DSM Nutrition's Hamilton Sees Complementary Benefits In Martek Deal
This article was originally published in The Tan Sheet
Executive Summary
Royal DSM N.V. strengthened its identity as a life and material sciences company in late 2010 with its $1.09 billion purchase of Martek Biosciences.
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Royal DSM N.V. strengthened its identity as a life and material sciences company in late 2010 with its $1.09 billion purchase of Martek Biosciences. The acquisition, which closed in late February, gives the Dutch ingredients giant access to a portfolio of algae-based omega-3 ingredients, complementing DSM's existing vitamin and carotenoid products (Also see "DSM's $1.1B Martek Acquisition Comes With Potential IP Expirations" - Pink Sheet, 3 Jan, 2011.). At Natural Products Expo West in Anaheim, Calif., DSM Nutritional Products North America President Jim Hamilton sat down with "The Tan Sheet" to discuss the benefits of Martek, its Amerifit Brands supplement subsidiary and his new role as chairman of the Council for Responsible Nutrition's board of directors ( (Also see "People In Brief" - Pink Sheet, 10 Jan, 2011.), People In Brief). Excerpts from the March 10 interview follow. * * * "The Tan Sheet": Why do you feel the Martek acquisition was the right acquisition and why now? Jim Hamilton: Martek has been a company we've had a relationship with for many years, because they are in the nutrition business and we're in the nutrition business. And we've had certain supply relationships, certain sharing of [intellectual property]. So we've had a very intimate relationship with them. They're a great business, great people, and it's highly complementary to our business. Tan: Are there any other specific synergies you hope to realize from the deal? Hamilton: This acquisition is not based on synergies. Sometimes you can acquire a company and say, we can cut all these costs. That's not what this is about. It's a business that is completely complementary to what we do in terms of the product portfolio, in terms of people. And I think where some of the great value is when you look at their business that developed very much domestically with a lot of the domestically based multinationals, where they haven't had a strong infrastructure is actually the rest of the world – and we do. We've really got guys on the ground in every country around the world with the regulatory expertise and the relationships. And I think from my interaction with a lot of the Martek folks, this relationship with us going forward is really the vehicle they see to really take their business, and the great value they bring to infant nutrition, to the next level. Tan: Patents on Martek's life'sDHA ingredient expire over the next few years. Is that something you're concerned about? Is there any update on Martek's next-generation DHA process, which the firm expects to yield fresh IP? Hamilton: Clearly innovation is what Martek is about. They've got a great team working in that area, and again, highly complementary to where our people are in terms of that as well. But that is the goal, to improve the product quality over time. A number of the large commercial relationships [for supplying infant formula ingredients] are now agreed to over the long term. So over the next number of years, I think those relationships will be very secure as certain of the patents expire ("Martek plans offsets for formula contracts," "The Tan Sheet" Sept. 6, 2010, In Brief).
Tan: Martek basically has saturated the U.S. infant formula market. Is there still room for infant formula growth globally? Hamilton: I think the Martek guys are clearly the experts in that area. But from what I understand, we see tremendous growth in infant formulas in Asia and China. I think [global expansion] is one of the challenges they saw for their business. So this is where we think we can bring value because we do have … people on the ground with the regulatory science and relationship capabilities to help make that happen. Tan: Into what other specific food or beverage product areas are you looking to get Martek products? Hamilton: I think that's an interesting one. I think infant nutrition Martek knows better than anybody. And in fact, I think we could learn from them in that regard. I think on the other hand, when it comes to industries such as the food and beverage business or the dietary supplement business, we know that well. The vitamins, for example, we develop them. I mean, we're the first to synthesize vitamin C and we're the largest vitamin maker in the world; we know the dietary supplement guys, we know the dietary supplement regs. And we think that we can help enable exposure to their very nice products, very interesting products, into that industry.
Tan: Speaking of supplements, Martek has the Amerifit Brands business it acquired in early 2010. Do you have any specific plans for that – maybe expanding the Amerifit portfolio with more DSM products? Hamilton: Amerifit really is an interesting business. … We have a small consumer products business that we've been developing called i-Nutrition, and there's really two primary products – one is called i-flex [for joint health], one is called i-cool [for menopause relief]. And there's an additional one called SlimShots. It's a relatively small business. And the genesis of that business that's interesting was, we as an organization probably spend more on nutrition research than any other company in the world. And when you look at the investment that we make, not only in the basic science and efficacy, but also in the safety, we have a lot invested and we have a lot of belief. What we found was, the industry wasn't so interested in embracing them and we weren't prepared to just shelve these products. We thought, well maybe we could try [commercializing them]. So it's been a bit of an experiment. And by the way, we've been very happy with that how that experiment has been going on those products. I think in that context, Amerifit interests us, because it's a vehicle through which certain innovations can be commercialized. And it gives us a better window onto retail and the consumer as well. And that will help maybe direct and drive our innovation in more productive ways. (See sidebar below – (Also see "Amerifit Shoulders More Responsibility As DSM's "Conduit To The Consumer"" - Pink Sheet, 21 Mar, 2011.) – for more on Amerifit.) Tan: Are there any other specific nutrition areas that look particularly promising, either in your current portfolio or as possible acquisitions? Hamilton: Nutrition is clearly a core business for DSM and it's a wonderful business. … When you look at the DSM corporate portfolio, nutrition plays an absolutely critical role both in terms of revenue contribution and also profit contribution. And we as a corporation will invest more in this area. Of course you've always got to find the right balance of – is it complementary to your portfolio? Is the science/quality/value equation right? And that's not always easy to get. But as a philosophy and as a commitment, we'll continue to invest in this business. Tan: Sustainable ingredient claims for the i-flex supplement recently were the subject of an industry self-regulation review ( (Also see "National Advertising Division In Brief" - Pink Sheet, 24 Jan, 2011.), National Advertising Division In Brief). Do you have any thoughts on that process? Hamilton: [NAD] is really an effort to help the industry self-govern, which will, I think, increasingly be the trend. … I think legislation is sufficiently gray that no one's really sure. And a number of very large and ethical companies – ourselves, Bayer and others – you've got a lot of bright people in the regulatory department. You look at the stuff and you think, I think this is okay. The important thing is, if it is gray or if it's a little bit over the line, the NAD will help bring clarity to that. It's the responsibility of responsible companies then to adjust. And we, as a responsible company and as a member of CRN, just like Bayer, do adjust. Tan: Sustainably sourced, green ingredients are buzzwords for a lot of companies lately. Can you talk about what they mean to DSM? Hamilton: It's an interesting question because, when you look at sustainability, we've been either 1 or 2 in the Dow Jones Sustainability Index in the last five years. And as a company philosophy, it's one that is genuinely embraced. Our chairman uses a mantra that no company can succeed in a society that fails. I think sustainability can be everything from employee engagement to what you do in terms of how you manufacture the packaging you use to the energy that you develop. And I believe that this is something that is going to be ultimately consumer-driven. You can argue it's good business, but I think increasingly it's going to be consumer-driven, and that is going to be much more common practice. Tan: Personal care is a relatively small part of the nutrition business. Could you talk about the importance of personal care and any plans to expand it? Hamilton: Personal care is a wonderful business. Most of our personal care business is in, I would say, the healthy ingredient element in terms of skin health or hair health, rather than color cosmetics, for example. We did an acquisition three years ago called Pentapharm, which is a Swiss company, which has a multitude of innovative ingredients, largely in the skin area ("DSM buys Pentapharm," "The Tan Sheet" Sept. 3, 2007, In Brief). So we are active, we're there, and we'll continue to do in personal care what we're trying to do in human nutrition and in agriculture, and that is invest in innovation. Tan: Looking more broadly at the nutritional ingredients industry, the past year has seen DSM buy Martek, BASF buy Cognis and DuPont buy Danisco ( (Also see "DuPont Gains Broader Nutritional Portfolio In $5.8B Danisco Deal" - Pink Sheet, 17 Jan, 2011.) ). Do you consider this a continuing consolidation trend? Hamilton: I think what is happening is a lot of the corporate world is understanding [nutrition] is a great business. It's a steady business, customers don't go away, it's growing. It's not too cyclical, it's pretty steady. So if you're looking for something that fits with the macro, global megatrends in terms of a growing population that's becoming increasingly health-aware – if you want something where it's not so cyclical and really kind of steady, it's a great business to be in. So that's why I think it's getting increasingly recognized by certain people. Tan: What are your goals as chairman of the CRN board? What are the major challenges you see facing the nutritionals industry? Hamilton: I think CRN's a fantastic organization, they've been around a lot of years, and [President] Steve Mister and the staff do a wonderful job. The ambition of CRN is to represent the responsible industry and be a great partner with government and other communities to help shape the industry, and clearly they do a great job legislatively. I think what's interesting is, when you look forward, there's a couple of things happening. One is the challenges are not going to go away. We had an interesting debate just last week in our strategic planning process about what will happen with government looking forward. And there's a certain dialogue in Washington now that we need to de-complex government and we need less. But what less could mean is either a change to the existing legislation, or cities and states playing a stronger role in legislation. When the cities and states play a stronger role versus the federal government, it makes it very complicated for industry to act. So it's going to be a very active period we're going into. I think the other issue that we need to be mindful of, and what I believe, is that this is a great industry that has many domestic companies and many domestic employees. And if we're not careful as an industry, we'll see the offshoring of manufacturing. And I don't think this industry is immune to the same forces that have affected other industries in that regard. We have asked for and seen more governance in terms of the quality of our products through GMPs, for example. I question if the same standards are being applied to domestic manufacturers versus those offshore.
I think it's in the interest of the industry, it's in the interest of the safety of consumers, and it's in the interest of the nation to make sure that we have a level playing field between what is made offshore and domestically. And that begins with just labeling where [finished] products are made. … I think consumers should have that information at their disposal so they can make an informed choice on the shelf. And that's something I think within the CRN community that we'll be talking about. Tan: Do you believe Sen. John McCain's Dietary Supplement Safety Act or similar legislation could re-emerge in this Congress ( (Also see "McCain-Dorgan NDI Guidance, Steroid Provisions In Senate Food Safety Bill" - Pink Sheet, 29 Nov, 2010.) )? Hamilton: Things like that seem to happen all the time, whether it's the McCain bill or something different. There's always something. So the answer is yes, there will be something. What it is, I have no clue. |
