Thermo to Buy CDMO for $7.2 Billion

Waltham, MA and Durham, NC 5/15/17—Thermo Fisher Scientific will commence a tender offer to acquire Contract Development and Manufacturing Organization (CDMO) Patheon for $7.2 billion, or $35 per share, including $2.0 billion in debt. Patheon is a provider of drug development and delivery solutions to the pharmaceutical and biopharma industries. In 2016, it recorded revenues of $1.9 billion. Thermo will fund the purchase through $5.2 billion debt and $2 billion in equity. “Patheon’s development and manufacturing capabilities are an excellent complement to our industry leading offering for the biopharma market,” stated Thermo Fisher and CEO Marc N. Casper. As benefits from the transactions, Thermo Fisher cited entry into the high-growth CDMO market; combined strength for pharmaceutical and biotech customers; synergies, including cross selling opportunities; and financial returns. Thermo Fisher estimates the deal will be accretive to its EPS by $0.30 the first full year after close. Synergies are expected to total $120 million by the third full year after close, and consist of $90 million in cost synergies and $30 million of adjusted operating income benefit from revenue-related synergies. Patheon will join Thermo Fisher’s Laboratory Products and Services segment. The deal is scheduled to close by year end.

The price is a 34.6% premium to Patheon’s closing price on May 12. Patheon is expected to account for about 10% of Thermo Fisher’s annual revenues, according to a conference call discussing the deal. On the call, Mr. Casper stated that like Thermo Fisher’s bioproduction and biopharma services businesses, its fastest growing businesses in recent years, Patheon’s business is a provider of outsourced services to pharmaceutical and biopharmaceutical companies. Thermo Fisher’s bioproduction and biopharma services (clinical trial logistics and packaging) businesses represent $2.25 billion in annual revenues, according to the call.

Patheon CEO James C. Mullen commented on the call, “Together, both companies will be better positioned to add scale and new value chain capabilities to our biopharma customers.” Mr. Casper also said each company will leverage their existing pharma and biopharma relationships for cross selling opportunities.

Thermo Fisher estimated the CDMO market at $40 billion, with growth rates in the high to mid-single digits, consisting of three product segments: development services, API manufacturing and finished dosage form manufacturing. Patheon participates in all three markets. Patheon provides drug product services (61% of revenue), drug substance services (27%) and pharmaceutical development services (12%), with 26 manufacturing and development locations. It is focused on API manufacturing for biologics and complex chemistries.

Thermo Fisher estimated debt at 4x total debt to combined adjusted EBITDA at the deal’s completion and plans to lower this to 3x debt within 18 months after close.

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