Specialty Chemicals

Specialty chemicals are formulations of chemicals containing one or more complex, pure chemicals as active ingredients. They are used in the manufacturing of a wide variety of products including, but not limited to, adhesives, cosmetic additives, elastomers, flavours, fragrances, polymers, surfactants, and textile auxiliaries. They are produced in limited quantities using a variety of key technologies such as chemical synthesis, biotechnology, extraction, and hydrolysis of proteins. Specialty chemicals are formulated to custom specifications, often varying from one customer to another even within the same industry. Formulations also vary with application, function, and operating conditions. They are sold for high prices according to exacting specifications used for further processing within the chemical industry. The profitability of the speciality chemical industry make it an extremely attractive business opportunity. They are low volume, high priced chemicals targeted at highly differentiated processes making entering the marketplace easier for new companies.

According to the 2012 Global Specialty Chemicals MarketLine Industry Profile the global market for specialty chemicals had total revenue of $767.5 billion in 2011, representing a compound annual growth rate (CAGR) of 2.7% between 2007 and 2011 [1]. The market is further projected to reach $980 billion by the end of 2016 [1]. The specialty chemical industry focuses on the development of chemicals based on function and market value. The importance is not on the empirical structure of these chemicals, rather on how they may be used by end-user markets. Additionally, the growth of the specialty chemical industry is tied to exploring functions and applications for both new and existing chemicals. These chemicals may serve traditional and niche markets, as well as expand to new geographic markets.

Fine chemicals is the largest segment of the specialty chemical market, representing 28.9% of the market's total value [1]. Fine chemicals are used as starting materials for pharmaceuticals, biopharmaceuticals, agrochemicals, as well flavors, fragrances, food and food additives. Paints, coatings and surface treatments also account for a significant portion of the market segment. The figure below represents the specialty chemical market category segmentation for 2011:

The current specialty chemical global market can be analyzed using a five force analysis including: degree of rivalry, new entrants, substitutes, supplier power, and buyer power. There are a respectable number of chemical manufacturers in the market, however, players may operate in a diverse range of markets making rivalry a moderate force. The threat to new entrants is dependent on the market they intend to target. Many specialty chemicals are produced in large quantities making small-scale market entry unlikely. On the other hand, certain specialty chemicals are not strongly differentiated and buyers may be attracted away from current players if a better price is offered. Substitution is a weak force as buyers of specialty chemicals often require specific formulations. Supplier power is increased by the added value of specialty chemicals in addition to the few alternatives that buyers have. Lastly, buyer power is weakened by the fact that there are no direct substitutes and buyers have no choice but to purchase the chemical as a key ingredient to their manufacturing process.

Case Study: Specialty Chemical use for Generic Oseltamivir

Oseltamivir, an anti-viral drug better known under the brand-name Tamiflu, was invented by Gilead Sciences and subsequently licensed to F. Hoffman La Roche Ltd. Since the 1999 launch of Tamiflu sales, over 33 million patients have been treated world-wide. A significant number of additional sales are due to stockpiling by governments around the world in preparation for an influenza pandemic. It is estimated that in 2006 Roche's production capacity will have reached 300 million doses per year. Oseltamivir is a compound for which there will continue to be a high demand. Shikimic acid, the starting material used to produce oseltamivir, is traditionally sourced from pods of the star anise plant, which grow only in the mountainous regions of China's southern provinces. Third-party suppliers, who work in close collaboration with Roche, are responsible for harvest and purification. Shikimic acid can also be produced by fermentation – a patented process licensed by Roche through which they eventually intend to produce a majority of their shikimic acid. As a result of Roche's two sourcing strategies, shikimic acid is not readily available to other drug manufacturers.

US and Canadian (?) patent protection for oseltamivir expires in 2016. It is generally accepted that in Canada generic drugs will very quickly capture approximately 80% of the market due to the “forced subsitution” required by drug insurance plans. However, generic manufacturers will be unable to produce a generic equivalent to Tamiflu if they cannot obtain shikimic acid. As a licensee of the same fermentation technology used by Roche to produce shikimic acid, Upcycled Aromatics would be ideally positioned as an alternate supplier of high quality shikimic acid. Agreements established with generic drug manufactures would allow us to capture a share of the lucrative shikimic acid market while reducing or eliminating the associated uncertainty.

Biomass Utilization

On the upstream side, biomass represents one of the only foreseeable abundant resources that can be used for low cost production of organic fuels, chemicals and other materials. Furthermore, recovering biomass has benefits at every stage in the life cycle of a consumer product - including sustainable resource supply, energy security, and waste disposal. So, what kind of biomass feedstock are we interested in?

Several hundred million metric tons of municipal solid waste (MSW) is disposed of in Canada and the United States annually. Paper products alone account for approximately 30% of MSW by weight before recycling. Recycled paper processing plants use paper as their feedstock and recover fibre that can be used to produce new paper products. Paper is essentially composed of a fibre mat. Virgin fibres are straight, smooth and largely undamaged. However, to make a quality piece of paper, the fibres must be flattened to increase contact area and bond potential between them. Additionally, in the paper recycling process, fibres are subjected to a number of chemical and mechanical processes which decrease the length of the fibres. As a result, paper fibre cannot be recycled endlessly. It is generally accepted that a fibre can be used six to seven times before it becomes too short to be utilized in new paper products.

Actually, this unusable fibre accounts for 15-20% of the recycled fibres fed to the recycling plant and are considered waste. Paper recycling companies pay to have this waste buried in a landfill or sent out in a waste waster stream. Where others see waste, Upcycled Aromatics sees opportunity.

The major constituent of these paper fibres is cellulose, a homopolysaccharide made up of β-D-glucose. Ergo, the unusable, short fibre in the waste stream of paper recycling plants is a significant source of potentially exploitable cellulose. This feedstock is more attractive than other lignocellulosic biomass because it is processed prior to its utilization and requires no pre-treatment as a result. Additionally, the integration of this process into an already existing infrastructure eliminates transportation costs. For the recycling plant, value is added to their waste stream and there is a more sustainable solution for an already green industry.