$7.2 Billion deal gets Thermo Fisher a seat at the CDMO table.
Dutch company Patheon, one of the largest pharmaceutical contract development and manufacturing organizations (CDMOs), is to be acquired by Thermo Fisher Scientific for $5.2 billion plus the assumption of $2 billion in net debt.
To complete the deal, Thermo Fisher reached independent agreements with Patheon’s two largest shareholders — JLL Partners and Royal DSM, which hold nearly three-quarters of Patheon’s shares. The company needs a minimum of 80% of the shares under Dutch tender rules.
The purchase complements Thermo Fisher’s raw material, scientific instrument and pharma manufacturing equipment businesses and provides the company entrée into the rapidly expanding contract development and manufacturing market, which Thermo Fisher pegs at $40 billion (USD).
Patheon was founded in 1974 as Custom Pharmaceuticals Ltd. and operated in Canada. The name was changed in 1993 when the company became publicly traded on the Toronto Stock Exchange. In the 1990s and 2000s, Patheon made numerous acquisitions in Canada, the US and Europe, steadily expanding its formulation and secondary manufacturing capabilities and capacities. In 2014, Patheon merged with DSM Pharmaceutical Products and Gallus BioPharmaceuticals, adding small and large molecule drug substance manufacturing capabilities in Europe and North America. Additional acquisitions were made in 2015-2017, making Patheon a leading global producer of drug substances and drug products. Currently, Patheon has approximately 9,000 employees worldwide and achieves revenues of approximately $1.9 billion in 2016.
According to Thermo Fisher President and CEO Marc Casper, “Patheon's development and manufacturing capabilities are an excellent complement to [its] industry-leading offering for the biopharma market.” He went on to note that combined Thermo Fisher and Patheon will offer a “unique value proposition” while also creating significant value for its shareholders.
Thermo Fisher was attracted by the rapid growth of the CDMO market, according to Evercore ISI analyst Ross Muken, who believes the acquisition should help Thermo Fisher achieve its “multi-year core growth reacceleration.”
Casper noted that the company has “incredibly high confidence” in its ability to achieve the addition of 30 cents a share to its adjusted profit in the first full year after close of the deal, which is expected to take place by the end of 2017. He commented in particular that there are “very interesting opportunities to build out [Patheon’s] footprint in Asia-Pacific, where they have not yet really penetrated.”
Thermo Fisher also anticipates saving approximately $120 million by the third year after completion of the acquisition.
Announcement of the deal resulted in increases in Thermo Fisher and Patheon shares by 0.5% and 33.2%, respectively. Goldman Sachs & Co. and Morgan Stanley & Co. are acting as financial advisors for Thermo Fisher and Patheon, respectively.