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IPO? Check. Now Patheon Turns to Acquisitions to Grow

April 21, 2016

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Durham-based contract drug manufacturer Patheon has hit the public markets with a successful launch, and is now looking ahead to potential acquisitions.

The company’s shares began trading on the New York Stock Exchange on Thursday. After an initial public offering price of $21, shares quickly jumped to $25. On Friday, shares increased another 1 percent.

But don’t expect the company to just sit back. It will use the roughly $625 million raised through the IPO to pay down debt, but look to grow in the future.

Although it raised a hefty sum, Patheon sold only 20 percent of the overall company. The pharmaceutical services company in 2014 became a business unit of DPx Holdings, which itself is the result of a $2.65 billion transaction between JLL Partners, a middle-market private equity firm, and Royal DSM, a Netherlands-based life sciences conglomerate.

JLL and DSM still own 80 percent of the company and Patheon is therefore still what is called a “controlled company” by Securities and Exchange Commission standards.

Patheon works with the pharmaceutical industry to manufacture the capsules, pills or liquid that deliver drugs. The company doesn’t actually own the rights to any of the drugs, but works on a contract basis to manufacture the products. Executives – and investors – see the pharmaceutical industry continuing its trend of outsourcing these manufacturing responsibilities, giving a company like Patheon a long runway for growth.

In some ways, the contract manufacturing industry today is where the contract research and development industry was 15 or 20 years ago, when companies like Quintiles and PPD were growing rapidly.

“We think our sector is following the same glide path,” says Tyler Gronbach, Patheon vice president of Communications.

There are about 650 companies in the contract manufacturing industry, though many are far smaller than Patheon, and potential acquisition targets. “We see an opportunity where we can consolidate the industry,” says Gronbach.

Headquartered in Durham, Patheon is officially incorporated in the Netherlands for beneficial tax purposes. The company employs 8,000 workers worldwide, including 1,400 in North Carolina.

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