In about eight months and with the outlay of more than $12 billion, the contract manufacturing industry has been transformed. Thermo Fisher Scientific has completed its $7.2 billion acquisition of CDMO Patheon, just weeks after Lonza completed its $5.5 billion buyout of capsule maker Capsugel.
Thermo Fisher paid $35 a share for Patheon, a sum that amounts to about $5.2 billion, and assumed another $2 billion in debt for the Durham, North Carolina-based CDMO. Waltham, Massachusetts-based Thermo Fisher, which provides services and equipment to the biopharma industry, saw the deal as a way to move into a rapidly growing and related arm of the industry which is now valued at about $40 billion.
Patheon was just another small contract operator when, in 2012, top executive James Mullen began a series of deals that transformed the company into a top tier player with 2016 revenues of $1.9 billion. That effort got a major boost in 2014, when Patheon’s then-owner, private equity investor JLL Partners, struck a $2.6 billion deal to merge the CDMO with Netherlands-based Royal DSM, creating DPx Holdings.
JLL executives said they believed the fragmented contract manufacturing industry was ripe for a roll-up at a time when pharma was looking for partners with a spectrum of services and large geographic reach. What followed was more deals as Patheon plucked small independent operations that offered specialized services.
Not to be eclipsed, Lonza, after several years of retrenchment, decided to go the M&A route to build its size. Last year, sources said the Basel, Switzerland-based company was looking to buy Catalent, another sizeable CDMO. Then late in the year, it announced instead, that it would pay $5.5 billion for Capsugel to get a solid place in that niche of the business. It followed that up in May with a small deal for Netherlands-based PharmaCell, a gene and cell contract manufacturer in Europe.
Last month, Lonza reported about $2.4 billion in revenue for the first half of the year. But it told investors that by 2022, with Capsugel now onboard, it expects revenues to reach nearly $8 billion annually.