Strategy

Thermo Fisher Moves Into Drug Manufacturing

The $5.2 billion acquisition of Patheon positions Thermo Fisher to grab a slice of the fast-growing contract drug production business.
Matthew HellerMay 15, 2017
Thermo Fisher Moves Into Drug Manufacturing

Thermo Fisher Scientific, the world’s largest maker of scientific instruments, has agreed to acquire Dutch-based Patheon NV for $5.2 billion in a move to expand its drug production business.

Patheon is a leader in the contract development and manufacturing of drugs and the chemicals used in them for biopharma companies. According to Thermo Fisher, the high-growth CDMO market is worth about $40 billion.

Thermo Fisher said Monday it will pay $35 a share for Patheon, a 35% premium to the closing price on Friday. Including the assumption of $2 billion to debt, the total value of the deal is $7.2 billion.

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“Patheon’s development and manufacturing capabilities are an excellent complement to our industry-leading offering for the biopharma market,” Thermo Fisher CEO Marc N. Casper said in a news release.

The companies cited the potential for “significant cross-selling opportunities. For example, having biologics development and manufacturing capabilities as well as bioproduction technologies in one company will allow Thermo Fisher to offer a more comprehensive portfolio to gain share with [biopharma] customers.”

Thermo Fisher, which was formed from the merger of Thermo Electron and Fisher Scientifc in 2006, makes laboratory equipment such as electron microscopes and DNA-sequencing machines. It has lately been on an acquisition binge, doing more than a dozen deals over the past five years as it expanded into providing more equipment and services to customers.

As Reuters reports, Thermo Fisher’s move into CDMO comes as pharmaceutical companies increasingly outsource a growing chunk of their supplies. Contract manufacturing is expanding more than 5% annually, according to analysts.

Thermo Fisher has overlapping customers with Patheon and one of its units packages and distributes drugs used in clinical trials. “We are confident that our combined offerings and Thermo Fisher’s proven track record of disciplined M&A and successful integrations will take our business to the next level,” Patheon CEO James C. Mullen said.

But Reuters warned that “When companies move into tangential businesses, it’s often a worrying sign of sprawl. In this case, Thermo Fisher may be headed into a troubling M&A drug trial.”