Executive Insights: DPx Holdings B.V. on the Road to Integration

By Patricia Van Arnum - DCAT Editorial Director

May 20, 2014

Franco Negron, Senior Vice President, North America Commercial Operations & Global Integration, Patheon, discusses the company's rationale for DPx Holdings B.V., formed from the merger of DSM Pharmaceutical Products and Patheon, the integration process, and strategy of the new businesses.

What business model for contract development and manufacturing organizations (CDMOs) best serves the evolving pharmaceutical/biopharmaceutical industry? With some exceptions, in the traditional model, contract service players specialize in either active pharmaceutical ingredient (API) manufacturing (chemical or biologics) or formulation development/drug product manufacturing. But is this the optimal model going forward? DPx Holdings B.V., the new company formed from the merger of Patheon and DSM Pharmaceutical Products, the life sciences operations of Royal DSM, thinks not as it positions itself as full-service, end-to-end contract service provider with pro forma sales of approximately $2 billion. DPx Holdings B.V., officially launched as a new company in March, is in the process of integrating the operations of Patheon (inclusive of Banner Life Sciences) and DSM Pharmaceutical Products. Franco Negron, senior vice president of the CMO (commercial manufacturing) business for North America and one of the senior executives involved in the global integration of the company, discusses the rationale for the merger, the integration process, and the strategy of the new company.

Franco Negron
Senior Vice President, North America Commercial Operations & Global Integration
Patheon

The birth of a new company
DPx Holdings B.V., privately owned by the private-equity firm JLL Partners (51%) and Royal DSM (49%), is the result of a $2.65-billion deal between the two entities, first announced in November 2013 and completed in March 2014. JLL contributed $500 million in equity to DPx Holdings B.V., and DSM contributed DSM Pharmaceutical Products and received approximately $115 million in cash and $75 million of preferred partnerships interest, thereby valuing DSM Pharmaceutical Products at $670 million. DPx Holdings B.V. then effected a Plan of Arrangement pursuant to the Canada Business Corporations Act with Patheon under which DPx Holdings B.V. acquired Patheon for $9.32 per share resulting in a total enterprise value for Patheon of approximately $1.98 billion and a combined deal value of $2.65 billion.

The new company is run as an independent standalone company and is led by DPx Holdings B.V. CEO Jim Mullen, former CEO of Patheon. DPx Holdings B.V. is the parent company name and includes the business units Patheon Pharma Services, DSM Fine Chemicals, and Banner Life Sciences. The Patheon business unit includes commercial dose manufacturing (solid dosage and sterile) and pharmaceutical product development services (solid dosage and sterile) as well as the biosolutions and biologic businesses of the former DSM Pharmaceutical Products. DSM Fine Chemicals provides exclusive synthesis for APIs and intermediates as well as produces maleic anhydride and derivatives. Its main focus is custom synthesis for the pharmaceutical and fine chemicals markets as well as for agrochemicals and crop protection products. Banner Life Sciences focuses on the research and development, in-licensing, out-licensing, and commercialization of formulation technologies as well as the marketing of proprietary prescription, over-the-counter (OTC), and nutritional products. Headquartered in Durham, North Carolina, USA, the global footprint of DPx Holdings B.V. includes more than 20 locations (see Table I) in North America, Europe, Latin America, and Australia with more than 8,000 employees.

Jim Mullen
CEO
DPx Holdings B.V.

Rationale for the merger
Negron explains that there were two key reasons that propelled the merger. "We saw an opportunity to become a full service and true one-stop provider for the pharmaceutical industry, a valuable proposition that eliminates complexity and reduces cycle times in development and manufacturing," he says. "Also, the contract service industry as a whole is undergoing consolidation as pharmaceutical companies seek to work with fewer suppliers and with suppliers with increasing capabilities. DSM was a nice fit with Patheon because its experience added API/intermediates manufacturing and biologics capabilities, two areas that Patheon did not have, to Patheon's pharmaceutical development and drug product manufacturing capabilities." Negron adds that this model is "resonating" as DPx Holdings B.V. already has three to four products in which the company is providing services for both the drug substance and drug product. "It is a model that allows companies to free up their supply chains and improve their time to market and cycle times for a product," he says.

The eventual agreement by DSM and JLL Partners to execute a deal was not the first time that Patheon had been pursued as part of a strategy to form a full-service provider for both drug substance and finished dosage development and manufacturing. In 2009, Lonza had made a non-binding offer of $460 million to acquire Patheon, a move that was ultimately rejected by JLL after which Lonza withdrew its offer and ended negotiations. But moves such as that are infrequent in the industry as contract service providers, with some exceptions, have retained their business models to be directed toward either drug substance (and then either chemical or biologics) development and manufacturing or finished dosage development and manufacturing. Although over the years, the model of an integrated, full-service provider has often been discussed, few companies have adopted such a model, which poses a fundamental question: can such a model succeed?

"We think the integrated, full-service model is very sound," says Negron, "because it relies on the technical strengths of each business units' capabilities. We are keeping the very strong technical competencies we have, and now we can offer them as part of an end-to-end solution. The key is to maintain your strong technical expertise and competencies of each and in the supply chain and product development," he says

Analyzing the pieces
With the merger of DSM Pharmaceutical Products and Patheon, the new DPx Holdings B.V. now includes the fine chemicals/chemical API manufacturing sites and capabilities of the former DSM Pharmaceutical Products as well as its biologics development and manufacturing sites and capabilities (see Table I). The key contributions from DSM on the fine chemicals/chemical API side included operations in the following: Linz, Austria; Venlo, Netherlands; and Regensburg, Germany. The Linz and Venlo sites focus on cGMP commercial-scale manufacturing, and the Regensburg site provides both nonGMP and cGMP chemical manufacturing with a focus on developmental-scale quantities for clinical trial materials as well as a pilot plant.

Table 1: DPx Holdings B.V., API and Fine Chemicals, Biologic/Biosolutions, Pharmaceutical Development and Commercial-Scale Manufacturing Sites*
Location Fine Chemicals/
Chemical API
Operations
Biologic/
Biosolutions Sites
Pharmaceutical Development Services Centers Commercial-Scale Finished Dose Facilities
Bourgoin-Jallieu, France     X X
Swindon, UK       X
Milton Park, UK     X  
Linz, Austria X      
Ferentino, Italy     X X
Monza, Italy       X
Capua, Italy   X    
Tilburg, Netherlands     X X
Groningen, Netherlands   X    
Venlo,Netherlands X      
Regensburg, Germany X      
Cincinnati, OH, USA     X X
High Point, NC, USA     X X
Greenville, NC, USA       X
Manatí, Puerto Rico       X
México City, México       X
Toronto, Canada     X X
Whitby, Canada     X X
Brisbane, Australia   X    
*As of May 12, 2014

Source: DPx Holdings B.V.

 

On the biologics side, the former DSM Pharmaceutical Products contributed three sites in the following locations: Capua, Italy; Groningen, Netherlands; and Brisbane, Australia (see Table I). The Gronigen and Brisbane facilities provide cGMP mammalian cell culture manufacturing and the Capua site microbial manufacturing. The Brisbane site is the newest of facilities. The single-use facility was opened in 2013 in partnership with DSM and BioPharmaceuticals Australia (funded by the Queensland Government) to provide process development, preclinical/clinical, and commercial manufacturing using fed-batch, perfusion, and a proprietary high-density cell (XD) technology. Groningen has annual capacity output of 200+ kilograms using fed-batch, perfusion, and/or the XD technology using both single-use and stainless steel reactors. The Capua site provides microbial manufacturing using fermenters from 35 cubic meters to 100 cubic meters.

While the combination of DSM Pharmaceutical Products and Patheon provided DPx Holdings B.V. with new capabilities for drug substance (chemical and biologics) development and manufacturing, it augmented existing capabilities from both parties in finished dosage development and manufacturing (see Table I). The key contribution from DSM Pharmaceutical Products is the 1.5-million square foot pharmaceutical dosage manufacturing site in Greenville, North Carolina, USA, which provides aseptic liquid fill and lyophilized products and oral dosage forms, along with related services. Patheon contributed commercial-scale finished dose facilities in France (Bourgoin-Jallieu), the UK (Swindon), Italy (Ferentino and Monza), Netherlands (Tilburg), the US (High Point, North Carolina and Cincinnati, Ohio), Puerto Rico (Manatí), Mexico (Mexico City), and Canada (Toronto and Whitby) (see Table I). The Bourgoin, France site, which specializes in the development and commercial-scale manufacture of solid oral forms and non-sterile liquids, was recently approved by the FDA to supply to the US market. The facility was upgraded with new manufacturing and packaging solutions, including high-potent drug containment measures in granulation, compression and packaging, and a new bottling line to pack solid dose forms in bottles. On the pharmaceutical development side, Patheon is contributing several sites: France (Bourgoin-Jallieu), the UK (Milton Park), Italy (Ferentino), the Netherlands (Tilburg), the US (High Point, North Carolina and Cincinnati, Ohio), and Canada (Toronto and Whitby) (see Table I).

The other business of DPx Holdings B.V. is Banner Life Sciences, which Patheon acquired (then called Banner Pharmacaps) for
$255 million in 2012 to gain proprietary products and technology primarily based on soft gelatin capsules. Through Banner Life Sciences, DPx Holdings B.V. has several proprietary prescription products (e.g., amantadine, progesterone and paricalcitol) and several OTC/nutritional products (e.g., fish oil, Co-Q10, salmon oil, and vitamin D). Negron explains that in addition to these proprietary products, as well as providing proprietary softgel technologies for pharmaceutical development, Banner is also positioning itself in authorized generics. "We are developing a model that supports our own proprietary products and also future collaborations in other areas such as authorized generics," says Negron, which would integrate the capabilities of Banner and Patheon with Patheon providing supply chain and manufacturing, and Banner providing the development as well as sales and marketing of its own product portfolio.

Integration underway
As with any merger, the ultimate success of the deal resides not in the deal itself but the integration of the operations of the combined company. With respect to the integration process for DPx Holdings B.V., Negron says the integration of the former DSM Greenville site with Patheon "is proceeding fairly quickly, particularly on the sterile side." Further time is needed to integrate the API/dosage development and manufacturing operations, he says, but he expects the full integration of the company within 12 months.

That ultimate integration is reflected in the name of the new company, DPx Holdings B.V. Negron explains that the "D" is from DSM Pharmaceutical Products, the "P" from Patheon and "x" representing the intersection of current and future capabilities.That would be the mission going forward, Negron concludes.