Pharma Chemicals site in South Haven to be closed and biopharmaceuticals site in Montreal to be mothballed

DSM Pharmaceutical Products, headquartered in Parsippany, New Jersey (USA), will restructure the activities of its business units DSM Pharma Chemicals and DSM Biologics. The restructuring follows a study (forming part of DSM’s recently introduced strategy Vision 2010 and announced in DSM’s report for the third quarter of 2005) involving a closer scrutiny of DSM’s pharma assets. The most important elements of the restructuring are the anticipated discontinuation of the DSM Pharma Chemicals operations in South Haven, Michigan (USA) in the first half of 2007 and the mothballing of the DSM Biologics facilities in Montreal (Canada) in the beginning of 2006.

DSM Pharma Chemicals
Within the framework of Vision 2010, DSM has extensively reviewed developments in the market for contract manufacturing of active pharmaceutical ingredients (APIs) and (advanced) intermediates and in the market for generic APIs. It was concluded that the markets for early stage (non-registered) intermediates and generic APIs are commoditizing and will increasingly be served by producers operating in low cost economies, notably India and China.

For this reason, DSM will increase the focus of its pharmaceutical chemical operations on higher added value products, capitalizing on its toolbox in chemical and biochemical processing and its track record in regulatory compliance. Hence, the company will focus on advanced and registered intermediates, APIs and more specialized generic APIs. Early stage intermediates will be sourced increasingly from China and India. As a consequence, DSM Pharma Chemicals will have to scrutinize its assets base more closely, focus on the above market segments and further improve its capacity utilization and cost structure.

These strategic considerations have led DSM to decide to close the DSM Pharma Chemicals site in South Haven, Michigan (USA), in the second quarter of 2007, affecting 142 employees.

Ongoing activities will be absorbed in DSM Pharma Chemicals Linz (Austria) and Venlo (the Netherlands). DSM Pharma Chemicals will assist customers in transitioning to these manufacturing sites as suppliers, or will assist in the sourcing of product from alternative sources.

DSM Biologics
As an integral part of Vision 2010, DSM Pharmaceutical Products has undertaken a thorough analysis of the contract manufacturing market for biopharmaceuticals. Based on the outcome of this analysis, DSM has confirmed in its Vision 2010 program that in the field of biopharmaceuticals the development of cell line technology, the software, will potentially be of more impact than the installment of new contract manufacturing capacity, the hardware.

That is why two years ago DSM already started to focus on the very interesting potential of its alliance with Dutch biotech firm Crucell (Euronext, NASDAQ: CRXL) on the development of the human cell line production technology platform PER.C6. Crucell and DSM will put more emphasis on the development of this PER.C6 technology by building a strong portfolio of intellectual property, with the objective of licensing this cell line, including supporting fermentation technologies, to the biopharmaceutical industry.

Following this sharpened focus, DSM Biologics in Groningen (the Netherlands) will focus on providing full support to licensees of the PER.C6 technology, besides its services as a contract manufacturer for the biopharmaceutical market. As a consequence, the facilities of DSM Biologics Montreal (Canada) will be mothballed in such a way that a restart (by others) will remain an option, in order to optimize their value.

Operations in Montreal will be discontinued at the beginning of 2006. Unavoidably, 85 employees will become redundant.

Financial consequences
The closure and mothballing of DSM Pharmaceutical Products’ sites in South Haven and Montreal, respectively, will lead to an after tax exceptional item of approximately EUR 57 million, of which approximately EUR 49 million will be due to the impairment of assets. The measures to be taken in DSM Pharmaceutical Products will contribute around EUR 20 million to EBIT for the Pharma cluster from the second half of 2007 onwards, one reason being that they prevent foreseeable future losses.

In view of this, together with an expected release of certain provisions, the fourth quarter result of DSM is expected to carry an exceptional item after tax of approximately EUR 35 million negative.

DSM confirms its outlook for 2005 as given at the publication of its third quarter results: DSM expects its operating profit (from ordinary activities excluding exceptional items) for 2005 to exceed EUR 800 million. This means that DSM’s operating profit for 2005 will be substantially higher than in the previous year (EUR 567 million).

About DSM Pharmaceutical Products
DSM Pharmaceutical Products (Parsippany, New Jersey, USA) is active in contract manufacturing for the pharmaceutical industry with a focus on active pharmaceutical ingredients and intermediates, biopharmaceutical active ingredients, and steriles and solid dose finishing. It comprises the business units DSM Biologics, DSM Pharma Chemicals and DSM Pharmaceuticals, Inc (Greenville, North Carolina, USA).

DSM Biologics operates sites in Montreal (Canada) and Groningen (the Netherlands). The business unit focuses on contract manufacturing of biological pharmaceuticals and is involved in the development of PER.C6 as a new production platform for recombinant monoclonal antibodies and other proteins in mammalian fermentation and in the licensing PER.C6 to the pharmaceutical and biotechnology industries for these purposes.

DSM Pharma Chemicals (DPC) mainly focuses on custom manufacturing of active pharmaceutical ingredients and intermediates. In addition to the South Haven site, the business unit has manufacturing sites in Linz (Austria), Venlo (the Netherlands) and Capua (Italy).