◾ Headquarters: Undecided
◾ Owners: JLL Partners (51%) and DSM (49%)
◾ 2014 sales projection: $2 billion
◾ Locations: 23 worldwide
◾ Employees: 8,300
◾ Services: Drug active ingredient and finished dosage form development and manufacturing
DSM is joining with the New York City-based private equity firm JLL Partners to create NewCo, a drug manufacturing business that will have an estimated $2 billion in annual sales. The new firm—the name is said to be only temporary—will combine DSM’s pharmaceutical services business with the Canadian formulation specialist Patheon, which is 56% owned by JLL.
DSM is contributing its active ingredients and intermediates manufacturing business for a 49% share of NewCo. JLL will own the other 51% in exchange for paying $489 million in cash and a $200 million note to DSM. The newly formed company will then take on $1.65 billion in debt to acquire Patheon. After spending years trying to build its pharma unit, DSM has for the past three years been looking to sell it or partner with another firm. Through the combination with Patheon, its exposure to the market will be through a much more attractive mix of service offerings, according to DSM managing board member Stefan Doboczky.
NewCo is poised to be the world’s largest contract manufacturer producing both fine chemicals and finished products, says Nick Hyde, a managing director of the U.K.-based advisory firm Results Healthcare. Its soup-to-nuts offering should appeal to small and midsized pharma companies, as well as big firms that are outsourcing more with full-service partners, he says.
The new company will compete with other large fine chemicals firms, such as BASF, Evonik, Lonza, and Lanxess’s Saltigo unit. In 2009, Lonza itself tried to acquire Patheon, which was then facing a hostile takeover by JLL. Under the deal with DSM, which will pay a more than 60% premium on recent Patheon share prices, JLL will get a good return on its 56% stake.
For DSM, the move is viewed as part of a strategic withdrawal from the pharma area. “There are relatively few of the chemical majors left in the contract manufacturing world, and this is one of the major companies unraveling its pharma contract manufacturing business as an internal growth platform,” Hyde points out.
Although a permanent name and headquarters location have yet to be decided, Patheon CEO James C. Mullen has been tapped to lead the new firm.