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Patheon third largest CMO and top PDS provider, report says as DSM merger looms

By Dan Stanton , 08-Jan-2014
Last updated on 08-Jan-2014 at 15:18 GMT

Patheon is the world’s largest pharmaceutical development services (PDS) provider and third largest contract manufacturer, according to a report released yesterday.

In November 2013, Royal DSM signed a deal with Patheon owners JLL Partners in order to merge its pharmaceutical products business and yesterday Patheon, in an SEC filing, alerted shareholders to an upcoming vote on the merger which is expected to conclude in the first half of this year.

“We believe we are the world’s third-largest CMO provider and the world’s largest PDS provider,” Patheon said in the preliminary proxy statement , based on calendar year 2011 revenues provided by outsourcing market intelligence group PharmSource.

This was backed up in a report for a special committee, comprised of independent directors of DSM and JLL, dated October 16 2013 by Canadian investment Bank BMO Capital, also sent yesterday to the SEC as part of an Amended Going Private Statement .

The report numbers Patheon’s revenues at 5% of the total contract manufacturing market in 2012 (worth approximately $14bn), with Catalent (11%) and Famar (6%) in second and third position. For PDS the company contributed 10% of revenues of the estimated $2bn market, with Almac coming in second.

Such assessment is consistent with a recent report published by Frost & Sullivan that also named Patheon and Catalent in the top three CMOs, although Famar was edged out and Aenova named the third in what was said to represent 23% of the market in 2012.  

Based on preliminary figures from FY2013, the contract manufacturing sector produced revenues of $655m (€482m) and accounted for 62% of Patheon’s overall business, the report noted, whilst the PDS business represented 14% of total turnover.

The Future's Bright

BMO’s October assessment also forecast continued growth for both business segments to 2017 without taking into account any future mergers or acquisitions (including DSM).

For the CMO side, an approximate 7% year-on-year was forecast, seeing sales reach $840m by 2017. This was partly predicted due to Patheon’s long contract cycle which sees 97% of 2014’s revenue already under contract, falling to 80% and 65% for the following years.

The report also compares 2012-4 EBITDA growth for Patheon compared to a median of comparable CMOs, consisting of AMRI, Biocon, Cambrex, Cangene, Jubilant and Lonza. Patheon stands high at 31.2% growth compared to the median of 10.5%, the report forecasts, though historically speaking from 2010-2 Patheon fell short of the 13.8% median at 12.5% growth.

For PDS, there is a similar pattern with both revenue and EBITDA growth shooting up from 2010-2 figures of 4.8% and -10.9% respectively, to 8.1% and 30.3%.

Expected EBITDA growth for 2012-4 once again surpasses the median growth rate of 20% and one explanation the report suggest may be Patheon’s $100m PDS backlog. For PDS, Patheon's results were measured against a median consisting of the CROs Charles River laboratories, Covance, Quintiles, Parexel and Icon - all public firms who have PDS units.

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