Thermo Fisher to buy Patheon in $7.2B deal, accelerating CDMO consolidation

Dive Brief:

  • Thermo Fisher said Monday it would buy Dutch CDMO Patheon N.V. for $7.2 billion, accelerating a trend toward increased consolidation among the companies providing contract services to biotech and pharmaceutical firms. 
  • The deal gives Thermo Fisher, one of the world's largest scientific instrument makers, an entry point into the $40 billion contract development and manufacturing market — creating opportunities for Thermo Fisher to offer a broader range of services to both new and existing biopharma customers. 
  • It was only last week that InVentiv Health and INC Research agreed to combine to create one of the world's top three contract research organizations. In the past several years, Quintiles has merged with IMS Health and LabCorp has bought Covance, narrowing the number of outsourcing options for the pharma industry. 

Dive Insight:

Already strong in bioproduction technologies as well as clinical trial packaging and distribution, Thermo Fisher would add Patheon's expertise in biologics manufacturing — a hot area expected to become only more important as more biologic and biosimilar drugs are developed and brought to market. 

Patheon's business is currently spread across finish dosage and active pharmaceutical ingredient manufacturing, in addition to a slimmer portfolio in pharmaceutical development services. Revenues totaled nearly $1.9 billion in the year ending October 31, 2016, representing roughly 10% of Thermo Fisher's annual revenues

Incorporating those business into Thermo Fisher's existing network will open up opportunities for cross-selling services to biopharma customers, the company said.

The combined company will also face competition from other large players such as the Swiss Lonza and Catalent.

Thermo Fisher expects the deal to add $0.30 to adjusted earnings per share in the first full year after closing, which is slated to wrap up by the end of the year. Beyond the immediate financials, though, the scientific giant indicated it saw significant longer run growth potential in what it called a fragmented CDMO market. 

"It's a very attractive $40 billion market that's growing in the mid-single to high-single digits," Thermo Fisher CEO Marc Casper said on a call with analysts Monday morning. 

Casper noted demand for contracting services from smaller biotech companies has grown rapidly, adding to an existing trend of large biopharma companies outsourcing clinical production and commercial manufacturing. 

"Today, about 30% of the market is outsourced," he said. "And it's probably going to 50% over the long term which creates, obviously, meaningful growth opportunities." 

In addition, Thermo Fisher estimated the merger will generate $120 million in total synergies by the third full year following close, $90 million of which will come from lower costs. 

JPP Partners and Royal DSM, which together own about 73% of Patheon, have already tendered their shares in support of the agreement, which requires 80% support from shareholders to move forward. 

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Filed Under: Mergers and Acquisitions / Deals Corporate News