The firecracker factory
Eighth in a series on Portuguese companies and investors in Asia — what they built, what survived, and what is still being built today.
"…they got on the plane, literally, and came knocking on his door." — Guy Villax, describing how Japanese pharmaceutical companies found his father's patents in the 1960s. Chemical & Engineering News, June 8, 2009
When a newly graduated Macau chemical engineer named Eddy Leong (梁炎華) heard that a pharmaceutical plant was operating near the Carmo cemetery in Taipa, he got in his car to go and find it. Nobody he asked could give him the address. Outside what had once been a large firecracker factory, he eventually found a small sign bearing a single word: Hovione.
He went in, got a job, and spent the next two decades there, rising to run the place.
The plant is still there, a short walk from the old village of Taipa, 氹仔, mostly hidden behind century-old trees. Its own managers have said they regularly meet Macau-born residents who have no idea it exists, despite its sitting beside a major road. It is the only drug manufacturer in the territory, and the only factory in Macau ever to have passed inspection by the United States Food and Drug Administration.
It is also unlike every other company in this series so far.
No monopoly required
The last three instalments were about Portuguese commercial rights in Macau: the electricity franchise, the water concession, the telephone monopoly, the gaming licence. In each case the asset was an exclusive right granted by the administration, and the business consisted of exercising it.
Hovione came with nothing of the kind. In 1986 the Portuguese administration granted it a lease on a plot of land — which is how every factory, shop and home in Macau occupies land, since the land belongs to the state. That was the full extent of the privilege. There was no exclusive market, no protected customer base, no franchise. It made a product that had to be sold, mostly abroad, in competition with chemical manufacturers all over the world, to buyers in the most heavily regulated markets there are.
To see why a Portuguese company would do that, you have to start in a basement in Lisbon.
A basement near the embassies
Ivan Villax left Hungary in 1948 as an anti-communist exile, with his chemistry degree and very little else. After a period at a French agricultural research centre in Clermont-Ferrand, he joined his family in Lisbon, where his father had been invited to help establish a plant-genetics institute. In 1952 he joined the Instituto Pasteur de Lisboa, then one of the leading pharmaceutical laboratories in the country. In 1958 he married Diane Du Boulay, from a family of sugar industrialists.
The following year, together with two other Hungarian refugees, Nicholas de Horthy and Andrew Onody, they founded a company. Its name was built from the first two letters of the three men's surnames — HOrthy, VIllax, ONody — and an E: Hovione. Horthy was, by most accounts, the son of Admiral Miklós Horthy, Hungary's regent from 1920 to 1944, whose family had settled in exile in Portugal after the war.
For its first decade the company was a research laboratory in the basement of the Villax family home in Lisbon, not far from the American and British embassies. Ivan worked on semi-synthetic tetracycline antibiotics and on anti-inflammatory corticosteroids, and patented his processes. Diane ran the finances, and would continue to do so for thirty years.
Their son Guy has said his father realized early on that nobody really believed a Hungarian refugee in a Lisbon basement could be producing genuinely original chemistry. The patents proved otherwise. In 1969 the company built its first factory, at Loures on the outskirts of Lisbon.
Japan came to Lisbon
Hovione's first great commercial success came in the 1960s and 1970s with betamethasone, a corticosteroid, and its derivatives — and its primary market was Japan.
It did not get there by marketing. Japanese pharmaceutical companies reading the Chemical Abstracts, the international index of chemical research, noticed that a man named Ivan Villax in Lisbon held a string of process patents around betamethasone. As his son put it, in the line quoted at the top of this post, they boarded planes and turned up at his door.
So the first Asian customers of the company that would later build a factory in Macau were Japanese firms who had found it through a scientific index and flown to Portugal to buy.
Why Macau
By the late 1970s, the Villaxes had concluded that the world's economic centre of gravity was moving to Asia, and that Hovione needed to be there physically, not just through customers. In 1979 the company started attending the Canton Fair (广交会), buying Chinese raw materials to be processed in Portugal or elsewhere. In the early 1980s it drew up plans to manufacture corticosteroids in Asia.
Macau was the obvious place for a Portuguese company to try it. Its laws and regulations were close to Portugal's, which mattered enormously for a business that lives and dies by documentation and compliance. And it sat on the doorstep of China, where the raw materials were.
Hovione arrived in 1984. Guy Villax, then working as the company's salesman for the Asia-Pacific region out of Hong Kong, moved to Macau to support the technical director building the plant, and at the age of twenty-four oversaw its construction. The investment, he later said, was five million US dollars for a thirty-cubic-metre plant — a serious bet for a family company.
The site was the former Him Un Iec Kei Chan firecracker factory — 謙源益記棧 in Chinese, Fábrica de Panchões in Portuguese, both still legible on one of the old buildings. Macau had once been a centre of fireworks manufacture, and when the pharmaceutical company moved in, it preserved two of the old factory buildings, signage and all. Production of active pharmaceutical ingredients began in December 1986. The plant passed its first FDA inspection in 1987.
In Macau the company also acquired a Chinese name: 好利安. In Cantonese it reads hou lei on, a sound-match for Hovione, but the characters were evidently chosen for their meaning as well — 好, good; 利, benefit; 安, safety or peace. For a manufacturer of medicines, it is hard to improve on.
That timing is worth noting. When the Portuguese company opened its factory, there were thirteen years of Portuguese administration left in Macau. Hovione was not arriving to enjoy colonial privileges. It was building for whatever came next.
What a small plant can do
By 2001, the Macau plant was producing a third of Hovione's entire output, exporting to the United States, the European Union, Japan and Australia — the most demanding regulatory markets in the world. That year the company invested 120 million patacas to double its capacity, and the expanded plant was inaugurated by the Chief Executive of the new Macao Special Administrative Region. The change of sovereignty, two years earlier, had altered nothing about the business.
Then, in the autumn of 2001, came the anthrax letters in the United States. Doxycycline, one of the few antibiotics approved by the FDA to treat all three forms of anthrax infection, was among the products Hovione made, and Macau was the site best suited to make it. Production there was stepped up to meet the surge in American demand. A plant on the site of a Taipa firecracker factory was helping to supply the American response to a bioterror attack.
The workforce changed as well. By the mid-2000s there were only five Portuguese staff at the plant. Macau had no pharmaceutical industry to recruit from, so Hovione hired Macau-born Chinese graduates returning from universities abroad and trained them — Eddy Leong, who had found the place by driving around looking for it, among them. He became its general manager.
From buying in China to owning in China
In 1979, Hovione went to the Canton Fair as a buyer of Chinese chemicals. Twenty-nine years later it bought a Chinese manufacturer.
On 22 February 2008 the company completed the purchase of 75% of Zhejiang Hisyn Pharmaceutical, a supplier it had been buying from for years, at Linhai (臨海) in Taizhou (台州) in Zhejiang province (浙江). It was the first equity joint venture in the pharmaceutical sector at the provincial chemical and medical park there. The Chinese site, spread over twenty-two acres, was larger than Hovione's main plant in Portugal.
The integration was run from Macau. It was Macau-based staff — Eddy Leong became deputy general manager of Hisyn — who flew in to set up training and bring practices up to the standards the international regulators demanded. At the end of 2008, Japanese government inspectors came to Taizhou and approved Hisyn's products for export to Japan.
For centuries, Macau's Portuguese had claimed to be the natural intermediaries between China and the West. Here, for once, a Portuguese company in Macau was actually doing it: a Chinese factory, upgraded by Macanese engineers, supplying Japanese and Western markets, owned by a Lisbon family of Hungarian origin.
Why it lasted
Hovione is still independent and still family-controlled, with annual revenues of more than half a billion euros and manufacturing in Portugal, the United States, Ireland, mainland China and Macau. Diane Villax, now in her nineties, still sits on the board.
Set it against the rest of this series and the contrast is plain. The concession companies held rights, and rights are only as good as the authority that grants them. When sovereignty changed in 1999, every one of those rights had to be renewed by a new government, and most were eventually sold to Chinese or other buyers, as the next instalment will show.
Hovione's asset was different. It was competence — chemistry, process know-how, a record of passing inspections that customers in New Jersey and Osaka trusted. Portuguese Macau gave it a familiar legal system and a foothold next to China, which was valuable. But nothing in the business depended on the Portuguese flag staying up, and when the flag came down, the factory kept running.
It is, so far, the clearest example in this series of a Portuguese company in Asia that won its place rather than being granted it.
O que sobrou — what is still there
The factory in Taipa, near the Carmo cemetery, still producing active pharmaceutical ingredients around the clock, with two buildings of the old firecracker factory kept standing on the site — and the old name, 謙源益記棧, still on display.
The FDA record. Nearly four decades after its first inspection, it is still the only factory in Macau to have passed one.
Hisyn, in Linhai, the Chinese plant that a Portuguese company bought in 2008 and integrated through Macau.
The name. HOVIONE — three Hungarian surnames, assembled in Lisbon, on a sign in Taipa — and 好利安 beside it, chosen in Macau for what the characters mean.
A Japanese connection that began with a scientific index, and runs through the company's history from betamethasone in the 1960s to Japanese inspectors in Taizhou in 2008.
Next
Hovione stayed. Most Portuguese companies in Macau did not.
In the years after 1999, the concessions and franchises that had defined the Portuguese commercial presence in the territory were sold, one after another, mostly to Chinese buyers. A telephone company, a bank, an electricity stake. Each sale made sense on its own. Together they amount to a quiet exit that almost nobody in Portugal noticed.
Next in the series: last one out — the Portuguese corporate departure from Macau.
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