Patheon buys Puerto Rican rival

Related tags Patheon Astrazeneca Fiscal year Pharmacology

Contract pharmaceutical manufacturer Patheon is to buy Puerto Rican
rival Mova Pharmaceuticals in a transaction that could be valued as
high as $350 million in cash, stock and assumed debt.

The acquisition represents a strategic shift for Mississauga, Canada-based Patheon, which has in the past grown its capacity by purchasing excess manufacturing plants from pharmaceutical firms, with these transactions mostly including 'contracts in place' to make what the plant was producing beforehand.

It also gives the company the benefit of a facility in the US , "the world's largest and fastest growing pharmaceutical market,"​ said Robert Tedford, Patheon's chief executive, in a statement.

Patheon will emerge from the acquisition as one of the world's largest pharmaceutical outsourcing companies, with more than 5,400 employees (1,600 from Mova) and 14 manufacturing facilities, four in Europe and 10 in North America, Tedford added.

Canadian revenue will fall to about 3 per cent of the total with the acquisition, and Tedford predicts that US and European revenue will represent, respectively, 60 and just under 40 per cent of total revenue going forward. Mova's three Puerto Rican plants will boost Patheon's manufacturing capacity by almost 40 per cent.

Patheon will continue to use the MOVA brand, which has grown in stature since the company was formed in the mid 1980s. The privately held company manufactures drugs for eight out of the top 20 pharmaceutical companies worldwide, and has a number of long-term, high-value contracts in place.

One huge advantage of the acquisition for Patheon is that Puerto Rico offers a low corporate tax rate of between 2 per cent and 7 per cent, a mere fraction of the 36 per cent rate Patheon is subject to in its home country, and an average of more than 40 per cent across its operating subsidiaries worldwide.

Once the transaction completes, Mova's chief executive Joaquin Viso will be the largest single shareholder of Patheon, with a 16.8-per-cent interest. He will join the board of directors of Patheon once the merger completes.

The transaction is expected to significantly boost Patheon's margins and share profit in the current fiscal year ending 31 October, 2005, said Patheon said.

In the first nine months this year, Mova posted a profit of $16 million on revenue of $113 million. It expects to generate revenue of $60 million in the fourth quarter based on orders as of end-September. For comparison, in the nine months ended 31 July 31, Patheon reported profit of $7.7 million on revenue of $347 million.

Earlier this month, Patheon disclosed that it was in talks to make an acquisition and had had to inform the seller that Tedford and chief operating officer Nick DiPietro were subject to an insider trading probe by the Ontario Securities Commission.

The transaction allows Mova to walk away if the OSC review prompts further regulatory action prior to closing that reduces the value of Patheon's shares to be issued to Mova in the deal.

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