Bulking up fast

Pharmaron in M&A push to grow cell and gene therapy business


Buying abroad: Pharmaron’s boss Lou Boliang

The coupling of AbbVie and Allergan last year was an expensive one. Costing $63 billion, the combination was one of the 10 largest pharmaceutical industry mergers in history, bringing together a product line that includes AbbVie’s Humir, the world’s best-selling anti-inflammatory drug, and Allergan’s wrinkle-fixer Botox.

The merged entity has nearly $90 billion of debt on its balance sheet, despite selling down some of its assets to ease cashflows soon after the transaction was completed

On February 28 a Chinese contract manufacturer saw an opportunity in this situation. Based in Beijing, Pharmaron announced that it would acquire Allergan Biologics from AbbVie for $118.7 million in cash.

The main asset under the deal is a bioprocessing facility in Liverpool, which Pharmaron wants to transform into a contract service provider. The unit has a licence in the UK to produce biologics (drugs derived from biological sources such as cells and tissue), as well as accreditation from the US Food and Drug Administration. It is also prized for an approach which has seen it cultivate cells in liquid solution (as opposed to on the surface area), making it easier to produce them at scale for commercial manufacturing.

Lou Boliang, Pharmaron’s chairman and CEO, said the merger aligns closely with the takeover of Absorption Systems, a US non-clinical contract researcher that the Chinese firm bought in November in a bid to build a global platform for cell and gene therapies.

The purchase was intended to boost Pharmaron’s drug discovery and preclinical development businesses, which made up two-thirds of Pharmaron’s sales of Rmb3.6 billion ($553 million) in the first three quarters last year.

The deal for Allergan Biologics will sharpen Pharmaron’s skillset in CMC (chemical, manufacturing, and controls), which focuses on producing the final drugs for both trials and commercialisation. As a business segment it already contributes 23% of Pharmaron’s income.

Founded in 2004, Pharmaron has evolved from its early role as a laboratory service provider. It now presents itself as a one-stop shop for pharmaceutical research and development, covering a wide array of drug modalities. In 2018 it was one of the top three drug discovery service providers by revenue and it ranked 20th in the global pharmaceutical R&D service market, according to Frost & Sullivan.

The evolution would not have been possible without aggressive dealmaking since 2016. Most notably it bought out Quotient Bioresearch, a CRO (contract research organisation) headquartered in Manchester for £10 million and purchased 80% of Shin Nippon Biomedical Laboratories, a clinical development services firm in the American state of Maryland.

The growth strategy was one reason why the company opted for a secondary listing in Hong Kong in 2019, where it raised HK$4.6 billion ($589 million) and set aside 15% of the proceeds for M&A.

The share sale was completed shortly after its Rmb503 million initial public offering in Shenzhen the same year. Citic Securities is its largest shareholder with a 23% stake.

Pharmaron’s acquisitions come at a time in which investment in cell and gene therapies is booming. Over 75 such products had been launched worldwide as of the end of 2019, with 1,220 products in clinical trials, according to the Alliance for Regenerative Medicine.

The vast majority of the cell and gene therapies on the market start life in academic labs or start-ups backed by venture capital (only 15% originated from pharma companies as of last February, according to McKinsey). But even in the initial stages the manufacturing processes of these next-generation drugs are still heavily dependent on human intervention and manual processes. Pioneering drug developers – which typically lack the range of resources available to bigger pharmaceutical companies – are keen to outsource more of the drug production and clinical trials to third parties as a way of reducing costs and speeding up the drug development process.

This is where much of Pharmaron’s speciality lies. You could think of it as a pharmaceutical equivalent of a foundry in the semiconductor sector (these make chips for others’ based on their designs). However, Pharmaron also arranges the costly testing process, an especially important role where smaller biotech clients are concerned.

Tie-ups between Western and Chinese companies in the pharma sector have been accelerating in recent years. While Chinese firms want to commercialise the innovative drugs discovered by Western firms, multinationals want to do the same with Chinese-invented drugs outside China. AbbVie, for instance, paid $180 million in upfront payment to Shanghai-based I-Mab (see WiC479) for selling its lemzoparlimab (also known as TJC4), an innovative anti-CD47 monoclonal antibody for treating cancers, last September. AbbVie will also pay an additional $1.74 billion in milestone payments for lemzoparlimab, while I-Mab retains the rights to sell its drugs in China. Cross-border collaboration supports other commercial imperatives as well, improving understanding of market conditions, and tapping into pre-existing relationships with regulators.

A record 271 cross-border licencing partnerships were inked in 2020 between multinational groups and Chinese pharmaceutical firms, the Financial Times has reported.

Collaborations in clinical trials, development and commercialisation, and data-sharing also surged nearly 50% from 2019, and over 300% on 2015.

The cross-border activity is also supporting rising demand for pharmaceutical contract manufacturing services, which are expected to yield $147 billion in revenue globally by 2023, Frost & Sullivan forecasts. The same trend saw Pharmaron’s biggest rival WuXi AppTec complete a $135 million purchase of Oxgene, a specialist contract research and development company from Oxford in the UK, also in early March. Oxgene is notable for technology that improves scalability in cell and gene therapy, especially in the field of viral vector manufacturing and CRISPR (see WiC396).

Oxgene is keeping its brand name but becomes a subsidiary of WuXi Advanced Therapies as its first facility in Europe, alongside four more in Philadelphia and two in mainland China.

Sister company WuXi Biologics is also growing its manufacturing capacity internationally. It has built one of the largest plants for biologics substances in Ireland’s Dundalk and also operates a bioprocessing plant in Singapore. The Hong Kong-listed blue chip snapped up two of Bayer’s factories in Germany and secured a $1.5 million deal last year for land in Massachusetts for another manufacturing plant. The firm expects its total capacity for biopharmaceutical production to surpass 300,000 litres by 2023.

Analysts aren’t expecting Pharmaron to reach that kind of scale any time soon (for context, some analysts describe WuXi AppTec as the ‘Tencent of Chinese pharma’). However, Pharmaron is building its business effectively on the back of its thriving chemical, manufacturing and controls franchise, with a focus on defining the manufacturing process for new drugs, as well as the specification, testing and quality controls needed at the manufacturing facility. Net profit for 2020 will be more than double last year’s Rm1.1 billion on Rmb5 billion in sales, up by a third, it forecasts. That compares to WuXi AppTec’s 60% growth in net profit to Rmb3 billion and a 28% increase in revenue to Rmb16.5 billion.

“The focus of pharmaceutical R&D in China is shifting from generic drug R&D to innovative drug R&D, and it is expected that the Chinese CMC market will continue to grow,” Pharmaron predicted in its half-year results announcement last August.

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