DSM and Patheon Merge to Form $2 Billion Global CDMO Powerhouse

Expected 2014 sales of about $2 billion

By Steven E. Kuehn, Editor in Chief

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Increasingly, business success in the modern era of pharmaceutical manufacturing is characterized by adept leveraging a complex ecosystem of suppliers and other partners. The risks associated with a globally dispersed supply chain are well known and companies are looking for partners with the know-how, scope and capacity to help manage such complexity and risk while providing a solid foundation from which to develop and commercialize new, as well as existing, therapies and products.

To that end, private equity firm JLL Partners and Royal DSM announced November 19th the creation of NewCo, formed by combining DSM’s business group DSM Pharmaceutical Products (DPP) with Patheon Inc. According to company officials, JLL will own 51% and DSM the remainder (49%) of the new contract development and manufacturing organization (CDMO) that’s anticipated to generate sales of approximately $2 billion in 2014.

“Both DSM and Patheon Sr. leadership had a very similar view of the industry and how it was going to unfold,” says Jim Mullen, currently CEO of Patheon, and CEO of NewCo upon completion of the transaction. “Our customers indicated a strong desire to streamline their outsourcing networks and at the same time, increase their outsourcing networks. When you put our two companies together we can offer much broader capabilities, more capacity—both companies also have excellent reputations on quality and customer service—so that really puts in a position to address customer needs.”

Combining DPP and Patheon, says DSM, is fully in line with DSM’s strategy for its Pharma cluster as well as an excellent value creation opportunity. DSM and JLL say it will work together to maximize the value of NewCo. Stefan Doboczky, member of the DSM Managing Board and responsible for the Pharma cluster, says “Our customers bring life-saving and life-enhancing medicines to people who need them around the world. They will greatly benefit from NewCo’s unmatched depth and breadth of capabilities and services. I am convinced that NewCo will be even better positioned to help customers succeed with their unique needs.” For DSM, combining DPP with Patheon into NewCo is also a key step in the strategic transformation of its Pharma activities into partnerships.

DSM and Patheon announcements reveal NewCo will have an end-to-end offering from finished dosage (drug products) to active substances (APIs) and a global footprint of 23 locations across North America, Europe, Latin America and Australia with about 8,300 employees. “We see a big opportunity in the end-to-end service aspects of our business,” says Mullen. “We hear quite often from emerging companies and specialty companies that they would like to see more integration of their supply chains—[the merger] puts us in a much better position to do it. Obviously, DSM brings strong API capabilities, as well as biologics; and a big sterile capacity component at Greenville [North Carolina] and Patheon has all of its sterile capacity in Europe and it just gives us a great footprint when you put these two things together.”

According to the companies’ announcements, NewCo will have a unique breadth of service offerings with a focus on drug products and APIs, able to offer solutions to a broad spectrum of companies ranging from large pharmaceutical and biotech companies to specialty pharma companies, generics and emerging pharma companies. The combined company will also deliver proprietary softgel formulations for over-the-counter, prescription and nutritional consumer products. The exclusive synthesis products and intermediates are targeted to the crop protection, personal care, and fine chemicals products industries.

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