DSM, Patheon join up in $2.6B deal

Netherlands-based Royal DSM has for several years been doing smaller deals to beef up its pharma contract development and manufacturing business into something more substantial. So has Canada-based Patheon. Now, the two operations will join in a deal valued at $2.6 billion that they say will make them a major force in the pharma services business with sales approaching $2 billion.

Private equity investor JLL Partners will lay out $489 million in cash and give DSM Pharmaceutical Products (DPP) a $200 million note for 51% ownership in the new company. It will also contribute Patheon ($PTI), the Canada-based contract manufacturer that it already owns. It values Patheon at $1.95 billion. The combined entity, which for now will go by the literal name of NewCo, will have 23 drug development and manufacturing sites in North America, Europe, Latin America and Australia, where DSM just opened a biologics manufacturing facility. It will have the capabilities to make everything from active pharmaceutical ingredients to finished dose products, and it will have 8,300 employees and an expertise in softgel capsule manufacturing, a specialty of Patheon. Jim Mullen, who became Patheon's chief executive in 2011 after 7 years as CEO of of biotech Biogen Idec ($BIIB), will head the new company.

"Fully in line with our strategy, this is for DSM Pharmaceutical Products the perfect way to accelerate growth and for DSM to maximize value for this business," said Feike Sijbesma, DSM CEO and chairman.

In an interview with FiercePharmaManufacturing in the spring, Hugh Welsh, North American president of DSM, pointed out the company had been methodically building its place in the industry, with 23 acquisitions in 24 months at that point, deals that added up to about $3 billion. Among its manufacturing operations is a 1 million-square-foot facility in North Carolina, which it acquired in one of its deals. Welsh said the company had been investing in the Greenville, NC, facility, believing that the domestic API manufacturinging would benefit from quality issues that have surfaced in India and China. "We are seeing business coming back for domestic sources of materials," Welsh said. "We see that as a competitive advantage."

DSM also manufactures products for the supplement industry, an area that Patheon moved into last year when it acquired High Point, NC-based Banner Pharmacaps in a $255 million deal. That buyout also gave it a presence in Latin America. NewCo will also have capabilities in biologics, one of the fastest-growing areas of contract manufacturing. DSM last month opened a $65 million facility Brisbane, Australia, which was financed in part by government groups there. It also has a biologics facility in the Netherlands.

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