CDMOs and CMOs: A M&A and Expansion RoundupBy
This year thus far has seen several high-profile deals in the pharmaceutical outsourcing market. So what moves should be on your radar?
There have been several noteworthy moves for contract development and manufacturing organizations (CDMOs) and contract manufacturing organizations (CMOs) thus far in 2017: Thermo Fisher’s pending $7.2-billion acquisition of Patheon, Lonza’s $5.5-billion acquisition of Capsugel, and AMRI’s pending acquisition by private-equity firms. So what other moves and expansions are making the mark thus far in 2017?
A roundup of activity: mergers and acquisitions
Thermo Fisher’s pending $7.2-billion acquisition of Patheon. In the pharmaceutical outsourcing market, the largest deal thus far in 2017 is Thermo Fisher Scientific’s pending $7.2-billion acquisition of Patheon, a CDMO of active pharmaceutical ingredients (APIs) and drug products. Thermo Fisher announced the acquisition in May 2017 with the deal expected to close by the end of 2017.
The acquisition of Patheon provides Thermo Fisher with small- and large-molecule development and manufacturing capabilities as well as formulation development and drug-product manufacturing. Thermo Fisher’s products and services support research, clinical trials, and production and includes clinical trials logistics services. Patheon, which has approximately 9,000 employees worldwide, generated 2016 revenue of approximately $1.9 billion and will become part of Thermo Fisher’s Laboratory Products and Services segment following the close of the deal.
For Patheon, its pending acquisition by Thermo Fisher continues a multiyear process in which the company has been pursuing a strategy of becoming an end-to-end contract services provider of APIs (both small molecules and biologics) and its historical core competency in formulation development and drug-product manufacturing. The key deal for Patheon dates back to 2014 with the formation of DPx Holdings B.V., privately owned by the private-equity firm JLL Partners (51%) and Royal DSM (49%), which was the result of a $2.65-billion deal between Patheon and DSM completed in March 2014. Since 2012, in addition to DSM Pharmaceutical Products, Patheon has been active on the acquisition front with key acquisitions to build both its API service capabilities and formulation-development and drug-product manufacturing capabilities: Banner Pharmacaps (softgels), Gallus BioPharmaceuticals (biologics manufacturing), Agere Pharmaceuticals (solubilization technology), IRIX Pharmaceuticals (small-molecule APIs), and a former Roche small-molecule API manufacturing site in Florence, South Carolina, which is Patheon’s flagship US API operation for commercial-scale and mid-scale API production.
In late June 2017, Patheon announced further investments of approximately $45 million at various sites across its global network. At its API development and manufacturing site in Florence, South Carolina, Patheon will be adding commercial spray-drying capabilities to complement the existing development capabilities at the company’s low-solubility center of excellence in Bend, Oregon. The 15,000-square-foot dedicated suite will contain two spray dryers for development- and commercial-scale spray-dried dispersion services. The suite is expected to be on line in 2019. At its Bend, Oregon site, the company plans to expand existing development spray-dried dispersion capabilities with a new cGMP analytical lab, manufacturing suite, and additional development-scale spray drying.
In addition, Patheon has invested in a new commercial sterile-product manufacturing facility at its site in Monza, Italy. The facility will house three, 40-square-meter lyophilizers with associated eight-headed integrated filling equipment for both lyo and liquid formulations for small and large molecules in a range of vial specifications. Patheon also plans to expand its sterile-product Pharmaceutical Development Services (PDS) at the Monza facility to provide development services for both small- and large-molecule injectable products (liquid and lyo formulations), which will be operational in mid-2019.
Patheon is also expanding its packaging and serialization capabilities at its site in Greenville, North Carolina. The company has built a new filling and packaging suite and upgraded another of its packaging lines with new technology to improve efficiency and reduce change-over time. The newly constructed 4,800-square-foot suite will come on line this fall.
Lonza’s $5.5-billion acquisition of Capsugel. In another move to build end-to-end capabilities in both APIs and drug products, Lonza, a contract manufacturer of APIs (small molecules and biologics) made a large play with acquisition of Capsugel, a provider of dosage forms, from the private equity firm, KKR, for $5.5 billion in cash, including refinancing of existing Capsugel debt of approximately $2 billion. With the acquisition of Capsugel, Lonza positions itself in the drug-product services sector by gaining oral dosage delivery technologies, including a position in hard-capsule technologies.
The acquisition follows Lonza’s opening in November 2016 of a new 1,300-square-meter facility in Basel, Switzerland with drug-product services laboratories with an initial focus on formulation development, drug product analytical development, and quality control for parenteral dosage forms.
Capsugel has made recent investments. Earlier in 2017, Capsugel expanded its late-stage inhalation capabilities to advance dry-powder inhalation concepts through late-stage clinical trial and commercial production. In 2016, it made several key acquisitions: Xcelience, a Florida-headquartered contract development and manufacturing organization specializing in clinical trial material supply and small-scale commercial manufacturing, and Powdersize, a Quakertown, Pennsylvania-based specialist in micronization. In 2015, it completed construction of a new pharmaceutical spray-dried dispersion commercial manufacturing facility at its site in Bend, Oregon as part of a two-year, $25-million investment. In 2015, it announced plans to invest more than $25 million to increase production capacity and deliver further quality enhancements for its vegetarian capsules.
Fresenius Kabi’s $4.75-billion buy of Akorn. Another large move in 2017 impacting the contract services market is Fresenius Kabi’s $4.75-billion pending acquisition of Akorn. Although the deal was driven by the companies’ positions in specialty pharmaceuticals, both companies also have contract manufacturing activities. In April 2017, Fresenius Kabi, a specialty and generic pharmaceuticals company and a subsidiary of Fresenius SE & Co. KGaA, a Bad Homburg, Germany-headquartered healthcare group, agreed to acquire Akorn, a Lake Forest, Illinois-headquartered specialty generic pharmaceutical company. Under the deal, Fresenius Kabi will gain prescription and over-the-counter products, including injectables, topical creams, ointments and gels, and sterile ophthalmics as well as oral liquids, otic solutions, nasal sprays, and respiratory drugs. Akorn’s current product pipeline of pending abbreviated new drug applications has a QuintilesIMS market value of $9.3 billion, according to Fresenius Kabi. In addition to gaining a product portfolio, Fresenius Kabi, which provides contract sterile manufacturing services through its Fresenius Kabi Product Partnering division, will boost its contract sterile manufacturing capabilities with the acquisition of Akorn, which also offers that service. Akorn has five manufacturing facilities in Decatur, Illinois; Somerset, New Jersey; Amityville, New York; Hettlingen, Switzerland; and Paonta Sahib, India.
Akorn’s board recommended approval of the transaction and merger agreement to Akorn’s shareholders. The transaction is subject to closing conditions, including regulatory review under the Hart-Scott-Rodino Antitrust Improvements Act in the US and approval by Akorn shareholders. The transaction is expected to close by early 2018.
Going private: Parexel and AMRI. There have been two notable deals in which two now publicly traded contract services firms are being acquired by investment firms and are going private. In June 2017, Parexel, a contract research organization, agreed to be acquired by Pamplona Capital Management, an investment firm, for $88.10 per share or approximately $5.0 billion, including Parexel net debt. The deal would take the now publicly traded Parexel private. The transaction is expected to close early in the fourth quarter of 2017, subject to the approval of a majority of Parexel shareholders and the satisfaction of other customary closing conditions. Upon the completion of the transaction, Parexel will become a privately held company, and shares of Parexel’s common stock will no longer be listed on any public market.
In another deal, in June 2017, Albany Molecular Research Inc. (AMRI), a contract research, development, and manufacturing organization, agreed to be acquired by affiliates of The Carlyle Group, an investment firm, and GTCR LLC, a private-equity firm, for $21.75 per share in cash. The agreement was unanimously approved by AMRI’s Board of Directors, which has recommended that the shareholders vote in favor of the transaction. Closing of the transaction is subject to customary closing conditions, including, among others, the affirmative vote in favor of the transaction by holders of a majority of AMRI’s outstanding common stock and the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and similar laws outside the US. It is anticipated that the special meeting of AMRI’s stockholders to vote on the transaction will be held in the third quarter of 2017, and, if the transaction is approved, the merger would be expected to close shortly thereafter.
Other acquisitions. There also have been several smaller acquisitions thus far in 2017. In June 2017, Eurofins Scientific, a provider of biopharmaceutical testing services, acquired Alphora Research, a contract research, development and manufacturing organization of small-molecule APIs based in Mississauga, Ontario, Canada. Alphora has capabilities in multi-step syntheses as well as development of cytotoxic and highly potent APIs. It operates two facilities for API development, testing, and manufacturing.
Also in June 2017, Olon S.p.A., an Italy-headquartered CDMO of APIs acquired the Chemical Division of Concord, Ohio-based Ricerca Biosciences, a contract research organization and CDMO. In 2016, Olon acquired Infa, an Italy-based contract manufacturer of APIs and intermediates. The acquisition of Ricerca provides Olon with US-based manufacturing. With the acquisition of Infa, Olon gained additional manufacturing sites bringing Olon’s manufacturing sites to eight European production sites (Rodano, Settimo Torinese, Garbagnate Milanese, Mulazzano, Dorno, Segrate, and Lodi in Italy and one site in Murcia, Spain).
In addition, also in June 2017, Lonza completed the acquisition of PharmaCell B.V., a Netherlands-based cell and gene contract manufacturer with core expertise in autologous cell and gene therapy manufacturing. PharmaCell has more than 6,000 square meters of GMP cleanrooms, quality control, and other support space.
Also this year, Porton Fine Chemicals, a Chongqing, China-headquartered CDMO, acquired J-STAR Research, a contract chemistry organization based in South Plainfield, New Jersey, for $26 million. With the acquisition, Porton, which supplies custom drug intermediates and APIs, expands the reach of its CDMO business. J-STAR offers services to support early-phase clinical development of small-molecule APIs, with its core business covering custom synthesis, process research, crystallization research and development, and analytical services.
Also in 2017, Catalent, a CDMO, completed its acquisition of Accucaps Industries Limited, an Ontario, Canada-based developer and manufacturer of over-the-counter high potency, and conventional pharmaceutical softgels. The company announced the acquisition in November 2016. Also Quotient Clinical, a Nottingham, UK-based early-phase drug development services provider, acquired QS Pharma, a Charles River Laboratories CDMO unit based near Philadelphia. The acquisition expands Quotient’s footprint in the US following its recent acquisition of SeaView Research, a Miami, Florida-based clinical research organization.
A roundup of activity: expansions
In addition to mergers and acquisitions, several CDMOs and CMOs are proceeding with expansions. Below is a roundup of noteworthy moves thus far in 2017.
API manufacturing: small molecules
Flamma. Flamma SpA, a Italy-headquartered contract manufacturer of small-molecule APIs opened its new cGMP workshop and Research and Development (R&D) Center in Dalian, China in June 2017. The investment of $20 million brings the total capacity of Flamma’s Chinese operations in Dalian to 200 cubic meters and brings its R&D group to the same campus for increased efficiency and productivity. The company has other expansions underway. By 2018, Flamma intends to spend $5 million to expand its R&D capabilities with the addition of a new R&D building at its headquarters in Chignolo d’Isola, Italy. By 2020, Flamma plans to increase its production capacity by 40% with the addition of another cGMP workshop at its Chignolo d’Isola headquarters.
Novasep. Earlier this year Novasep, a Lyon, France-headquartered CMO, opened a new EUR 11-million ($11.6-million) bioconjugation facility at its site in Le Mans, France, for clinical and commercial manufacturing of antibody-drug conjugates (ADCs). The new facility completes Novasep’s ADC manufacturing platform, which includes ADC payloads, drug linkers, and monoclonal antibody commercial-scale production capabilities.
STA Pharmaceutical. STA Pharmaceutical, a subsidiary of WuXi AppTec with a technology platform for small-molecule process development and manufacturing, is expanding its new integrated R&D and commercial site in Changzhou, China in stages. On completion, the Changzhou site will include 500 scientists and more than 1000 cubic meters of reactor volume.
The company recently added a new pilot plant and 200 new process R&D scientists. The new pilot plant started operation in November 2016 with 40 reactors ranging from 250 liters to 5,000 liters. In addition, a second commercial plant will be installed in 2017, nearly doubling reactor volume in Changzhou to 490 cubic meters. As of January 2017, Changzhou had 60 reactors with a total reactor volume of 290 cubic meters. The first commercial plant opened a year ago with a milling system recently installed. The Changzhou site, which was officially opened in March 2016, has grown to over 200 scientific personnel including 160 process chemists, 40 analytical chemists, and a specialist group of crystallization technology engineers trained for over a year at the company’s Shanghai R&D facility. The 10,000-square-meter R&D center currently has 24 process chemist laboratories and a process safety lab. Another 24 process chemistry labs as well as a catalysis center will be added in Changzhou by the end of 2017. STA plans to have approximately 300 scientists in its R&D teams, consisting of 230+ process chemists and 70 analytical chemists, by the end of 2017 with a focus on antibody drug conjugates and high potent research projects. The Changzhou site has approximately 60 active pharmaceutical ingredients and/or intermediates under development and one new chemical entity in commercial production.
Granules India. Granules India Limited, a Hyderabad, India-based pharmaceutical manufacturing company, received approval for $47.5 million in funding from the International Finance Corporation (IFC), a member of the World Bank Group, for expansion projects, including construction of a new greenfield API facility in Vishakhapatnam, India.
API manufacturing: biologics
Earlier this year, Lonza and Sanofi entered into a strategic partnership to build and operate a large-scale mammalian cell culture facility for manufacturing monoclonal antibodies at Lonza’s site in Visp, Switzerland. Under the partnership, the companies formed a joint venture which will have an initial investment of CHF 290 million ($290 million), to be split equally between each company.The initial phase of construction will begin in 2017, pending necessary regulatory approvals, and the facility is expected to be fully operational by 2020.
Novasep. Novasep announced an investment of EUR 27 million ($29 million) to build a commercial-scale manufacturing plant for viral vector-based therapeutics at the company’s site in Seneffe, Belgium. The new plant is scheduled to be operational in early 2019.
KBI Biopharma. KBI Biopharma (KBI), a biopharmaceutical CDMO, is investing $30 million to expand its biopharmaceutical manufacturing capacity and capabilities at its facilities in Durham, North Carolina and Boulder, Colorado. Additionally, in February 2017, it added to its cell-therapy development and manufacturing operations in The Woodlands, Texas, and recently announced that its parent company, JSR Life Sciences, would acquire Geneva-based Selexis SA, a provider of cell-line technologies. In June 2017, KBI agreed to acquire the assets of San Diego-based Alliance Protein Laboratories, an analytical services company specializing in biophysical characterization of biopharmaceuticals.
Brammer Bio. Brammer Bio, a cell and gene-therapy CDMO, is on track to complete commercial-ready gene therapy manufacturing capacity at its site in Cambridge, Massachusetts, in the second half of 2017. This follows the January 2017 acquisition of Biogen’s biologics manufacturing facility in Cambridge and distribution center in Somerville, Massachusetts. Originally built for the manufacture of Biogen’s clinical and commercial biologics, the 66,000-square-foot Cambridge facility was licensed by regulatory authorities to manufacture four commercial products. Brammer is renovating the facility for late-stage clinical development and the commercial launch of gene-therapy products. Brammer also acquired Biogen’s nearby 49,000-square-foot distribution and warehousing facility. The addition of the Massachusetts facilities gives Brammer 230,000 square feet of development, distribution, and cGMP manufacturing facilities. Brammer had previously announced plans to build out its 50,000-square-foot facility in Lexington, Massachusetts, which is currently being designed for late-stage and commercial cell-therapy supply.
Cobra Biologics. Cobra Biologics, a Keele, UK-headquartered CDMO for biologics and pharmaceuticals, plans to invest up to £15 million ($19 million) over the next two years to expand biopharmaceutical manufacturing operations at its sites in the UK and Sweden. The investment involves a phased expansion plan that supports the company’s research and development activities in developing viral vector and DNA plasmid production platforms.
Formulation development and drug-product manufacturing
Lubrizol/Particle Sciences. In June 2017, Lubrizol Corporation announced a $60-million investment in its LifeSciences business, focusing on new product solutions, capacity expansions, and additional cGMP manufacturing to strengthen its excipients, polymers, drug formulation and manufacturing, and medical device contract manufacturing capabilities. Additionally, commercial drug-product manufacturing will be added at the company’s Particle Sciences facility in Bethlehem, Pennsylvania adjacent to the company’s existing development and clinical trial manufacturing site. The space is expected to be operational in the fourth quarter of 2017 and will accommodate both sterile and non-sterile products, highly potent compounds, and organic-solvent processing. Lubrizol LifeSciences is also investing to expand its global facilities for excipients, polymers, and contract manufacturing. This capital investment will impact multiple sites to increase in-house engineering capacity, which includes design, manufacturing, and sterilization technology for producing interventional catheters and long-term implantable devices.
Alcami. Alcami, a CDMO of APIs and drug products, is investing approximately $5 million to expand its filling and freeze-drying operations at its facility in Charleston County, South Carolina. The site has recently produced clinical supply from its recently qualified second line and doubled both its filling capacity and freeze-drying capacity with increased scheduling, including a third operating shift.
Catalent. In April 2017, Catalent Pharma Solutions announced that it increased its spray-drying capacity at its San Diego, California facility. Catalent gained the facility with its 2016 acquisition of Pharmatek Laboratories, a CDMO in September 2016. The acquisition provided Catalent with early-phase drug-development capabilities, spray-drying capabilities, and expanded Catalent’s capability for handling highly potent compounds.
Catalent also completed an expansion at its Kansas City, Missouri facility to increase controlled-temperature storage capabilities for its clinical-supply business. The expansion added 70,000 cubic feet of storage at the site, representing a five-fold increase in controlled-temperature capacity, comprising both pallet and high-density storage options. As part of the expansion, two secondary cold packaging areas were added with the option to add more as needed.
Pfizer CentreOne. Earlier this year, Pfizer CentreOne, a global contract manufacturing organization embedded within Pfizer, expanded its service portfolio to include contract manufacturing of highly potent solid oral dose medicines. The service will be provided at the Pfizer Newbridge, Ireland facility, now part of Pfizer CentreOne’s contract manufacturing network. The addition of solid oral dose manufacturing of highly potent medicines follows an earlier expansion in February 2017 of Pfizer CentreOne’s fill-finish services at its Kalamazoo, Michigan site, which now provides vial-filling of sterile suspensions along with vial-filling of small molecules and biologics.
Vetter. Earlier this year Vetter, a Ravensburg, Germany-headquartered CDMO for aseptic filling and final packaging of injectables, began operations in its expanded visual inspection and logistics center in Ravensburg. The company invested approximately EUR 100 million ($107 million) to expand this center to combine capacity for final product inspection and logistics in one site. With the expansion, Vetter now has more than double the capacity for quality-control, cold-storage, and room-temperature storage.
Almac. Almac Group, a Craigavon, Ireland-based CDMO, is expanding in Dundalk, County Louth, Ireland, where it secured premises to build a new facility. Almac will make an undisclosed multi-million British pound investment in the new facility, which will be used by Almac Pharma Services and Almac Clinical Services. The new premises increase Almac’s European footprint by 32,000 square feet. The investment follows Almac’s previous announcement of approximately £27 million ($34 million) to expand its operations at its global headquarters in Northern Ireland and in North America and to increase its global headcount to 5,000 by 2017.
Griflos Grifols, a Barcelona, Spain-headquartered healthcare company specializing in plasma-derived proteins and contract manufacturer of sterile solutions, recently made investments in sterile-manufacturing technology with the installation of a fourth form/fill/seal (FFS) line in its manufacturing site in Murcia, Spain. The addition of the new FFS line will increase the company’s flexible bag manufacturing capacity by 30%. The new line will be operational in 2017 once validations have been completed and approved by Spanish health authorities. Grifols is also waiting for US Food and Drug Administration approval for the new FFS line as part of the company’s plan to expand sales of parenteral solutions in new markets. The Murcia facility has also been fitted with a new high-capacity autoclave and a new conditioning line to handle the increased production. Another production line is scheduled to be completed in the company’s Parets del Vallés facility in Barcelona, in the first half of 2018.
Recipharm. In April 2017, Recipharm, a Jordbro, Sweden-headquartered CDMO, opened a newly built GMP suite for clinical-trial-material manufacture at its facility in Research Triangle Park, North Carolina. The suite, which represented a $750,000-investment, is for clinical-trial material up to Phase II for non-sterile dosage forms, including metered-dose inhalers and semi-solid topical products. Also, earlier this year, Recipharm completed its previously announced acquisition of Kemwell’s pharmaceutical business, Recipharm Pharmaservices Private Ltd, located in Bangalore, India, for Indian rupee 7.98 billion ($120 million).
Piramal Pharma Solutions. Piramal Pharma Solutions, a CDMO, has completed Phase I of a previously announced, two-phase expansion of its sterile manufacturing capabilities at its facilities in Lexington, Kentucky. The $25-million investment, announced in August 2016, is being rolled out in phases.
CoreRx. CoreRx, a Clearwater, Florida-based CDMO, expanded manufacturing and warehousing capacity at its facilities in Clearwater. The expansion is a joint expansion by CoreRx and Aimmune Therapeutics, a clinical-stage biopharmaceutical company, and adds additional staffing at CoreRx, including positions within pharmaceutical development, manufacturing, engineering, quality assurance, and packaging. This new expansion consists of approximately 20,000 square feet of manufacturing and warehouse space.
Recro Gainsville Recro Gainsville, a CDMO and a wholly owned subsidiary of the specialty pharmaceutical company, Recro Pharma, expanded its capabilities by adding a new tablet manufacturing suite. Recro specializes in extended-release and controlled substances.
ProSolus Pharmaceuticals. ProSolus Pharmaceuticals, a Miami, Florida-headquartered CDMO for transdermal and trans-mucosal drug delivery, expanded its manufacturing capabilities for trandsdermal drug delivery. ProSolus is a wholly owned subsidiary of Mission Pharmacal, a San Antonio, Texas-based pharmaceutical company. The expansion included the installation of a second transdermal production facility at Mission’s manufacturing site in Boerne, Texas. The Boerne location houses a larger production line than Prosolus’ two manufacturing facilities in Miami, and the expansion at Boerne more than doubles the company’s total transdermal product output. Combined, the capacity of the two locations is now more than 100 million patches annually.
Ciron Drugs & Pharmaceuticals. Ciron Drugs & Pharmaceuticals, a Mumbai, India-based CDMO, launched a 80,000-square-foot-sterile manufacturing facility. The new facility can produce 200,000 units of ampuls per shift, 100,000 units of vials per shift, 80,000 units of lyophilized vials per cycle, and 40,000 units of eye drops per shift.
AB BioTechnologies. Earlier this year, AB BioTechnologies, a drug-development services company located in Bloomington, Indiana, announced plans to add contract clinical manufacturing operations by investing $10.5 million to construct and equip a 23,000-square-foot facility. The facility will include a manufacturing area for formulating, filling, lyophilizing, and packaging drugs for early-phase clinical trial studies. The company plans to open the new facility in November 2017.