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Thermo Fisher's Patheon Buyout Gains Antitrust Clearance

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Thermo Fisher Scientific (TMO - Free Report) has recently obtained the required antitrust clearance related to the earlier-announced purchase of all outstanding ordinary shares of Patheon N.V. . On Aug 7, 2017, competition authorities in Brazil approved of this transaction and initiated a 15-day comment period, which expired on Aug 22, 2017. Additionally, the European Commission sanctioned the takeover on Aug 23.

Notably, in May, Thermo Fisher (CN) Luxembourg S.à r.l., a wholly owned subsidiary of the leading scientific instrument maker agreed to acquire Netherlands-based Patheon. The latter is a global provider of high-quality drug solutions to pharmaceutical and biopharma sectors. On completion of the deal, Patheon will become a part of Thermo Fisher’s Laboratory Products and Services segment.

Total transaction value was fixed at around $7.2 billion, including the assumption of approximately $2.0 billion of net debt. The acquisition is expected to wrap up by the end of 2017, subject to customary closing conditions.

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

Notably, Thermo Fisher has been doing well for quite some time. For the last three months, the company has been trading above the industry. The stock has inched up 2% as against the industry’s 0.2% decline during the period.

Per the latest reported second-quarter 2017, revenues from the Laboratory Products and Services Segment grew 4% year over year. This segment serves laboratory customers with equipment and consumables improving productivity and a range of BioPharma outsourcing services. It also includes the company’s research and safety market customer channels.

Thermo Fisher considers Patheon’s purchase as a strategic fit to expand biopharma services in Europe. Per management, the combined entity should significantly strengthen the acquirer’s unique value proposition for pharmaceutical and biotech customers by adding highly complementary services.

The consolidation is also expected to prove accretive to Thermo Fisher’s adjusted earnings per share in the first full year post the merger’s completion. Management also expects to realize total synergies of approximately $120 million by the third year following the closure of the deal, which consists of roughly $90 million of cost synergies and $30 million of adjusted operating income benefit from revenue-related synergies.

Per a recent MarketsandMarkets report, the global laboratory equipment services market is projected to reach worth $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 an increasing research in pharmaceutical and biotechnology industries with 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 a potentially strong new market.

Zacks Rank & Key Picks

Thermo Fisher currently has a Zacks Rank #3 (Hold). Two better-ranked medical stocks are Edwards Lifesciences Corporation (EW - Free Report) and Lantheus Holdings, Inc. (LNTH - Free Report) . Edwards Lifesciences sports a Zacks Rank #1 (Strong Buy) while Lantheus Holdings carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. The stock has rallied around 20.5% over the last six months.

Lantheus Holdings has a long-term expected earnings growth rate of 12.5%. The stock has surged 28.5% over the last six months.

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