From The Editor | February 10, 2015

Profit For Good At Rottendorf Pharmaceuticals

By Louis Garguilo, Chief Editor, Outsourced Pharma


Let’s deal with the name first. If you’re like me, it would’ve been a distraction throughout the article if we hadn’t. The company is named after its German founder and patron, Andreas J. Rottendorf (1897-1971). As per the organization’s founding charter, it can’t be changed.  

That same charter places Rottendorf Pharma GmbH, a CDMO with revenues around U.S. $120 million, under a charitable foundation. More than the name, the effect this arrangement has on its employees, customers, and those benefiting from the largesse of the Rottendorf Foundation, is the real market differentiator. And worth our investigation.

Gordon Haines, president and CEO of Rottendorf Pharmaceuticals U.S., and who is tasked with further penetrating the biopharma market here, says good-naturedly, “We’re certain the level of service and competency we provide, and our role in society, more than makes up for the fact the name has the word rotten in it.”

To understand this connection between philanthropy and pharmaceuticals, and the business model for success in a globally competitive service provider industry, along with Haines I spoke with Dr. Bernward Garthoff, chairman of the Rottendorf Foundation and Dr. Stephan Fleck, CEO Rottendorf Pharma GmbH.

Wanting To Work At Rottendorf

The desire to work for a larger cause, to somehow apply whatever we do for a living to benefit society, continues to rise. 

David Brooks of The New York Times writes that “over the past generation many of the most talented people on Earth have tried to transform capitalism itself, to use the market to solve social problems. These are people with opposable minds: part profit-oriented and part purpose-oriented.”

These are also the type of people who work at Rottendorf. And have been for over 85 years.

“Working here has special meaning for our employees because you don’t work to make somebody else rich,” says Dr. Fleck. “We attract highly skilled employees who like working for a company where your efforts only benefit fellow employees and charitable activity. That makes a big impact and creates a strong feeling of community. Work becomes motivational and fulfilling.”

The company charter also stipulates Rottendorf can’t be sold, and an overarching goal of maintaining employment is clearly stipulated. I’ve written quite a bit on employment in the pharma industry, but never about an organization quite like this.

The Business Model

I ask Dr. Fleck, who worked at Bayer AG, Bayer HealthCare and GE Healthcare, if running Rottendorf is different from running any other company.

“As CEO and from a financial point of view, there is no difference,” he says. “You run the business for profit, to invest back in the company, and grow markets and customers.”

According to Dr. Garthoff, the Foundation owns 99.4 percent of the organization, but has severely restricted voting rights within a four-member shareholder advisory group, which includes him, CEO Fleck and two minority shareholders. The voting rights are ceded to the pharma services business side. Profit-sharing takes place between the Foundation for purposes of charity and the investment needs of the business and employees.

In practice, though, there are differences in the way Dr. Fleck manages Rottendorf when compared to other CDMOs. First, as mentioned above, the company can’t consider a merger or being acquired. Dr. Fleck is prohibited from raising money in an IPO, or going to investors for funding.

“We need profit to invest,” says Dr. Fleck. “If we need $10 million for a strategic investment, we first need to earn it.”

How novel: A company fed solely by its profitability and long-term strategy, and with a good measure of philanthropy thrown in. But will customers really care?  

The Customers That Care

Because of the unique set-up of the organization, Rottendorf can structure “more intelligent deals” with customers.

“The word “strategy” means something at Rottendorf,” says Dr. Fleck. “There won’t be a different owner or new direction from any outside influence in the future. We can make a deal to help a customer or build a new relationship even if we have to give up some of the earlier profit. Our organization doesn’t say, ‘Fleck, you didn’t make your quarterly results, that was a bad deal.’ We can put in place long-term strategies for customer projects and actually see them through.”

U.S. CEO Haines sees another advantage for customers. He notes that Big Pharma can be villainized in the media, by government and others. “So doing business with a partner owned by a trust doing philanthropic work is appealing, and by extension becomes a part of our customers’ own good-corporate-citizen aspect,” he says. Haines adds that biopharma companies who outsource globally can also be concerned with the ethics of their partners. “The charitable trust speaks to customers about our character and they appreciate that.”

However, customers buy for results first and foremost. All three of the Rottendorf representatives emphasize that above all else, the Rottendorf differentiator in a crowded and competitive global service provider space is competency, quality and customer service. They call it “Total Process Ownership.” Haines says customers experience this approach from initial contacts with Rottendorf to a deep relationship where “we basically act as a part of our customers’ company.” He adds that “consistency in behavior” keeps customers coming back. “Is this a unique thought?” he asks rhetorically. “What seems unique is we actually deliver on what we say we are going to do.”

Dr. Fleck, who spent years at Bayer and “on the other side of the table,” says pharma doesn’t simply outsource to Rottendorf. “We can take full ownership of their product, including responsibility for product performance. It’s our ambition to master product development and manufacture for customers.” He says this approach resonates even more in this era of cutbacks at pharma.

Is it working? Dr. Fleck tells me Rottendorf experiences a revenue growth rate of 10% year-over-year, steady profitability and growing customer numbers in Asia, Europe and the U.S.

The Business Is The Foundation

For over 40 years, the Foundation has supported less developed countries and areas of the world that experience interruptions in drug supplies, or a sudden need to increase supplies due to natural disasters such as flooding, earthquakes, volcanic eruptions and other events. Closer to home, Rottendorf supports researchers getting started at universities in Germany, particularly through an awards system targeted mostly in the fields of pharmaceutical genetics, formulation and pharmacology. There is direct support to universities as well.

The cooperative relationship between the Foundation and its charitable work, and the CDMO business, is evident in my discussion with the three Rottendorf leaders. Dr. Garthoff has experience in the pharma industry, and the Foundation understands and supports the business as much as possible. “All the benefits we can bestow through the Foundation we obtain through the business side. We know the business has to grow,” he says. 

For his part, Dr. Fleck adds that “the foundation doesn’t drain the company and there is a clear rule about this. In fact, no entity such as stockholders or outside investors can drain the company. Customers understand this. We never have to cut corners to fulfill arbitrarily assigned financial targets.”

One suspects that with the type of worker at Rottendorf that above Brooks of The Times dubs as holding opposable minds (part profit-oriented and part purpose-oriented), this wouldn’t be tolerated anyways.

What does the future hold? For starters, it’s up to Haines to increase the footprint of Rottendorf in the U.S. This market has already grown to 20% of global sales, and Haines estimates he can get that closer to 30% by year’s end. The company is also optimistic about establishing operations here in the future. Chances are they won’t have a difficult time attracting employees if they do. After all, what’s in a name? It’s the competency, services and pricing, and increasingly the social responsibility exhibited by a company that counts with employees, and customers.