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Thermo Fisher (TMO) to Buy Patheon, Expand in Biopharma

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Thermo Fisher Scientific Inc. (TMO - Free Report) , a leading scientific instrument maker, recently agreed to acquire Netherlands-based Patheon N.V. (PTHN). The latter is a global provider of high-quality drug solutions to pharmaceutical and biopharma sectors. On completion of the deal, Pantheon will become part of Thermo Fisher's Laboratory Products and Services segment.

The total transaction value has been fixed at around $7.2 billion, which includes the assumption of approximately $2.0 billion of net debt. The acquisition is expected to close by the end of 2017, subject to customary closing conditions.
 
Notably, Thermo Fisher has been doing well for quite some time. For the last one month, the company has been trading above the Zacks categorized Medical - Instruments industry. The stock has gained 12.1%, higher than the 6.9% increase of the broader industry.


 
In the last reported first quarter of 2017, revenues from the Laboratory Products and Services Segment grew 3% year over year. This segment serves laboratory customers with equipment and consumables that improve productivity and a range of BioPharma outsourcing services. This segment also includes the company’s research and safety market customer channels.

Basically, Patheon offers comprehensive and highly customizable solutions as well as the expertise to help biopharmaceutical companies satisfy complex development and manufacturing needs. It is a leader in the high-growth, $40 billion Contract Development and Manufacturing Organization (CDMO) market. The company has an extensive network in North America and Europe, and had generated revenues of approximately $1.9 billion in 2016.

Thus, Thermo Fisher considers this buyout as a strategic fit to expand its biopharma services in Europe. Per management, the combination should significantly strengthen Thermo Fisher's unique value proposition for Pharmaceutical and Biotech Customers by adding highly complementary services.

The consolidation is also expected to prove accretive to adjusted earnings per share of Therno Fisher in the first full year post completion. Its management also expects to realize total synergies of approximately $120 million by year three following the close, consisting of approximately $90 million of cost synergies and $30 million of adjusted operating income benefit from revenue-related synergies.

As per a recent MarketsandMarkets report, the global laboratory equipment services market is projected to reach a worth of $11.51 billion by 2021 from $6.50 billion in 2016, at a CAGR of 10.0% during the forecast period. Growth in this market is primarily led by increasing research in pharmaceutical and biotechnology industries and the urgent need for timely and effective diagnosis of diseases. We expect Thermo Fisher to cash in on this opportunity in order to gain traction in this potential new market.

Zacks Rank & Key Picks

Thermo Fisher carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader medical sector are Luminex Corporation , Hologic, Inc. (HOLX - Free Report) and Sunshine Heart Inc . Notably, Hologic and Luminex sport a Zacks Rank #1 (Strong Buy), while Sunshine Heart carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Luminex has an expected long-term adjusted earnings growth of almost 16.3%. The stock added roughly 19.0% over the last three months.

Hologic has a long-term expected earnings growth rate of 11.33%. The stock has a solid one-year return of roughly 28.8%.

Sunshine Heart recorded a stellar EPS growth rate of almost 22% (last 3–5 years of actual earnings).

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