Will provide new expertise and capabilities in
one of the fastest-growing areas of healthcare, positioning
Catalent for accelerated long-term growth
Catalent, Inc. (NYSE:CTLT), the leading global diversified
provider of advanced delivery technologies and development
solutions for drugs, biologics and consumer health products, and
Paragon Bioservices, Inc., a leading viral vector development and
manufacturing partner for gene therapies, today announced they have
entered into a definitive agreement under which Catalent will
acquire Paragon for $1.2 billion.
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the full release here:
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“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.
Paragon brings to Catalent a complementary capability that will
fundamentally enhance our biologics business and our end-to-end
integrated biopharmaceutical solutions for customers,” said John
Chiminski, Catalent’s Chair & Chief Executive Officer. “We look
forward to working with Paragon’s incredibly talented team and
world-class customers to complete the significant ongoing
investments into expanded state-of-the-art facilities and deliver
revolutionary, lifesaving treatments to patients.”
Paragon’s differentiated scientific, development and
manufacturing capabilities have positioned it to capitalize on
strong industry tailwinds in the potentially $40 billion
addressable market for gene therapy. Paragon brings specialized
expertise in adeno-associated virus (AAV) vectors, the most
commonly used delivery system for gene therapy, as well as unique
capabilities in GMP plasmids and lentivirus vectors.
For over 25 years, Paragon has partnered with some of the
world’s best biotech and pharma companies to develop and
manufacture products based on transformative technologies,
including AAV and other gene therapies, next-generation vaccines,
oncology immunotherapies (oncolytic viruses and CAR-T cell
therapies), therapeutic proteins, and other complex biologics.
Pete Buzy, Paragon’s President and CEO, said, “Our existing
investors, NewSpring Health Capital and Camden Partners, were
extremely supportive in getting us to where we are today. We are
excited to join forces with the leading drug development and
manufacturing partner in our industry. This transaction will enable
us to achieve our next stage of development and expand our
capabilities and platform for the benefit of our customers and
their patients.”
Financial Impact and Value Creation
The transaction will deliver highly compelling value to
Catalent’s shareholders. Although Paragon will represent a small
percentage of Catalent’s business in the near term, it will
transform the company’s business profile and meaningfully
accelerate its revenue and EBITDA growth over time. Paragon is
expected to achieve more than $200 million in revenue in calendar
year 2019, with nearly 90% of this revenue target already reflected
in signed contracts. The gene therapy market is expected to have
sustained growth of 25% in the medium term, and, as a leader in the
industry, Paragon is expected to outpace this market growth for the
foreseeable future. Catalent expects the transaction to be
accretive to its Adjusted Net Income per share in the second full
fiscal year after closing, and significantly accretive
thereafter.
Financing and Approvals
The definitive merger agreement for the acquisition contemplates
an all-cash purchase of all of Paragon’s outstanding equity for
$1.2 billion on a cash-free, debt-free basis. Catalent intends to
fund the transaction with the proceeds of a $650 million
incremental term loan under its existing senior secured credit
facilities and the issuance of $650 million of a new series of
convertible preferred stock to funds affiliated with Leonard Green
& Partners, L.P. (“LGP”), although the acquisition is not
subject to a financing condition. Catalent will use the funds
remaining from these financings, after the payment of the purchase
price and the fees and expenses associated with the transaction, to
pay a portion of the costs of capital expansion projects currently
underway at Paragon’s facilities in Maryland, with the remaining
costs to be paid with cash on hand. The incremental term loan and
the issuance of the convertible preferred stock are each
conditioned upon the closing of the acquisition.
The transaction is subject to customary closing conditions,
including the expiration of the waiting period under the U.S.
antitrust laws, and is expected to close in the second quarter of
2019. At June 30, 2019, after the expected closing of the
acquisition and related financings, Catalent’s pro forma net
leverage ratio, after taking into account the acquisition and the
related financings, is expected to be approximately 4.0x, with
plans to deleverage to 3.5x within 12 to 18 months of closing.
Catalent has obtained a binding commitment for the incremental
term loan facility, subject to customary closing conditions and the
execution of definitive documentation, from JPMorgan Chase Bank,
N.A., which will act as lead arranger for the financing. Catalent
has separately entered into a definitive agreement to issue up to
$1 billion of convertible preferred stock to the funds affiliated
with LGP, of which Catalent intends to issue $650 million. The
convertible preferred stock will initially pay dividends of 5%,
subject to later adjustment under conditions set forth in the
stock’s certificate of designation, and may be converted into
common stock or redeemed for common stock or cash on the terms and
subject to the conditions set forth in the certificate of
designation. Catalent intends to file with the Securities and
Exchange Commission a Current Report on Form 8-K that will have
further details concerning the acquisition and the related
financings.
Management and Board of Directors
Upon completion of the transaction, Paragon’s entire
organization will remain under the leadership of Pete Buzy, with
its industry-leading management team and approximately 380
employees joining the Catalent team.
In conjunction with the investment in Catalent by the LGP funds,
Peter Zippelius, a Partner at LGP, will join Catalent’s Board of
Directors, marking the beginning of a long-term strategic
partnership.
Advisors
Centerview Partners LLC is serving as exclusive financial
advisor to Catalent, and Fried, Frank, Harris, Shriver &
Jacobson LLP is serving as Catalent’s legal counsel. William Blair
& Company is serving as financial advisor to Paragon, with
Kirkland & Ellis LLP and Gordon Feinblatt LLC serving as
Paragon’s legal counsel. UBS Investment Bank is serving as
exclusive financial advisor to LGP and Latham & Watkins LLP is
serving as LGP’s legal counsel.
Conference Call / Webcast
On Monday, April 15, 2019, at 8:30 a.m. ET, Catalent will host a
webcast presentation to discuss the transaction. Links to the
webcast and accompanying documents will be available on the
company’s Investor Relations website,
http://investor.catalent.com.
About Catalent
Catalent is the leading global provider of advanced delivery
technologies and development solutions for drugs, biologics and
consumer health products. With over 85 years serving the industry,
Catalent has proven expertise in bringing more customer products to
market faster, enhancing product performance and ensuring reliable
clinical and commercial product supply. Catalent employs over
11,000 people, including over 1,800 scientists, at more than 30
facilities across five continents, and in fiscal year 2018
generated approximately $2.5 billion in annual revenue. Catalent is
headquartered in Somerset, New Jersey. For more information, visit
www.catalent.com.
Catalent Biologics provides advanced technologies and integrated
solutions for biologic and biosimilar development and
manufacturing, from DNA to fill/finish and commercial supply,
through its extensive Biologics network including: Bloomington,
Indiana, where the company recently announced a twentieth
commercial launch of a fill/finish product, and Madison, Wisconsin,
home of Catalent Biologics’ proprietary GPEx® technology for
stable, high-yielding mammalian cell lines with eleven approved
molecules. For more information on Catalent Biologics, visit
www.catalent.com/biologics.
More products. Better treatments. Reliably supplied.™
About Paragon Bioservices, Inc.
Paragon Bioservices, Inc. is an industry-leading,
private-equity-backed contract development and manufacturing
organization (CDMO) whose focus is the development and
manufacturing of cutting-edge biopharmaceuticals. Paragon aims to
build strong client partnerships with the world’s best biotech and
pharma companies, focusing on transformative technologies,
including gene therapies (AAV), next-generation vaccines, oncology
immunotherapies (oncolytic viruses), and other complex
biologics.
About Leonard Green & Partners
Leonard Green & Partners, L.P. is a leading private equity
investment firm founded in 1989 and based in Los Angeles. The firm
partners with experienced management teams and often with founders
to invest in market-leading companies. Since inception, LGP has
invested in over 90 companies in the form of traditional buyouts,
going-private transactions, recapitalizations, growth equity, and
selective public equity and debt positions. LGP primarily focuses
on companies providing services, including consumer, business, and
healthcare services, as well as retail, distribution, and
industrials. Select past and current investments include IQVIA,
MultiPlan, Aspen Dental, Whole Foods Market, Shake Shack,
Activision, and Petco. Its most recent fund, Green Equity Investors
VII, L.P., closed in 2016 with $9.6 billion of committed capital.
For more information, please visit www.leonardgreen.com.
About Camden Partners
Camden Partners is a multi-strategy private equity firm based in
Baltimore, MD. Founded in 1995, the firm focuses on both growth and
seed stage investments. Camden Partners’ growth strategy leverages
domain expertise in the technology-enabled business services,
healthcare services and education sectors to turn lower middle
market companies in these sectors into market leaders. Donald W.
Hughes, Partner at Camden Partners, represents Camden’s investment
on the Board of Directors of Paragon Bioservices.
About NewSpring Health Capital
NewSpring Health Capital is the dedicated healthcare fund of
NewSpring Capital, a private equity firm based in Radnor, PA.
NewSpring Health Capital partners with management teams to
accelerate the success of differentiated healthcare companies,
delivering capital for growth, recapitalizations, and mergers &
acquisitions within the segments of technology-enabled services,
niche clinical providers and specialty pharmaceuticals. Kapila
Ratnam, PhD, a partner at NewSpring Capital, has served on the
Board of Directors at Paragon Bioservices since 2014 following
NewSpring Health Capital’s investment.
Forward-Looking Statements
This press release contains both historical and forward-looking
statements. All statements other than statements of historical fact
are, or may be deemed to be, forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements generally can be identified by the
use of statements that include phrases such as “believe,” “expect,”
“anticipate”, “intend”, “estimate”, “plan”, “project”, “foresee”,
“likely”, “may”, “will”, “would” or other words or phrases with
similar meanings, and include the statements regarding Paragon’s
2019 revenues and its future growth rate, as well as the impact of
the transaction on our Adjusted Net Income. Similarly, statements
that describe our objectives, plans or goals, including our plans
to close our agreement to acquire Paragon, to close on the related
financing transactions, and to subsequently deleverage our balance
sheet, are, or may be, forward-looking statements. These statements
are based on current expectations of future events. If underlying
assumptions prove inaccurate or unknown risks or uncertainties
materialize, actual results could vary materially from our
expectations and projections. Some of the factors that could cause
actual results to differ include, but are not limited to, the
following: any delay or failure to conclude the acquisition of
Paragon Bioservices, Inc. or the related financings on the terms
previously agreed or difficulty in integrating the acquisition if
closed or realizing on the anticipated business from the
acquisition; changes to our business, our industry, or the overall
economic climate that limit our ability to obtain the desired
deleveraging, general industry conditions and competition; product
or other liability risk inherent in the design, development,
manufacture and marketing of our offerings; inability to enhance
our existing or introduce new technology or services in a timely
manner; economic conditions, such as interest rate and currency
exchange rate fluctuations; technological advances and patents
attained by competitors; and our substantial debt and debt service
requirements that restrict our operating and financial flexibility
and impose significant interest and financial costs; or difficulty
in integrating other acquisitions into our existing business,
thereby reducing or eliminating the anticipated benefits of the
acquisition. For a more detailed discussion of these and other
factors, see the information under the caption “Risk Factors” in
our Annual Report on Form 10-K for the fiscal year ended June 30,
2018 filed with the Securities and Exchange Commission. All
forward-looking statements in this press release speak only as of
the date of this press release or as of the date they are made, and
we do not undertake to update any forward-looking statement as a
result of new information or future events or developments unless
and to the extent required by law.
Non-GAAP Financial Measures
Under our credit agreement, our ability to engage in certain
activities, such as incurring certain additional indebtedness,
making certain investments and paying certain dividends, is tied to
ratios based on Adjusted EBITDA (which is defined as “Consolidated
EBITDA” in senior secured credit agreement). Adjusted EBITDA is
based on the definitions in our credit agreement, is not defined
under U.S. generally accepted accounting principles (GAAP), and is
subject to important limitations. Adjusted EBITDA is the covenant
compliance measure used in certain covenants under our credit
agreement, particularly those governing debt incurrence and
restricted payments. Because not all companies use identical
calculations, our presentation of Adjusted EBITDA may not be
comparable to other similarly titled measures of other companies.
In this press release, we have referred to Adjusted Net Income,
which we calculate by tax-adjusting our calculation of Adjusted
EBITDA after deducting depreciation and amortization. Adjusted Net
Income is also not a GAAP measure and may also not be comparable to
similarly titled measures of other companies.
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version on businesswire.com: https://www.businesswire.com/news/home/20190415005197/en/
CatalentInvestors:Thomas
Castellano, Investor Relations, Catalent+1 732
537-6325investors@catalent.comMedia:Chris Halling, Global Communications,
Catalent+44 (0)7580 041073chris.halling@catalent.comBrunswick
Group+1 212 333
3810catalent@brunswickgroup.comParagonMedia:Colleen Floreck, Paragon Communications+1
410 975 8708cfloreck@paragonbiservices.com
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