Hexal AG - Company Profile, Information, Business Description, History, Background Information on Hexal AG

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Will good medication soon become unaffordable? We've got the cure.

HEXAL offers cost-effective and high-quality medicinal products based on approx. 250 proven active substances. The comprehensive portfolio of OTC and prescription-only pharmaceuticals covers all major indications.

History of Hexal AG

Hexal AG is Germany's second largest producer of generic drugs, and also claims the number four position in the worldwide generics market. Based in Holzkirchen, Hexal produces some 1,000 pharmaceutical products based on more than 250 active ingredients. The company specializes in developing new delivery methods and dosages for its generics, including tablets, capsules, transdermal patches, ampoules, and aerosols. Since 2004, Hexal also has launched production of its active ingredients, becoming the only independent manufacturer of active ingredients in Germany. Hexal operates five production plants in Germany, which continues to account for more than 60 percent of Hexal's EUR 1.1 billion ($1.5 billion) in 2003 revenues. Yet the company also has established a strong global presence, with production sites and production joint ventures in Canada, Denmark, China, Indonesia, Brazil, Argentina, Portugal, Japan, and elsewhere. The company also operates a number of international sales and marketing subsidiaries. Europe remains the group's largest market, adding 29 percent to annual sales, while the company has a growing presence in the Americas and in the Asian Pacific region. In addition to production of active ingredients, Hexal's research and development budget routinely accounts for as much as 15 percent of its sales. Hexal also has begun raising its profile, launching a marketing drive to establish its brand name. Hexal is led by cofounders and twin brothers Thomas and Andreas Strüngmann and remains a privately owned company.

Generics Opportunities in the 1980s

Hexal was founded by twin brothers Thomas and Andreas Strüngmann. The Strüngmann brothers were no strangers to pharmaceuticals: father Ernst Strüngmann had earlier founded the Frankfurt-based company Durachemie. While Andreas pursued his medical studies, Thomas received a doctorate in business administration from the University of Augsburg in 1977. He then went to work for Schering-Plough as a product manager, at first in Lucerne, before being transferred to that company's New Jersey branch in 1978. Strüngmann's encounter with American "can-do" optimism was to have a lasting impact, and became a driving force behind Hexal's success. Thomas Strüngmann then returned to Germany, becoming Durachemie's CEO in 1979. In the meantime, Andreas had completed his studies and gone to work as a physician in the South African bush where he was directly confronted with the urgent need for more affordable medicines.

By the mid-1980s, the German government had actively begun encouraging the substitution of generic medicines for their branded equivalents in order to help control rising healthcare costs. The Strüngmanns quickly recognized an opportunity to combine both brothers' experiences. In 1985, the family spun off one of Durachemie's subsidiaries, then sold Durachemie itself to Cyanamid in 1986. That year, the brothers set up shop in a house in Tegernsee, in Germany's Bavaria region, in order to produce low-cost, generic drugs.

Hexal Chemie GmbH & Co. KG, as the company was called, started off with five drug preparations and just 22 employees. Instead of producing copycat generics, Hexal recognized the market potential for developing new formulations and delivery methods of existing drugs. Among the company's first successes was its lower-dosage formulation of a popular kidney medicine.

Hexal hit the ground running. In its first month, it posted sales equivalent to EUR 220,000. By 1988, the company's revenues had topped the equivalent of EUR 28 million. In that year, the company finished construction of a full-fledged headquarters and production facility, in the picturesque town of Holzkirchen. A major feature of that complex was its research and development laboratory. Hexal's commitment to research and development and its willingness to plow its profits back into the company played a major role in the company's success.

Foreign Expansion in the 1990s

Hexal's Holzkirchen production unit was completed in 1990, and enabled the company to begin large-scale production of its formulations. In that year, also, Hexal made its first acquisition, buying up former DDR chemical giant Fahlberg-List's pharmaceutical division, located in Barleben, outside of Magdeburg. This marked the first of several company production sites, highlighting Hexal's commitment to maintaining its manufacturing presence in the newly unified Germany. In 1992, the company began construction of a new production facility in Magdeburg. Known as Salutas and completed in 1996, the new facility was one of the most modern in all of Europe and positioned Hexal as a major generics producer in Germany. Between 1992 and 1995, the company's sales soared from the equivalent of EUR 89 million to nearly EUR 260 million.

A key factor in Hexal's growth was its decision early on to expand production and distribution into the global market. The company's first foreign move came in 1990, when it opened a marketing subsidiary in South Africa, with an office in the Durban suburb of Pinetown.

Closer to home, Hexal entered Portugal in 1991, establishing a joint venture with a local pharmaceutical maker to introduce Hexal's drugs in that market. The company later bought out its partner, establishing Bexal S.A. there in 2002. Partnerships continued to play an important role in Hexal's international expansion. In 1993, the company joined with fellow German Rowa Pharmaceutical's Irish subsidiary to form the Rowex joint venture in Bantry, County Cork. In that year, also, Hexal entered Poland, setting up HEXAL POLSKA Sp. z o.o. in Warsaw, as a sales and marketing subsidiary. In 2002, however, the company began building a new headquarters and production facility, including a blistering facility, in Poland. The following year, Hexal entered Russia, establishing a representative office in Moscow.

Hexal converted its structure to a limited liability company in 1995, changing its name to Hexal AG that year. The company continued seeking out new international markets, creating subsidiaries in the Czech Republic and Australia, as well as a representative office in Vietnam. The following year was a busy one for the company, with new production subsidiaries launched in China and Argentina, and new marketing subsidiaries introduced to The Netherlands and the Baltic states. The completion of the Salutas plant, at a cost of EUR 260 million, added production capacity of more than five billion capsules and tablets per year in order to support the company's steady growth. The year also marked the launch of the company's ACC acut, one of its most successful drug formulations.

In 1997, Hexal formed RhoxalPharma Inc. in a joint venture with Rhodiapharm, the generics subsidiary of Rhône Poulenc Rorer. The new subsidiary gave Hexal access to the North American market, as well as new production capacity. In 1999, Hexal took full control of the Canadian operation. Also in 1997, Hexal established a marketing subsidiary in Austria.

By the end of 1998, Hexal's sales neared EUR 450 million. That year marked another major milestone for the group, as it began research operations in biotechnology, molecular medicine, and genetics in order to develop its own in-house drugs. In 1998, the company founded two new subsidiaries, Hexal Biotech and Hexal Gentech.

At the same time, Hexal stepped up its international expansion. The company turned to Scandinavia, buying up Denmark's GEA, founded in 1927. The GEA acquisition also enabled the company to enter Sweden and Finland. The company launched a new production facility in Mexico that year, then added sales subsidiaries in Ukraine and Romania. Hexal also moved into Japan, acquiring Hoescht subsidiary Cox Japan that year. That company was then renamed as Nippon Hexal in 1999. New markets that year included Spain, through subsidiary Bexal Farmacéutica S.A., and Turkey, through the acquisition of Ilsan Iltas. The company's international production portfolio took a major step forward that year as well, with the acquisition of a controlling stake in Indonesia's PT Prima.

Branded Generics Leader in the 2000s

Hexal scored a new success in 2000, when its research and development efforts paid off in the form of OncoQuick. That product offered a breakthrough in cancer testing and tumor detection techniques. The company became a leading innovator in transdermal delivery techniques as well. Also in 2000, Hexal entered the United States for the first time, buying up Eon Labs, which was subsequently launched as a public company in 2002.

By the end of 2001, Hexal's sales had topped EUR 750 million. In that year, the company launched a new German production subsidiary, Jenahexal Pharma, which opened an ampoule-filling facility in the town of Jena. That year, the company boosted its presence in Turkey with the takeover of Koz Pharmaceuticals / Biokem through its subsidiary there. Meanwhile, the company entered Greece, establishing Novexal.

Continued expansion brought Hexal into Egypt, Guatemala, and the Philippines in 2002, boosting the group's presence in the Middle East, Central America and the Caribbean, and in Southeast Asia, respectively. In 2003, Hexal added sales subsidiaries in Italy and South Korea. A trend toward new legislation requiring or encouraging substitutions of generic products had been building steam, reaching such markets as Finland and France, and boosting Hexal's future prospects. By the end of that year, the company's annual sales had topped the EUR 1 billion mark for the first time.

Despite its success, and its growth into Germany's number two generics manufacturer and a position among the world's top five, Hexal itself remained, in large part, unknown. The company took steps to counter that in 2004, launching its first marketing campaign in Germany, which remained the group's core market at more than 60 percent of sales. The company made another important move that year in order to heighten its profile when in July 2004, Hexal acquired Arzneimittel Werk Dresden (AWD), which permitted the company to launch production of its own active ingredients for the first time.

Hexal began making preparations for its next growth phase. While remaining committed to its private, family-controlled status in the short term, Hexal recognized the need to change its status in the long term. As Thomas Strüngmann told Reuters: "In the long run--in the next 10 years--we could see Hexal merge or acquire another big generic company and establish a stronger presence worldwide. For the moment, we have made the decision that there will be no family member of the next generation in the company. We want to de-Strüngmannize Hexal." As part of that process, the company announced its intention to launch a public offering, possibly as early as 2005. Given the company's success in building on its generics base, Hexal appeared poised for fresh expansion in the new century.

Principal Subsidiaries: Bexal Farmacéutica S.A. (Spain); GEA (Denmark); HEXAL AB (Sweden); HEXAL ARGENTINA S.A.; Hexal Australia; HEXAL Centroamericana S.A. (Guatemala); Hexal Korea Corporation; HEXAL Pharma; HEXAL Pharma (S.A.); HEXAL POLSKA Sp. z.o.o. (Poland); HEXAL S.p.A. (Italy); HEXAL Syntech GmbH; Hexanel S.R.O. (Czech Republic); ILSAN HEXAL (Turkey); JENAHEXAL Pharma GmbH; Laboratories Hexal México; Nippon Hexal (Japan); RhoxalPharma Inc. (Canada); Rowex Ltd. (Ireland); Salutas Pharma GmbH.

Principal Competitors: PG Enterprises; Celesio AG; HOLDPHAC S.p.A.; Degussa AG; Solvay S.A.; Boots Group PLC; Boehringer Ingelheim Group; Fresenius AG.


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