May 16 saw Thermo Fisher, the world’s largest manufacturer of scientific instruments, acquire drug ingredients maker Patheon for $7.2bn, including $2bn debt. Since the companies’ customers overlap, the move could boost Thermo Fisher’s sales as it offers more holistic solutions and products.
The news caused Patheon shares to jump 33 percent and Thermo Fisher’s to rise by 0.5 percent. Thermo Fisher expects $120m of synergies by 2021, which includes $90m of savings.
“Patheon’s development and manufacturing capabilities are an excellent complement to our industry-leading offering for the biopharma market”, said Marc Casper, CEO of Thermo Fisher. “Patheon’s commitment to quality and service excellence is directly aligned with our focus on helping our biopharma customers accelerate innovation and drive productivity.”
The news caused Patheon shares to jump 33 percent and Thermo Fisher’s to rise by 0.5 percent
Recently, Thermo Fisher has been on a spending spree, buying Affymetrix, a microarrays producer, for $1.3bn last March and FEI, a microscope manufacturer, for $4.2bn in September. In 2014, it also purchased DNA sequencer Life Technologies for $15bn. With its portfolio currently focused on equipment, research and analytics, the shift to drug manufacturing is a relatively unconventional step.
The incentive is that contract drug development is a lucrative, $40bn market that is presently expanding at five percent annually. Whereas Thermo Fisher used to be held back from this area due to the high cost of clinical trials, the acquisition of Patheon should allow it to take big, confident strides toward manufacturing.
This new direction is also a result of Thermo Fisher’s enthusiastic spending spree. Despite causing its shares to roughly triple in value over the past five years, the many buy-ups have also meant that there are fewer good companies left in Thermo Fisher’s regular fields of interest. As such, rather than purchase an overpriced or lower quality firm, Thermo Fisher chose new frontiers with Patheon.
Drug manufacturing is a relatively open field, with its 10 biggest companies constituting just 35 percent of the market. As such, there is plenty of room for further expansion, and regulatory hurdles should be surmountable as Thermo Fisher moves to close the Patheon deal by the end of the year.