A proposed 20% tax on imports is intended to support Trump’s pledges to bring drug manufacturing back to the US and reduce the cost of medicines.
Last week an analyst predicted such a measure could benefit Patheon due to its US manufacturing network, and – during a conference call to discuss Q2 results yesterday – fellow contract development and manufacturing organisation (CDMO) Catalent said it would be well-prepared for any protectionist policies.
“We certainly have capacity in several of our key facilities across the US,” said CEO John Chiminski, mentioning the firm’s Winchester, Kentucky facility would readily take on extra products following a $52m investment completed in 2015, effectively doubling its complex oral solid dosage footprint.
“Given our position, specifically with regards to border tax and the way our customers take control of those products, there's really relatively little for us to worry about,” he continued. “And then we're certainly willing to take on additional capacity in the US if that opportunity affords itself.”
Including Winchester, Catalent has 11 sites in the US offering a range of manufacturing services including softgels, modified release, sterile manufacturing, and biologics.
Chiminski added his firm would continue to spend around 6% to 7% of revenues for CapEx going forward – around $110-130m based on FY 2016.
Tech transfers and facility builds
Capacity expansions are not instantaneous, and the implementation of a border tax could leave drugmakers with a shortage of domestic options for manufacturing.
“In the pharmaceutical world, tech transfers can be a multiyear process and if there has to be a capacity build it could be even longer,” Chiminski said.
“If anything happens from a potential tax standpoint, they're going to have to think through the implications in a very highly regulated business that has product registered in tens of countries. That, again, could take from three to five years if you are looking at a build plus registration.”
One area where Catalent may be at a disadvantage is in the manufacture of active pharmaceutical ingredients (APIs).
Western-made small molecule APIs are a “rapidly growing area,” according to Jefferies analyst David Windley.
While this accounts for 27% of Patheon’s revenues, Catalent’s capabilities are more focused on modifying their clients’ APIs, for example through particle size engineering and spray drying.
Patheon saw 18% growth in its API business last year, while another API-maker Cambrex reported 17% growth for its innovator small molecule API last week.
Catalent did not respond at the time of going to press as to whether it would look to acquiring bulk API capabilities, but CFO Matthew Walsh told investors the attractiveness of such targets for M&A purposes from the firm’s point of view would not be changed by any potential tax policies.