KEY ADVANTAGES
We think that Lonza brings some attributes to a combination with Patheon that might obviate these negatives. One of its biggest
assets is the scope of its capabilities. With offerings in both small-and large-molecule API process development and manufacturing,
including microbial fermentation, mammalian cell culture, peptides, high potency APIs, and antibody conjugates, it is positioned
to service most of the candidates in even the largest new product portfolio. Combined with its financial soundness and a reputation
for operational reliability, it is well positioned to be selected as a preferred provider by global bio/pharma companies seeking
to consolidate their sourcing activities into a small number of vendors. By acquiring Patheon, Lonza has the opportunity to
enhance its preferred provider status by adding dose manufacturing while extending its preferred provider "halo" to Patheon's
dose manufacturing offerings.
A second major asset that Lonza brings to the Patheon acquisition is its ability to put together long-term strategic deals
with major bio/pharmaceutical companies. Lonza has announced long-term strategic relationships for its biomanufacturing services
with Genentech and Novartis, and claims to be negotiating more such deals. Those announced transactions are notable for their
innovation and comprehensiveness, combining its manufacturing expertise with elements of financial engineering and risk management.
It is likely that Lonza executives expect that they can use their preferred partner status and deal-making skills to negotiate
major comprehensive supply agreements that Patheon cannot do on its own, incorporating API and dose manufacturing capabilities,
and filling Patheon's dose manufacturing capacity.
PRECEDENT SET
Of course, these advantages are meaningless if Lonza cannot convince JLL Partners to sell its shares. JLL has publicly rejected
Lonza's offer and stated its intention to maintain its stake in Patheon and help Patheon's management grow the company. Lonza
for its part has said it would not raise its price. We can assume that these are both negotiating positions and that the companies
will explore ways of meeting their objectives.
By the time this column gets published the situation may have been settled, but even if Lonza is unsuccessful in acquiring
Patheon, a precedent has been set. Lonza has announced its determination to add dose formulation and manufacturing to its
API development and manufacturing capabilities. The move will no doubt prompt other API manufacturers to seriously consider
the merits of the one-stop manufacturing model for their own positions. In fact, several API manufacturers, including DSM,
PCAS, and Boehringer Ingelheim already have significant dose manufacturing capabilities.
We could be on the verge of a major consolidation of the contract manufacturing industry.
Jim Miller is president of PharmSource Information Services, Inc. , Springfield, VA, 703.383.4903, jim.miller@pharmsource.com
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