Public Patheon's $2bn warchest may bolster biologics offering, analyst

16-Aug-2016 - Last updated on 17-Aug-2016 at 12:33 GMT

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Biomanufacturing demand will drive revenues for Patheon according to an Evercore ISI analyst, who has predicted the newly-listed CDMO will strengthen its capabilities through M&A.

Last month, contract development and manufacturing organisation (CDMO) Patheon launched itself on the New York Stock Exchange (NYSE) through an IPO which raised $625m.

“Patheon plays in attractive key end markets such as biologics/biosimilars manufacturing that continue to outpace the more traditional, slower growth, ‘small white pill’ markets,” said Evercore ISI analyst Ross Muken in a note.

“We believe the biologics market to be a key growth driver going forward driven by biopharma’s focus on addressing complex diseases with emerging therapies. This is likely to result in a greater need on behalf of biopharma for unique manufacturing expertise and highly technical development services.”

M&A growth

Patheon’s manufacturing capacity in the biologics space include mammalian cell culture facilities in Brisbane, Australia, and Groningen, the Netherlands, both added through the firm’s $2.65bn merger with Royal DSM’s pharmaceutical product business in March 2014.

This is complemented by US biologics sites in Princeton, New Jersey and St Louis, Missouri, picked up through the acquisition of Gallus Biopharmaceuticals later in 2014.

And going forward, Patheon is likely to continue its “proven M&A strategy” to reap the benefits of increased biologics demand, Muken told Biopharma-Reporter.

“I think it is clear that M&A is a core part of the strategy and we look for them to fill in adjacent capabilities where they lack an asset while also continuing to build scale,” he said.

Adding large scale biologics capability in North America would be of high priority, he suggested, while management may also look at investing in biosimilar risk sharing services and continuous processing tech.

“We estimate management has more than $2bn in potential capital to deploy by the end of 2018 for M&A, but will likely be active well before then,” he noted. “Ultimately, we believe Patheon will serve as a key player in an industry ripe for consolidation.”

Meanwhile, Jefferies’ analyst David Windley agreed M&A activity has propelled Patheon into “a top two CMO by revenue” but said in a note he expects future acquisitions “will focus on small, tuck-in acquisitions.”