Money flows for drug service firms

Three events converged in the pharmaceutical services sector last week to serve as a reminder that Western drug manufacturing and research service firms are on a roll.

Patheon’s launch of an initial public offering (IPO) of stock; Cambrex’s completion of an expansion at its Charles City, Iowa, site; and Albany Molecular Research Inc.’s acquisition of Euticals all indicate that the sector is strong and growing in the U.S. and Europe.

Patheon, formed in the 2014 merger of the North Carolina-based services company Patheon with the fine chemicals division of DSM, expects to raise as much as $670 million in its IPO. The company, which offers chemistry and drug formulation services, had sales of $1.8 billion in the fiscal year that ended Oct. 31, 2015, an increase of about 20% over the previous year.

Cambrex says it pursued the $50 million, 70-m³ multipurpose reactor expansion in response to strong demand for custom manufacturing of small-molecule active pharmaceutical ingredients and high utilization of its existing large-scale assets.

Meanwhile, AMRI expanded its presence in Europe with the purchase of Italy-based Euticals. The $358 million deal, first announced in May, “moves us closer to our goal of reaching $1 billion in annual revenues by 2018,” says CEO William S. Marth. AMRI’s sales last year were $402 million.

Industry sources have cited all three events as examples of a rebound in the Western pharma services industry following a period of business migration to Asia. In particular, the size of the Patheon IPO is an indicator of the sector’s current strength, according to James Bruno, president of the consulting firm Chemical & Pharmaceutical Solutions.

“It’s probably a perfect time for somebody like Patheon” to pursue an IPO, he says. “Sales are up, free capacity is at minimum, everybody is full, nobody wants to sell, prices are up.”

Cambrex and AMRI also have invested under ideal conditions, Bruno figures. “The next six to eight months is a great time to be raising capital and making investments,” he says. “This growth spurt will probably be around for a couple of years before any downturn.”