Thermo Fisher to acquire Patheon

Thermo Fisher Scientific has reached a deal to acquire Patheon for $7.2 billion, including debt. The transaction will take Thermo Fisher, a leading maker of scientific instruments and lab supplies, into a completely new market: pharmaceutical contract development and manufacturing.

The deal, which is expected to close at the end of this year, combines Thermo Fisher, which has 55,000 employees and annual sales exceeding $18 billion, with Patheon, which has 9,000 employees, mostly in the U.S. and Europe, and annual sales of $1.9 billion.

Patheon was created in late 2013 when the Dutch chemical maker DSM combined its active pharmaceutical ingredients business with the original Patheon, a Canadian contract formulator of drugs in finished dose form. Patheon was majority owned by the private equity firm JLL Partners.

Today, DSM and JLL together own 73% of Patheon’s shares. They have agreed to accept Thermo Fisher’s $35.00-per-share offer, which is a 66% premium to the $21.00-per-share price at which the two sold stock to the public last July and a 35% premium over Patheon’s share price on Friday, May 12, before the transaction was announced.

By acquiring a leading drug contract development and manufacturing firm, Thermo Fisher gains entry into a fragmented $40 billion-per-year market, says Thomas Loewald, Thermo Fisher’s chief commercial officer.

Thermo Fisher is no stranger to pharmaceuticals: The industry is Thermo Fischer’s single biggest customer for the instruments and lab consumables it now makes. And Loewald points out that Thermo Fisher already has a business that packages, labels, and distributes drugs to clinical trial patients and that fits well with Patheon.

James Bruno, president of the consulting firm Chemical & Pharmaceutical Solutions, observes that Patheon will allow Thermo Fisher “to control the entire supply line from the minute you start thinking about making a compound through the manufacturing of the dosage, to the clinical distribution.” But he cautions that most pharmaceutical customers don’t want a one-stop shop and instead prefer to deal with experts in individual links of the drug development chain.

Until recently, Thermo Fisher’s acquisitions have bolstered its existing instrumentation franchise. Last year, for instance, the firm acquired the electron microscopy expert FEI and the gene analysis tool maker Affymetrix.

By undertaking such an unexpected combination, Thermo Fisher highlights its willingness to move beyond life sciences tools “into areas that are upstream,” even if that includes acquiring customers for its instruments and services, observes Puneet Souda, a stock analyst at the investment firm Leerink.