SOMERSET, N.J. and BALTIMORE, April 15,
2019 /PRNewswire/ -- 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.
"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.
Catalent Contacts
Investors:
Thomas Castellano, Investor
Relations, Catalent
+1 732 537-6325
investors@catalent.com
Media:
Chris Halling, Global
Communications, Catalent
+44 (0)7580 041073
chris.halling@catalent.com
Brunswick Group
+1 212 333 3810
catalent@brunswickgroup.com
Paragon Contacts
Media:
Colleen Floreck, Paragon
Communications
+1 410 975 8708
cfloreck@paragonbiservices.com
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SOURCE Paragon Bioservices, Inc.