METH FIGHT HITS MEDICINE MAKERS

Pharmaceuticals New Restrictions At U.S. Drugstore Counters Are
Drying Up The Demand For Pseudoephedrine

The world's largest pseudoephedrine factory is eliminating 15 percent
of its work force, citing a sharp reduction in demand caused by U.S.
sales restrictions on cold medicines that contain the potential
methamphetamine ingredient.

The move by BASF of Germany is the strongest sign yet of the
diminishing role of pseudoephedrine-based cold medicine -- and the
rising popularity of phenylephrine, a decongestant that cannot be
used by meth cooks.

If the trend continues and the world's pharmaceutical makers abandon
pseudoephedrine, drug cartels will be deprived of a key chemical they
use to make meth.

BASF primarily blamed "a significant decline" in orders for
pseudoephedrine from the United States, which consumes half the
world's exports of pseudoephedrine and its chemical cousin, ephedrine.

Driving U.S. consumers away from pseudoephedrine products is
legislation enacted by 34 states requiring cold medicines containing
the chemical to be kept behind store or pharmacy counters. Those
restrictions have reduced sales of pseudoephedrine products, slashed
the number of home meth labs found by police, and sparked an
explosion in products without pseudoephedrine.

Officials at BASF say the cuts will affect 95 of the company's 630
employees at its factory in Minden, Germany. The company employs
82,000 people worldwide.

Folker Ruchatz, BASF director of Pharma Solutions and dietary
supplements in North America, said tighter regulations and the switch
to phenylephrine "will continue to reduce the demand for pseudoephedrine."

BASF is not alone in feeling the market pressure on pseudoephedrine.
A leading Indian manufacturer of ephedrine and pseudoephedrine, Krebs
Biochemicals and Industries Ltd., has told shareholders that the
tighter U.S. regulations have hurt sales and "affected our production
and profitability."

But business is good at Pfizer Inc., which introduced a cold medicine
containing phenylephrine earlier this year in anticipation of tighter
regulation of pseudoephedrine. Spokesman Jay Kosminsky said sales of
the new "Sudafed PE" have outpaced the traditional version with
pseudoephedrine, and Pfizer has told shareholders the brand as a
whole is selling better than before the reformulation.

As other companies rush to phenylephrine, the world's leading
manufacturer of the chemical is expanding. Boehringer Ingelheim of
Germany has doubled its phenylephrine capacity and plans to increase
it another 50 percent by 2007. The company is installing equipment to
manufacture the chemical at its Petersburg, Va., facility. The
combined capacity would be enough to completely supplant current U.S.
demand for pseudoephedrine.

Rob Bovett, a key supporter of Oregon's limits on pseudoephedrine
sales, hailed BASF's plan to reduce production.

"Our intent was to get rid of pseudoephedrine," said Bovett, legal
counsel to the Oregon Narcotics Enforcement Association. "Slowly but
surely get rid of it. Because we knew once we got it off the shelf,
the manufacturers would reformulate with phenylephrine or something else."

Choking Off Cartels' Supply

BASF is one of a handful of companies in Germany, India, China and
the Czech Republic that dominate the production of ephedrine and
pseudoephedrine worldwide.

The company's decision to cut production hints at pseudoephedrine's
growing obsolescence in the United States.

Data from the U.S. Census Bureau show that through August, U.S.
imports of pseudoephedrine and ephedrine from Germany were down 17
percent from the same period in 2004. Imports from India were down 15
percent, China 26 percent, and the Czech Republic 100 percent. The
declines were partially offset by increased imports from Switzerland,
which has several chemicals brokerages.

It's unclear whether other countries will follow the U.S. lead,
further reducing pseudoephedrine's use internationally and making the
chemical harder for Mexican drug cartels to obtain.

Mexican cartels supply an estimated 65 percent of meth sold in the
United States. Choking off the cartels' international supply of
necessary chemicals produced profound shortages of meth twice in the
1990s, The Oregonian revealed last year. Meth use declined as a result.

But large-scale Mexican traffickers adapted by purchasing millions of
pseudoephedrine pills, first in Canada and then in Mexico, for use in
their "superlabs."

Restricting Access

This year, U.S. lawmakers have introduced several proposals to
further restrict access to ephedrine and pseudoephedrine domestically
and internationally. Some of them called the BASF announcement a step
in the right direction.

Rep. Mark Kennedy, R-Minn., the author of legislation that would
require the State Department to scrutinize the global trade in
pseudoephedrine, said Congress must act to guard against diversion of
pseudoephedrine in other countries.

"I'm pleased that there may be less demand for large quantities of
imported pseudoephedrine than in the past," Kennedy said in a
statement. However, "by no means is this the end."

Sen. Jim Talent, R-Mo., who, with Sen. Dianne Feinstein, D-Calif., is
sponsoring national sales restrictions on pseudoephedrine products,
said he expects further reductions in production by BASF and other
companies if Congress approves his legislation.

He said U.S. demand for pseudoephedrine has been artificially
inflated by the meth trade.

"The demand for these products should be driven strictly by
legitimate consumers," Talent said in a statement, "not the meth cooks."

Impact On BASF

Pseudoephedrine is a tiny piece of BASF's highly diversified business
operations.

The export market for raw pseudoephedrine and ephedrine powder
amounted to about $80 million in 2004, United Nations trade data show.

European Union trade statistics show that BASF faces reductions in
demand this year from both the United States and Mexico, where
officials have tightened restrictions on pseudoephedrine distributors
after widespread diversion by drug cartels. This year, Germany's
exports to Mexico dropped by nearly 80 percent.

In addition, BASF officials said they faced increased competition
from Asian producers of caffeine, which is also made at the Minden factory.

In Germany, where unemployment has hovered near 10 percent for two
years, company officials said they regretted the need to eliminate jobs.

"It is not easy for us to carry this message to our workers," said
Dr. Roland Minges, managing director of BASF, in a statement.
"However, the production adjustments are necessary to improve the
international competitiveness of the Minden site."

Other companies

Demand for imported pseudoephedrine powder is declining because U.S.
drug companies face difficulty selling the pills and syrups that contain it.

Schering-Plough reported that its third-quarter sales of Claritin D,
an over-the-counter allergy medicine that contains pseudoephedrine,
were down 16 percent from the same period a year ago. The $18 million
drop reflects "the beginning of the adverse impact of recent
restrictions" on pseudoephedrine products, the company said in a
filing with the Securities and Exchange Commission.

Schering-Plough has not been able to easily reformulate Claritin
because its other active ingredient, a relatively new antihistamine
called loratadine, was approved for use with pseudoephedrine but not
phenylephrine.

Michigan-based Perrigo Co., the world's largest maker of generic
over-the-counter products for chain stores, forecasts an even steeper
drop in sales of pseudoephedrine products.

Cold and allergy medicines containing pseudoephedrine brought in 18
percent of the company's $1 billion in sales last fiscal year. On
Sept. 7, the company told shareholders that its sales of
pseudoephedrine products are expected to decline by 34 percent to 40
percent -- $62 million to $72 million -- in fiscal 2006.

The company added that Perrigo is in the process of introducing more
products containing phenylephrine.

Bovett, the Oregon advocate of pseudoephedrine controls, said the
market has found a way to satisfy consumer needs.

"Pseudoephedrine just isn't necessary," Bovett said. "It never was necessary."