The fine and specialty chemicals business: how it really works: Where fine chemicals sit in the chemical universe

1.1 Fine chemicals are sold for what they are; specialties are sold for what they do

Pollak splits the chemical world into three tiers. Commodities are large-volume, low-price, standardised substances made in dedicated plants for many uses. Their prices are usually below $1/kg, swing with the cycle and are visible to everyone: ethylene, methanol, sulphuric acid.

Fine chemicals are complex, single, pure substances made in limited quantities, up to roughly 1,000 tonnes a year, in multipurpose plants by batch processes of several chemical or biological steps. They are bought on tight specifications by other chemical or life science companies for further processing, and sell for more than $10/kg. A 'batch' process works like a kitchen recipe: charge the pot, react, empty, clean, start again. A continuous process is a production line that never stops.

Specialty chemicals are formulations, mixtures containing one or more active ingredients, sold under brand names on performance, mostly to customers outside the chemical industry. Pollak's test: fine chemicals are bought for 'what they are', specialties for 'what they can do'. The active pharmaceutical ingredient (API, or drug substance) is a fine chemical; the tablet (drug product) is a specialty.

The borders are blurred. The 1,000-tonne and $10/kg lines cut through product families: aspirin and paracetamol, lysine and methionine, vitamin C and niacin all exceed 10,000 tonnes a year below $10/kg. Pollak's rough rule is that commodities are run by chemical engineers and fine chemicals by chemists. Regulation is a third dividing line: APIs and their advanced intermediates must be made under current Good Manufacturing Practice (cGMP), the US Food and Drug Administration's drug-manufacturing rules, wherever the plant is, if the product reaches the US. Most fine chemicals fall under cGMP.

Kent's history chapter explains the tier's origin. In the decades after 1973, firms seeking better margins than commodities gave turned to fine chemicals, and the German and Swiss dye makers were best placed, because their long multistage syntheses already produced intermediates that could feed drugs and pesticides.

• Pollak (2011) · pdf pp. 25-27
• Kent (2012), Ch 1 Recent History of the Chemical Industry · pdf pp. 29-30
• Wittcoff (2004), Ch 1 · pdf pp. 59, 78

1.2 Following one drug up the value chain shows where value is added

Pollak traces one molecule: Pfizer's cholesterol drug Lipitor (atorvastatin), the world's best-selling medicine, with sales of $11.4 billion in 2009. The chain runs from methanol, a one-carbon commodity, to atorvastatin, a 33-carbon molecule of molecular weight 559.

Methanol sells at about $0.2/kg, 32 million tonnes a year from about 100 producers. Acetic acid, one step on, is about $1/kg. Then come two advanced intermediates: a 'hydroxynitrile' at about $100/kg, needed at 200 tonnes a year, with about 10 producers and one customer; and a second at about $200/kg. The API is valued at about $2,000/kg, 400 tonnes a year, made by one producer, some 20 steps from methanol. Everything from the first intermediate on is made in multipurpose batch plants.

Two things happen along the chain. Price rises about 10,000-fold, because each step adds chemistry, yield losses, purification and analysis. And the number of customers collapses from about 100 to one. A hydroxynitrile maker depends on one buyer, for one drug, whose fate it does not control.

Making the API is 'primary manufacturing'; 'secondary manufacturing' mixes it with excipients, inactive ingredients for bulk, stability and taste, and presses tablets. Kent notes that most marketed drugs are small organic molecules of molecular weight roughly 200-600.

Arithmetic on Pollak's figures: 400 t at $2,000/kg is $800 million of API a year, about 7% of $11.4 billion of drug sales. Pollak puts the API at about 4% of the pharmacy price: 100 tablets of 80 mg hold 8 g of API and cost $400, so the patient pays about $50,000 per kilogram of API, of which $2,000 is 4%.

• Pollak (2011) · pdf pp. 27-29, 103
• Kent (2012), Ch 11 Chemistry in the Pharmaceutical Industry · pdf p. 402

1.3 Fine chemicals are about a $85 billion slice, and most of it is made in-house

Pollak sizes the whole chemical market around 2010 at about $2,500 billion: specialties, including drugs and pesticides, about 55%; commodities about 40%; fine chemicals only 3-4%. With no official statistics, he works top-down: sales of each specialty sector, times the share of value that is active ingredient, times the share bought from outside.

For pharmaceuticals, a $835 billion market in 2010, proprietary drugs ($735 billion) carry actives worth about 5% of their price, $37 billion, and generics ($100 billion) about 15-20%, $18 billion: $55 billion in all. About a third of the proprietary actives ($12 billion) and 60% of the generic ones ($11 billion) are outsourced, so the 'merchant' market is about $23 billion and the 'captive' rest, made by drug companies themselves, about $32 billion.

Agrochemicals carry a larger active-ingredient share, because a farmer only sprays if it pays. For other specialties Pollak analysed four household products; the active ingredient was 3-5% of the shelf price in every case, though its weight share ran from 19% to over 95%. Taking 4% of $775 billion of non-life-science specialties gives about $31 billion; assuming half is commodities leaves about $15 billion, three quarters made in-house.

The total is about $85 billion, of which only about $32 billion is traded. That merchant figure is what fine chemical companies can actually win; the captive part is the prize if customers outsource more, which is why drug makers' make-or-buy policies matter so much. Of the merchant pharmaceutical business, Pollak attributes about 40% to big pharma, mainly exclusives, about 30% to medium pharma, mainly generics, and about 6% to small pharma. He puts the accuracy of all these numbers at 20-25%.

• Pollak (2011) · pdf pp. 116-120, 181
• Cefic (2025) · Sales sheet
• Kent (2012), Ch 10 Synthetic Organic Chemicals · pdf pp. 318-319

See it in the table

Check your understanding

A pharmaceutical company buys atorvastatin from an outside producer to an agreed purity specification and then tablets it. Which statement is right?

Why does Pollak put the merchant market for fine chemicals at only about $32 billion of an $85 billion total?

In Pollak's four household products, the active ingredient's weight share ran from 19% to over 95%. What was striking about its share of the price?