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The last 12 months have seen a number of major acquisitions in the contract manufacturing space.
The last 12 months have seen a number of major acquisitions in the contract manufacturing space. Most notably, Merck KGaA announced just a few weeks ago (in September 2014) that it has agreed to acquire firm Sigma-Aldrich Corp. for $17 billion. Earlier in March, Patheon completed its $2.65 billion merger with DSM Pharmaceutical Products (DPP) to form DPx. In October 2013, Cambridge Major Laboratories merged with AAI Pharma Services Corp. in a deal with undisclosed financial terms. What is driving such major players to combine their businesses?
It is no secret that the pharmaceutical industry is undergoing a major transformation as demand growth shifts from Western regions that consume high-margin branded drugs to emerging markets that can only afford low-margin generics. As pharmaceutical firms look for ways to drive out costs, they are increasing outsourcing across all facets of their organizations. To do so and still maintain control, pharma companies are more likely today than ever before to identify a limited list of approved providers. Consequently, they prefer contract manufacturing organizations that can provide a suite of integrated services. Simultaneously, pharma companies seek to establish stronger relationships with service providers that are willing to become more involved and invested in the success of their pharma industry clients.
These trends are reflected in the drivers behind the three transactions mentioned above. For example, the company formed by the merger of Cambridge Major Laboratories (CML) and AAI Pharma Services Corp. would be able to offer a full suite of integrated CMC services and deliver meaningful value to customers, with the ability to execute with equal strength across API development, analytical services, and finished dosage form manufacturing, according to then CML CEO Brian Scanlan. He also indicated that the combined companies would be able to provide a superior customer experience by maximizing scientific and project interaction at each phase.
Similarly, at the time of the formation of DPx, CEO Jim Mullen saw the new company as being well positioned as the pharmaceutical industry’s “partner of choice” because it offers end-to-end services and is a global, comprehensive solution provider. Stefan Doboczky, DPx board member and member of the DSM Managing Board also noted the importance of collaborative relationships to pharmaceutical firms.
The merger for Merck is a “quantum leap” for the company’s life sciences business, according to Karl-Ludwig Kley, chairman of Merck’s Executive Board and will make it possible to present a much broader product offering to its global customers. Sigma-Aldrich president and CEO Rakesh Sachdev believes the combined organizations will be “well-positioned to deliver significant customer benefits, including a broader, complementary range of products and capabilities, greater investment in breakthrough innovations, enhanced customer service, and a leading e-commerce and distribution platform in the industry.”