Contract manufacturing, emerging markets lift Patheon out of the red

Contract drug manufacturing is a hot corner of the industry as drugmakers turn to outside operators to keep a lid on their own manufacturing investments and costs, particularly in emerging markets. There has been a significant amount of M&A in that sector, and established players are investing to get their piece of the growth as well. Canada's Patheon is now reaping the rewards of its own decision to expand.

The Canadian firm last year paid $225 million for Banner Pharmacaps to gain a beachhead in Latin America. Banner is a gelatin capsules-and-coatings company based in Mexico. Patheon recently said Banner added nearly $55 million in revenue in the last quarter. That contributed to sales growth of 40%, which hit $254 million for the quarter. The company said contract manufacturing contributed the bulk of its revenues, about $220 million, up nearly 50% from last year's second quarter. All of that allowed the CDMO to earn a $100,000 profit for the quarter, compared with a nearly $80 million shortfall in the same quarter a year ago and a $51.4 million hit last quarter after Patheon closed on the Banner deal.

Other established players have also heeded the call of foreign markets. Germany's Boehringer Ingelheim last week said it would build a biologics plant in China to provide contract manufacturing to the growing number of Chinese companies developing their own drugs, as well as to international companies not wanting to build their own. Boehringer formed an alliance with Zhangjiang Biotech & Pharmaceutical Base Development Company (ZJ Base) in Pudong, Shanghai, which will build the facility under BI's oversight. The plant will help develop and manufacture biologic drugs using mammalian cell culture technology. BI will invest €35 million ($46 million) in the plant, which it expects to be operating in 2016.

Novartis ($NVS) and its partners in contract manufacturing venture LTS Lohmann reportedly see the growth in the market as a good time to cash out. The company specializes in products like nicotine patches and patches for treating angina, as well as wafer products. Novartis owns the venture with German billionaire Dietmar Hopp and German holding company BWK. They are reportedly shopping the operation to private investment groups and think they might get between €1 billion ($1.3 billion) and €1.4 billion ($1.83 billion) in a sale.

- here's the Patheon release