This report outlines the key Mergers & Acquisitions (M&A) and capital raisings in the outsourcing market in 2016 and 2017, including IPOs, private placements, and secondary offerings. The report summarizes the drivers of deal activity, as well as acquisition synergies, and corporate positioning.
Outsourcing Market Expands from Feverish Consolidation
M&A across contract service vendors add scale and capabilities
The total number of pharmaceutical outsourcing deals increased at a torrid pace of 62.2 percent in 2016, from 249 deals in 2015 to 404 in 2016. The spike was accompanied by skyrocketing deal values of 117.5 percent year-to-year, from $9.4 billion in 2015, to over $20.5 billion in 2016. GlobalData attributes the growth in 2016 to large-valued mergers and acquisitions (M&As), as the market continues to witness intense consolidation of CDMO (contract development manufacturing organization) services, and to additional investment flowing into the sector as equity raisings across all deal types (IPO, VC/PE, PIPE, and secondary offerings) experienced greater activity when compared to previous years.
On the M&A front, a number of transactions were responsible from pushing the sector higher in 2016, including Thermo Fisher’s acquisition of Patheon, Avantor Performance Materials deal for VWR International, and Lonza’s deal for Capsugel. As we have seen increased M&A activity in the CRO sector over the past few years, GlobalData believes this is the case when examining the CDMO sector. The CRO sector was bolstered by inorganic M&A growth by large clinical trial service providers acquiring small boutique/niche CROs that had therapeutic expertise, and access to substantial patient networks, particularly in emerging markets. CROs were expanding their offerings across new therapy categories, geographic locations, and commercialization services. The same is happening on the CDMO side of the outsourcing market, where vendors are adding biologics production, manufacturing capacity, laboratory and diagnostic equipment, and analytical testing.
Thermo Fisher expands its position in CDMO market
In May 2017, Thermo Fisher acquired Patheon NV, a leading global provider of high-quality drug development and delivery solutions to the pharmaceutical and biopharma sectors. Thermo Fisher agreed to acquire all of the issued and outstanding shares of Patheon for $35.00 per share in cash, representing a purchase price of approximately $7.2 billion, which includes nearly $2 billion in debt.
Patheon provides comprehensive solutions and expertise to help biopharmaceutical companies satisfy complex development and manufacturing needs. Patheon has an extensive network of state-of-the-art facilities, primarily in North America and Europe, and approximately 9,000 employees worldwide. Patheon had FY16 revenue of nearly $2 billion, as will become part of Thermo Fisher’s Laboratory Products and Services Segment. This segment serves pharmaceutical, biotechnology, government and industrial markets by providing temperature controlled products, laboratory consumables, chemical raw materials, bio banking, and comparator drug sourcing. The acquisition will allow Thermo Fisher to expand its clinical trials logistics and supply business, a new market the company has been building up over the last few years. Thermo Fisher will also be able to provide biologics development and manufacturing services to its biotechnology clients, a growing sector in the pharmaceutical industry.
Figure 1 displays the total number of deals and deal values in the pharmaceutical outsourcing market from 2010–2016
INC Research targets Commercialization Services with inVentiv deal
Also in May 2017, INC Research acquired inVentiv Health for $4.6 billion. INC shareholders will now own 53 percent of the combined company, creating a Top three CRO globally with more than 22,000 employees servicing customers in nearly 110 countries. INC will now support the development and commercialization of biologics with a diversified customer base in large, mid-sized, and small biopharma. The strategy behind the acquisition of inVentiv Health is to gain access to the company’s commercial solutions business, a faster growing market than outsourced clinical trial work.
INC Research will now gain inVentiv’s leadership in market access, launch consulting, data-driven real world evidence, advocacy relations and medical affairs and communications. Customers are increasingly seeking simultaneous approvals and product launches in multiple markets worldwide. Through this acquisition, INC Research will be able to provide biopharma customers with a full suite of clinical and commercial solutions to address customer needs, while meeting requirements of payers and providers. Both inVentiv and INC Research have significant expertise in oncology in CNS, the purchase of inVentiv will also bring cardiovascular, metabolic and respiratory capabilities to INC’s therapeutic offerings. The transaction is projected to be accretive to INC’s adjusted earnings per share in the first 12 months following the close of the deal, with mid-to-high single-digit accretion in 2018, and by more than 20 percent in 2019 and beyond.
Capsugel purchase bolsters Lonza’s Value Chain
Lonza announced that it has completed the acquisition of Capsugel SA from the private equity firm KKR for $5.5 billion, which includes refinancing Capsugel debt of approximately $2 billion. GlobalData believes the acquisition is in line with Lonza’s long-term strategy to accelerate growth and deliver value along the healthcare continuum by complementing its existing offerings and by opening up new market opportunities, particularly in hard capsule oral dosage forms. Lonza will now become the partner of choice for its pharma customers along the entire value chain and strengthen its service offerings in consumer health care and nutrition. The combined business will also be able to leverage its bioavailability technology to create a new dietary ingredient-ready offering, as well as capitalize on its formulation expertise to develop and market new combination products. The transaction will be financed with a combination of debt and equity finance.
Table 1 summarizes the key M&A deals from 2016-2017
|Carlyle Group||AMRI||$922||AMRI signed a definitive agreement to be acquired by The Carlyle group and GTCR LLC, both private equity firms, for $21.75 per share in cash, representing a 42 percent premium to the 60-day weighted average closing stock price leading up to April 5, 2017, the last trading day prior to rumors. AMRI’s board of directors unanimously voted in favor of the transaction|
|Thermo Fisher Scientific||Patheon NV||$7,200||Thermo Fisher will benefit from Patheon’s drug manufacturing abilities as it grows its presence in the market for bioprocessing and bio production|
|INC Research||inVentiv Health||$4,600||The combination will deepen INC’s scale, scope and therapeutic expertise, as well as add new outsource solutions particularly targeted toward large pharma and biotech companies|
|Avantor Performance Materials||VWR International||$6,400||VWR signed a definitive agreement to be acquired by Avantor for $33.25 per share in cash, representing a 17 percent premium to VWR’s closing stock price on May 2, 2017. The combination will bolster Avantor’s supply chain and services solutions for laboratory and production customers globally|
|Fresenius Kabi||Akorn||$4,600||Deal will provide Fresenius a stronger foothold in the U.S., with access to a network of retail pharmacies and outpatient clinics as well as hospitals where it has traditionally marketed its products. Akorn will complement Fresenius Kabi’s medicines unit, which specializes in generics and intravenous drugs. Fresenius Kabi also made a smaller purchase of $184M to gain Merck KGaA’s portfolio of biosimilars|
|Creat Group||Biotest AG||$1,379||
The Chinese investment firm Creat Group has agreed to acquire the German lab Biotest AG, a manufacturer of products used to treat blood coagulation disorders, and autoimmune diseases. Shareholders will be offered EUR 28.50 in cash per Biotest ordinary share and EUR 19.00 in cash per Biotest preference share, representing a premium of 55 percent, and 15 percent, respectively, prior to the announcement on March 29, 2017. In a similar deal, Creat agreed in May 2016 to acquire British biotech firm Bio-Products Laboratories from Bain Capital for $1.1 Billion
|Fujifilm Corp||Wako Pure Chemicals||$1,370||Fujifilm acquired Wako Pure Chemicals from Takeda Pharmaceuticals. Wako has a proprietary cell culture medium manufacturing technology that Fujifilm will leverage to cultivate cells used in regenerative medicine. Wako also develops analyzers and reagents used in the in-vitro diagnostics (IVD) testing market|
|Lonza Group||Capsugel||$5,500||Lonza acquired Capsugel from KKR, a private equity firm. Capsugel is a leader in oral dosage delivery technologies with a leading position in hard capsules, is expected to be accretive to Lonza’s first full-year core earnings. The transaction will also refinance Capsugel’s existing debt of approximately $2 Billion|
|Cinven||BioClinica||$1,400||Cinven, a private equity firm, agreed to acquire BioClinica, a CRO that assists pharmaceutical companies in clinical trials, and data analytics. BioClinica supports over 17,000 clinical trial sites in 90 countries|
|PPD||Synexus Clinical Research||$230||Jaguar Holding Company, the holding company of PPD, bought Synexus, a multinational company specializing in patient recruitment for late-stage clinical trials. Synexus, based in Manchester, England, will operate as a separate business unit, and has one of the largest network of clinical sites in the world, with sites in the U.S., Central Europe and India. PPD will leverage Synexus’ patient networks for Phase II-IV clinical trials|
|Mylan||DPT Labs||$950||Mylan acquired DPT Labs, a provider of non-sterile, topical-focused specialty and generics which will complement Mylan’s dermatology business offerings. DPT will bring Mylan a portfolio of approximately 25 branded and generic topical products, and an active pipeline of nearly 20 products, and an established U.S. sales and marketing infrastructure|
|Recipharm||Kemwell Biopharma||$205||Recipharm bought the contract manufacturer Kemwell Biopharma based in India, with additional operations in U.S., and in Sweden. Recipharm gains FDA-approved API manufacturing plant in India, and a U.S. plant that develops inhalation products, as well as liquid, semi-solid, and parenteral products|
|ChRiver Labs||WIL Research||$585||WIL Research is an early-stage CRO providing safety assessment services to the biopharma, agriculture, and chemical industries worldwide|
Source: GlobalData, Pharma Intelligence Center, Deal Analytics [Accessed July 28, 2017]. Note: Includes all deal values wherever disclosed.
Having explored some of the key factors that drive consolidation within the outsourcing market, in Part II, Adam Dion examines why vendors are increasingly dependent on capital markets to raise funds. Click here to read the conclusion of this report.
Senior Industry Analyst