Merck KGaA deal for Sigma-Aldrich gets it some specialty manufacturing capacity

Merck KGaA may have struggled getting new drug products to market, but its $17 billion buyout of Sigma-Aldrich ($SIAL) will allow it to help others, as well as itself, in that endeavor.

The German drugmaker said Monday that it would pay shareholders of the St. Louis, MO-based company $140 a share in cash to acquire its expertise in chemicals and specialty API manufacturing, as well as 9,000 new employees. It said it expects to find about $340 million in savings after the deal closes but indicated it would not make huge cuts in Sigma-Aldrich's operations in St. Louis and Billerica, MA. Sigma last year had revenues of about $2.7 billion and counts among its clients Big Pharma players like Pfizer ($PFE) and Novartis ($NVS).

Merck has been building this part of its business for some years. It bought Millipore, a U.S. maker of lab equipment and chemicals, for about $6 billion in 2010 and then added AZ Electronic Materials this year for $2.5 billion. AZ supplies the electronics industry with chemicals for things like flat screen televisions.

Merck KGaA CEO Karl-Ludwig Kley

Merck Chairman Karl-Ludwig Kley said with the addition of Sigma, it will be able to offer "an industry that is driven by trends such as the globalization of research and manufacturing" 300,000 products that range from lab chemicals to reagents to biologics.

Biologics is an area where Sigma-Aldrich has been adding capacity. In October 2013, it said that its SAFC custom manufacturing business was adding capabilities in commercial-scale antibody-drug conjugates (ADCs) manufacturing at its St. Louis facility. In a complementary move, it expanded its high-potency active pharmaceutical ingredient (HPAPI) manufacturing and storage at its Verona facility near Madison, WI. It said the HPAPI handling and containment standards in Verona would allow it to manufacture the high-potency toxins and linkers that the St. Louis site uses to conjugate biological molecules and develop ADCs.

Merck has a portfolio of established drugs and is investing in manufacturing to help it sell more of those. Last month it started construction on an €80 million ($107.67 million) plant in Shanghai, China, that will be its second largest in the world. It will focus on production of diabetes drugs Glucophage, Concor and Euthyrox. It will also make drugs for heart and thyroid conditions. The company expects to wrap up construction of the 40,000-square-meter facility in 2016 and start commercial production in 2017.

But while it will be making more of the drugs it already sells, the company has had trouble getting new products out of the lab. Earlier this month, it canceled work on Stimuvax, its cancer vaccine that failed in late-stage development, after reviving the flagging research program. Three years ago it gave up on an experimental oral drug for multiple sclerosis, cladribine, after the FDA expressed safety concerns. The buyout of Sigma-Aldrich should provide some additional expertise that will help Merck with its recently announced plans to invest €380 million ($494 million) in developing new biosimilars.

- here's Merck KGaA's press release (PDF)