Thermo Fisher Scientific has agreed to acquire clinical research organization PPD for $17.4 billion, the companies said this morning, in a deal that further consolidates contract research organizations (CROs) into a handful of corporate giants.
Headquartered in Wilmington, NC, PPD offers integrated clinical drug development, laboratory and lifecycle management services through more than 26,000 employees in nearly 50 countries.
Thermo Fisher said the acquisition would establish it as a global leader in a clinical research industry it pegged at $50 billion, by positioning it for growth as biopharmas work to commercialize discoveries by investing more in drug discovery, and as smaller biopharmas show increasing need for services furnished by strategic suppliers.
Those supplier relationships have been made even more important as a result of the COVID-19 pandemic, Thermo Fisher said, adding that its relationships with decision makers in biopharma would enhance PPD’s opportunities for securing additional work from existing and new customers.
The Thermo Fisher-PPD deal comes two months after ICON agreed to acquire PRA Health Sciences for approximately $12 billion in cash and stock, a transaction expected to be completed during the third quarter.
PPD’s services, Thermo Fisher said, are complementary to the outsourced services it offers to biopharmas after buying two contract development and manufacturing organizations in recent years—Patheon for $7.2 billion in 2017, and Brammer Bio for $1.7 billion two years later.
“PPD would further enhance TMO’s value proposition to pharma/biotech as a more holistic end-to-end partner, by adding a world-class CRO to complement its more recent CDMO acquisitions,” Brandon Couillard, a senior vice president with Jefferies and senior analyst focused on dental, diagnostics, and life sciences tools, wrote in a research note last night.
Couillard’s note followed the first report of a potential Thermo Fisher-PPD deal by The Wall Street Journal, which cited unnamed sources in reporting that the purchase price could exceed $15 billion.
“The acquisition of PPD is a natural extension for Thermo Fisher and will enable us to provide these customers with important clinical research services and partner with them in new and exciting ways as they move a scientific idea to an approved medicine quickly, reliably and cost effectively,” Marc N. Casper, Thermo Fisher’s chairman, president and CEO, said in a statement. “Longer term, we plan to continue to invest in and connect the capabilities across the combined company to further help our customers accelerate innovation and drive productivity, while driving further value for our shareholders.”
$125M in annual “synergies”
To drive value further higher, Thermo Fisher said, it expects to achieve approximately $125 million in cost cuts and other “synergies” by the end of the third year following the close of the acquisition. Thermo Fisher broke down that total as approximately $75 million of cost cuts and approximately $50 million of adjusted operating income benefit from revenue increases.
The PPD purchase is Thermo Fisher’s latest acquisition in what is shaping up as a busy M&A year for the company.
On January 15, Thermo Fisher completed its purchase of the viral vector manufacturing business of Groupe Novasep for ∼€725 million ($868 million) in cash. Novasep’s viral vector manufacturing business, known as Henogen, provides contract manufacturing services for vaccines and therapies.
Four days later, Thermo Fisher agreed to buy point-of-care molecular diagnostics developer Mesa Biotech for approximately $450 million cash, plus up to an additional $100 million tied to achieving milestones—a deal the companies completed on February 26.Also in February, Thermo Fisher acquired cell sorting technology assets from Propel Labs, a wholly-owned subsidiary of SIDIS Corp., for an undisclosed price.
Shares of PPD rose 7% in early trading to $46.10 as of 10:05 a.m. from yesterday’s closing price of $43. Thermo Fisher rose 2.9% in premarket trading to $491.95 from yesterday’s closing price of $478.04.
The boards of Thermo Fisher and PPD have approved the acquisition deal, which is expected to be completed by the end of 2021, subject to the satisfaction of customary closing conditions, including the receipt of applicable regulatory approvals. At $47.50 per share, Thermo Fisher is paying a premium of about 24% over PPD’s closing price yesterday. In addition to the $17.4 billion price of PPD, Thermo Fisher also agreed to assume approximately $3.5 billion of net debt tied to the purchase.
In addition to board approval, shareholders holding in aggregate approximately 60% of PPD’s issued and outstanding shares have approved the transaction by written consent. No further action by other PPD shareholders is required to approve the transaction, the companies said.
PPD finished last year with net income of $120.2 million, up nearly 120% year-over-year on revenues that climbed 16%, to $4.681 billion. Thermo Fisher in 2020 racked up $6.375 billion in net income, up 72% from the previous year, on revenues that jumped 26%, to $32.218 billion.
Upon close of the transaction, PPD will become part of Thermo Fisher’s Laboratory Products and Services Segment, which in 2020 grew to $12.24 billion in revenue, up 16.4% from $10.60 billion in 2019. Laboratory Products and Services is Thermo Fisher’s most lucrative segment, though Life Sciences Solutions is close behind with 2020 revenues of $12.17 billion, a 77% leap from $6.86 billion a year earlier.
Headquartered in Waltham, MA, Thermo Fisher employs more than 80,000 employees worldwide.
“Thermo Fisher is a world-class company with a very similar culture and values and will provide a great foundation for our colleagues to continue to deliver for our customers and to develop their own skills and careers,” stated David Simmons, PPD’s chairman and CEO. “This is a very exciting announcement for our shareholders and will provide customers with an even better opportunity to bring meaningful innovation to the market faster and more efficiently.”