Sandoz Ltd.

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Sandoz Ltd.

Lichtstrasse 35
4002 Basle
Switzerland 41 61 24 11 11

Public Company
Incorporated: July 18, 1895
Employees: 40,166
Sales: SFr7.562 billion (US$4.647 billion)
Market Value: SFr5.343 billion (US$3.283 billion)
Stock Index: Basle Zurich Geneva

In 1886 two Swiss men, Dr. Alfred Kern and Mr. Edouard Sandoz, established a company in Basle in order to manufacture and sell synthetic dyes. Thirty years earlier the English chemist, William Henry Perkin, while trying to synthesize quinine from coal tar, came up with a purple dye instead. Two years later a Frenchman used a similar process to produce a magenta dye, and a new industry was born, ending the reliance upon purely animal, vegetable or mineral dyes. The new dyes were more brilliant than the old and lasted longer. They worked better on synthetic fabrics and they allowed for the development of new dye colors. It was an industry that many recognized as potentially very profitable.

Dr. Kern was 36 when the business was formed and was well known as a chemist specializing in dyestuffs trade. The two men purchased 11,000 square meters on the west bank of the Rhine River, built a manufacturing plant, and registered their business under the name of Kern & Sandoz, beginning work on the July 1, 1886. They had ten workmen and a 15 horsepower steam engine, and a certainty that they would succeed. There were some early setbacks: the dyes they originally had intended to produce, including Auramine, Victoria Blue, and Crystal Violet, required a process originated by Kern and an old partner, but that partner would not release his patent rights; another dye, Alizarine Blue, caused a reaction kettle to explode.

The company managed not only to survive but to expand. Kern developed new dyes and Sandoz traveled extensively, searching for more customers and markets for their products. In five years, from 1887 to 1892, their production increased from 13,000 kilograms of six different types of dyes to 380,000 kilograms of 28 dyes.

In 1893 the company began to change considerably. Dr. Kern collapsed and died of heart failure and, though Sandoz tried to run the company himself, two years later he was compelled to retire from active management for health reasons. In 1895 Sandoz and Company was converted into a limited company called Chemische Fabrik vormals Sandoz (Chemical Works formerly Sandoz) with a share capital of two million francs and with Edouard Sandoz as the first chairman of the board. At this point, the company was fortunate in its selection of managers and chemists to replace the founders; it was these people who, over the next 30 years, provided the company with direction and enabled it to expand. On the technical side, Arnold Steiner and Melchior Boniger developed and produced new products such as sulphur and azo dyes. Two talented sales managers, Werner Stauffacher and Georg Wagner, built a worldwide sales organization that expanded up to and even through World War I.

Although the company was fortunate in the appointment of its managers, it had many misfortunes, particularly from 1903 to 1909 (known among insiders as the “seven lean years”) when serious consideration was given by members of the board to the possibility of a merger or even liquidation. Prices for manufactured goods kept falling while those for raw materials increased. There were very expensive patent litigations with competitors as well. However, by 1910 profits began to increase again, reaching one half million francs in 1913, the year after the company’s shares first appeared on the Basle Stock Exchange.

The First World War, and Switzerland’s isolation, resulted in some intriguing, and later profitable, opportunities for Sandoz. Germany prohibited all exports and, as a means to this end, blocked transit traffic so that everything from fuel to raw materials was in short supply. Wood, transported to Sandoz’s plant in horse drawn carts, was used instead of coal throughout the war. Intermediates, which had formerly been imported, were now blocked, but buyers somehow managed to get those purchased in England and the United States into Switzerland. The company’s own chemists were able to produce the others. After the war, the world chemical market that had formerly been dominated by the Germans was soon open to competition.

Sandoz profited under these circumstances. It purchased the Rothaus estate in Muttenz, just in case land was needed for expansion. In 1918, to circumvent the protectionist legislation in other countries which, in turn, inhibited Sandoz’s international expansion, Sandoz, Ciba, and Geigy formed the Association (Interessengemeinschaft) of Basle Dyestuff Manufacturers. They used this association primarily to establish jointly owned factories in many countries, although they also pooled profits to ensure that none of the members would be forced to declare bankruptcy. The original charter of the Association was for 50 years, but it was amicably dissolved after 33. In 1911 Sandoz had established its first subsidiary in England, and in 1919 established another in New York. In Switzerland the technical departments were restructured by Dr. Hermann Leeman (later president of the company from 1952 to 1963). The previous organization had been a system under which any chemist might be assigned to work simultaneously in research, manufacturing, and application. According to the restructuring, these three functions became separate departments, with the addition of a patent department.

A difficult period of time was again experienced during the early 1920’s when a crisis in the textile industry caused a recession in the dependent dyestuffs industry. The workforce was at first put on part-time employment, but in 1921 nearly 30% of the employees had to be laid off. By 1929 business had been severely affected. However, partly due to the protection afforded by the Association, and partly to the company’s lead in research and development, Sandoz was able to set up numerous subsidiaries around the world providing a protective network against the failure of any one subsidiary. More significantly, the company embarked on a program of diversification into chemical agents for use by the textile, leather and paper industries, and later for the agricultural industry. Research in these areas produced industrial cleansers, soaps, softening agents, mercerizers, bleaches and, after World War II, fungicides, herbicides, insecticides and rodenticides.

The most interesting part of the company’s diversification program began with the establishment, under Dr. Arthur Stoll, of a pharmaceuticals department. Already well-known for his work on chlorophylls, Dr. Stoll now became world famous for the development of a process for the isolation and for the discovery of the importance of ergotamine, an alkaloid of the rye fungus called ergot. The products developed from ergotamine were numerous and sold steadily, so that the pharmaceuticals department gave stability to the company’s sales.

When World War II started Sandoz Ltd., as it had been named in 1939, was financially secure with fully stocked warehouses, production sites and sales agencies throughout the world. Transportation of supplies would not be the problem it had been during the previous war, as supplies were now stocked near company plants. Fuel alone remained a problem. Mr. Leeman is credited with having advised the purchase of an old brown-coal mine. This purchase was finalized and, mining 18,000 tons of fuel for itself during the war, the company had solved its fuel problem. As soon as the war was over the Muttenz site was put to use, with a large plant for chemical and agro-chemical production being built there. Little is known of Sandoz’s contribution, if any, to either side’s war effort, but from 1933 to 1948 company profits increased from SFr48 to SFr253 million.

The international postwar expansion did not exclude Sandoz. The company’s only difficulty involved increasing production to keep pace with demand. In 1949 Professor Stoll was promoted to managing director. New headquarters were built which altered Basle’s skyline. In addition, automation was introduced in the production facilities. And in 1964 annual sales surpassed one billion francs for the first time. Each of the three divisions, including dyes, pharmaceuticals, and chemicals, prospered individually. The dyes division created dyes for the new plastics, paints and synthetic fibers now in demand, as well as the new foron dyes for polyester, and dyestuffs for mass dyeing.

The developments within the pharmaceuticals division caught the world’s attention. Sandoz concentrated heavily on its recently discovered synthetic compounds for the treatment of mental disease and migraine. Most of the products developed were based on ergotamine and included such drugs as Methergin, which stopped post partum hemorrhage, and Gynergen, which when injected early enough relieved the pain of migraine headaches. Certainly the most famous of these drugs was Delysid, also called LSD 25. In 1961 the company’s Jubilee Volume proudly reported the drug’s ability to cause “disturbances in the perception of space and time, depersonalization and color hallucinations” and that “it was destined to play a great role in experimental psychiatry.” Research in the hallucinogen called mescaline, derived from the Mexican peyote cactus, and in psilocybin, derived from certain mushrooms, was also aimed at producing drugs which might be used in conjunction with psychotherapy and, in particular, psychoanalysis.

Although the use of Delysid was strictly controlled, and issued only to authorized research centers, within fifteen years of its discovery in 1942 it was being produced illegally all over America and Europe as a “recreational drug.” The consequences of a large number of people across the Western world experiencing what the Jubilee Volume referred to as “model psychosis” from LSD have yet to be fully understood. The company quickly curtailed its research into hallucinogens, but it will always be remembered as the company which “invented acid.”

The late 1960’s and early 1970’s continued to be a period of growth for the company; sales doubled from SFrl, 977 million to SFr3,616 million. The massive size of the company required further organizational revisions. As a result, an executive committee took over management. In 1968 the dyes and chemicals divisions were amalgamated and a new agro-chemical division was created. The company’s diversification also continued during this time. In 1967 a merger with Wander Limited of Berne added a nutrition department. Two years later, the takeover of Durand & Huguenin eliminated a neighboring competitor in dyes manufacturing. A hospital supply business was acquired and its activities combined, during 1976, with those of Rhone-Poulenc in a joint venture. These acquisitions and mergers were engineered by one of the few non-chemist presidents of the company, Carl Maurice Jacotett, a lawyer’s son from Neuchatel who had studied theology and philosophy before going into business. During his short presidency, from 1968 to 1976, the workforce increased from 6,345 to over 33,000 people, making Sandoz one of the world’s largest pharmaceutical companies.

The oil crisis of 1973, and the consequent rise in prices for raw materials and energy, dramatically affected Sandoz and other manufacturers who could not possible raise the prices of products high enough to cover costs. In 1975 a five year recession began, which led to another review of company structure, this time to reduce overhead and streamline organization. A steady reduction in the number of personnel and a firm control of wage increases helped to decrease losses. Continued diversification and acquisitions soon increased both equity and profit. Sandoz entered the seed business with the acquisition of Rogers Brothers and Northrup King Company (U.S.A.) and Zaadunie B.V. (Netherlands). In 1982 Wasa (Sweden) was acquired, Sodyeco and Zoecon (U.S.A.) in 1983, and Master Builders (U.S.A.) in 1985, the last introducing the company into yet another market, that of chemicals for the construction industry.

By 1975 a department of ecology and safety had been set up in Basle to establish and supervise guidelines throughout the company and its holdings. An effort to develop products with low environmental impacts was also initiated. However, Sandoz has recently received bad publicity for an environmental disaster at one of its Basle plants. Near the end of 1986, when the company was celebrating its centennial, a large amount of toxic chemicals spilled into the Rhine River killing fish and shore life from Switzerland through West Germany to The Netherlands. The public’s demand for legislation to ban the production and sale of 129 dangerous chemicals may or may not be satisfied. However, it is undoubtedly the case that some restrictions, even if self-imposed, will have an effect on the company’s chemical production.

Sandoz entered 1987 with sales over SFr8 billion, profits over SFr500 million, and an equity of more than SFr4.5 billion. In regard to the future, Sandoz’s president, Dr. Marc Moret, has said that the company will continue its strong commitment to research and development. As Sandoz embarks on its second century, the remaining question is what to acquire next.