Is Your Company Lucky or Smart? - Pharmaceutical Technology

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Is Your Company Lucky or Smart?
While some companies float with the tide, others grab market share while business is good.


Pharmaceutical Technology


Smart CRO and CMO executives are using the strong current market environment as an opportunity to establish a solid long-term base for their companies. They are investing in business strategies and capabilities that distinguish them from the pack and will position their companies for success even if financial support for early-stage companies declines. They want to make sure they create their own luck in the future.

Jubilant buys Hollister-Stier

The big news at this year's Interphex trade show in New York was the sale of contract injectable manufacturer Hollister-Stier, Inc. (Spokane, Washington) to the India-based Jubilant Organosys (Uttar Pradesh, India,). The sale itself wasn't a surprise—Hollister-Stier was owned by a private equity firm and was often the subject of buyout rumors—but the price and the buyer both raised eyebrows.

Jubilant is paying $138.5 million for Hollister-Stier, representing a multiple of nearly 13 times Hollister-Stier's profits before interest, taxes and depreciation (EBITDA). That multiple is 30% greater than that paid by the Blackstone Group when it bought Cardinal Health's Pharmaceutical Technologies and Services business earlier this year. Large multiples are not unusual for platform acquisitions, i.e., companies that provide a base from which to build a larger enterprise through additional acquisitions, but they are unusual for niche businesses like Hollister-Stier.

No doubt Jubilant justified its bid on the prospects for Hollister-Stier's injectable CMO business. Contract manufacturing revenue accounted for just $33 million of the company's $55 million total sales (allergy products accounted for the remainder), but the CMO business grew 33% in 2006 and is expected to accelerate when the company completes installation and validation of a new high-speed filling line and more lyophilization capacity.

The emergence of Jubilant Organosys as the buyer also was a surprise, because there was a presumption in the industry that an Indian company would not pay for a premium property. Indian chemical and dose manufacturers have been active acquirers of businesses in Europe and North America in recent years, but generally these acquisitions have been somewhat distressed operations that most investors have shied away from. Examples include the acquisition of Pfizer's (New York, NY) Morpeth, UK, manufacturing site by Nicolas Piramal, and the acquisition of API manufacturers Carbogen and Amcis (Bubendorf, Switzerland) from Solutia, Inc. (St Louis, MO) by Dishman Pharmaceuticals and Chemicals (Gujarat, India).

However, Jubilant has been aggressive about establishing itself in the contract services space. It acquired US-based clinical CRO Target Research Associates, now known as Clinsys Clinical Research, Inc. (Berkeley Heights, NJ) in 2005, and signed a major discovery deal with Eli Lilly in 2006. Its Pharmaceutical and Life Science Products group, which includes contract services and generic API manufacturing, had sales of $232 million in its fiscal year, which ended March 31, 2007.

The acquisition market for contract services opportunities is characterized right now by many willing buyers but few willing sellers, meaning competition should drive up company valuations. The Hollister-Stier/Jubilant deal suggests that private equity companies won't have the opportunities all to themselves.

Jim Miller is president of pharmsource information services, inc., and publisher of bio/pharmaceutical outsourcing report, tel. 703.383.4903, fax 703.383.4905,
http://www.pharmsource.com/.

Company Web sites

The following is a list of Web sites for the companies mentioned in this column:

Carbogen, http://www.carbogen.com/

Clinsys, http://www.clinsyscro.com/

Dishman Pharmaceuticals and Chemicals, http://www.dishmangroup.com/

Hollister-Stier, Inc., http://www.hollister-stier.com/

Jubilant Organosys, http://www.jubl.net/

Pfizer, http://www.pfizer.com/

Solutia, Inc., http://www.solutia.com/


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