sigma-Aldrich’s scientific research unit recorded $201.2 million in sales, up 7.1 percent from $187.8 million for the year-ago period, while the biotechnology segment had $75 million in sales, up 4.6 percent from $71.1 million in sales over the same period in 2003.

“The challenge is to grow the top line,” said Mike Hogan, Sigma-Aldrich chief financial officer. “Historically, if we can get the top line to grow, management has the know-how to get the bottom line to grow in concert with that.”

Growth in the third quarter was buoyed by increased demand from pharmaceutical customers and price increases, but offset by flattening demand from academic and government customers.

“Improvements in market conditions are taking longer than first expected,” said Hogan. “We are not getting much help from our market and that’s not likely to change in the fourth quarter.”

The company attributes 40 percent of its revenue to the pharmaceutical industry, and David Harvey, Sigma’s chairman, told analysts that the industry is “substantially” increasing spending on research and development from 10 percent to 25 percent he said.

“The only question is how much trickles through to Sigma,” he said. “We were the last to go through the decline, and we are effectively the last coming out.”

Pharma

Harvey added that pharma’s accelerated spending is focuseyd on bringing drugs to market, not in areas that will immediately increase demand for Sigma’s products.

The academic sector contributes some 30 percent of Sigma’s sales, and in the quarter, gains from pharma both in the US and Europe were offset by a lack of growth from academic customers, Harvey said.

“The NIH budget accounts for about one third of academic sales and is about 10 percent of our business,” he said.

Priming the Growth Pump

Sigma has been active in acquiring new technologies through licensing collaborations, said Harvey.

“We have never had so much activity on the business development side,” he said.

Earlier this month, the company acquired an exclusive license to a gene-interference technology held by InGex of St. Louis. Additionally, during the quarter Sigma entered into a collaboration with the European Collection of Cell Cultures to provide control populations of human genomic DNA; agreed to an exclusive license to commercialize GenomePlex, Rubicon Genomics’ whole-genome-amplification technology; and entered into an agreement with Caliper Life Sciences to develop and market automation product suites for genomic, proteomic, and drug-discovery applications.

“I feel very optimistic about the biotech future,” said Harvey. “Over the last few years, we have made tremendous efforts in this area. We are trying to accelerate it there.”

He said that revenues as a percentage of sales from biotechnology licensing deals and patents are relatively small for the company, but they accrete.

“Proteomics is not a big market - in totality, it is $50 million a year in consumables,” Harvey said. “But since we are in so many sectors, they are building to give you reasonable numbers. There is a lot going on.”

Gene silencing “is going to be one of the most exciting areas of science in the next decade,” he said. “This is an interesting area and one you are going to hear more about.”

— Mo Krochmal ([email protected])

 

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