The Indian company claiming to represent the most serious threat yet to Tate & Lyle's monopoly of the highly lucrative sucralose market said it was close to signing up a major distributor.
Pharmed Medicare, a leading supplier of glucosamine to the European market, claimed it would be able to produce 1,000t a year of sucralose from its ISO 9001-certified factory in Bangalore in the next 12-15 months using a "simpler and safer" process that did not infringe Tate & Lyle's patents for its Splenda-branded sucralose.
Speaking from a trade show in Dubai, Pharmed president Sundeep Aurora said that the company's factory was currently producing several hundred kilos of sucralose a month, but would ramp up to industrial scale production by mid-2007: "It's going to be a huge undertaking. More than 120 people work there already on production, research and quality control." The venture's financial backers would be revealed shortly, he said.
The culmination of years of research, Pharmed's process was supported by "a substantial portfolio of process patent applications that have been reviewed by leading legal counsel in the USA, Asia and Europe", claimed Aurora.
"We have already published two patents that demonstrate that we have the ability to produce a non-infringing product. Having more than one supplier of such a strategically important product has got to be a good thing for the food industry."
Given that Splenda contributed 20% of Tate & Lyle's £255m profit last year on just 3.4% of its £3.34bn turnover and Pharmed was not the first company claiming to have found a way around its patents, it was hardly surprising investors were getting twitchy, said Mirabaud Securities analyst Julian Lakin.
"We're forecasting sales of $500m (£281m) in the year to March 2008 for Splenda, but that price is based on the fact that Tate & Lyle is the only one making the stuff. When NutraSweet's patent over aspartame expired, its margins went from something like 75% to 15%," he said.
The Investec Securities analyst David Lang added: "The investment required is substantial, but Pharmed has been talking to some very substantial people."
Although Morgan Stanley recently claimed that margins on Splenda could drop from almost 50% to 10% within three years of generic competition hitting the market, the City did not necessarily see it as significantly denting Splenda's profitability, Lang said. "Splenda is a great brand. This is a bit like own-label coming on to the market."
Tate & Lyle is aggressively ramping up its Splenda capacity with plant extensions at Alabama and a new plant due to open in Singapore next year. It would not comment on possible competition but said that its patents were rock solid.