(Reuters) - Contract drugmaker Catalent Inc said on Monday it would buy privately held Paragon Bioservices Inc for $1.2 billion in cash, bolstering its capabilities to make gene therapy drugs for its biotech clients.
Paragon, backed by private-equity firms Camden Partners and NewSpring Capital, focuses on developing and making complex biopharmaceuticals for its clients and is expected to bring in more than $200 million in revenue this year, Catalent said.
"Paragon's unparalleled expertise in the rapidly growing market of gene therapy manufacturing will be a transformative addition to our business that we believe will accelerate our long-term growth," Catalent Chief Executive Officer John Chiminski said in a statement.
Most emerging drug companies lack the resources to manufacture drugs and rely on contract organizations such as Catalent and Paragon to make the drugs using their technology.
"Over the next 3 to 5 years, demand is going to far outstrip capacity. Customers are really looking to lock up as much manufacturing capacity as they can," Chiminski said on a conference call with analysts.
The deal comes less than a month after Thermo Fisher Scientific Inc signed a $1.7 billion deal to buy gene therapy contract manufacturer Brammer Bio.
Evercore ISI analyst Ross Muken said the M&A activity is likely to continue and expects contract manufacturers to expand their gene therapy capabilities due to the potential of these treatments to drive the next major leg of industry growth.
Catalent said it expects the transaction to add to its adjusted earnings in the second full fiscal year after closing.
The company intends to fund the deal with proceeds from a $650 million incremental term loan and issuance of $650 million of a new series of convertible preferred stock.
Catalent has inked a number of deals over the years, including last year's purchase of drug developer Juniper Pharmaceuticals Inc and a $950 million buyout of Cook Pharmica LLC in 2017.
Separately, Paragon said it will look to expand its partnership with gene therapy maker Sarepta Therapeutics Inc by establishing additional manufacturing facilities.
Catalent shares were up 13.4 percent at $44.55 in afternoon trading.
Centerview Partners LLC is Catalent's financial adviser, while Fried, Frank, Harris, Shriver & Jacobson LLP acted as its legal counsel.
William Blair & Company is financial adviser to Paragon, with Kirkland & Ellis LLP and Gordon Feinblatt LLC acted as its legal counsel.
(Reporting by Saumya Sibi Joseph in Bengaluru; Editing by Anil D'Silva and James Emmanuel)