Thermo Fisher Acquires Patheon, Boosts Laboratory Products

Thermo Fisher Scientific Inc. (NYSE:TMO) recently completed the buyout of Patheon N.V. Notably, Patheon is a leading contract development and manufacturing organization (CDMO) serving the pharmaceutical and biotechnology sectors. With the closing of the deal, Patheon will be part of Thermo Fisher's Laboratory Products and Services segment. Thermo Fisher's initial tender offer for Patheon expires after closing of the deal at $35.00 per share in cash.

Patheon generated approximately $1.9 billion revenues in fiscal 2016. Per Thermo Fisher, the collaboration should significantly strengthen its unique value proposition for Pharmaceutical and Biotech customers by adding highly complementary services.

Thermo Fisher's revenues at the Laboratory Products and Services segment accounted for 35.9% of the total revenue and grew 4% in the second quarter. The company is making consistent efforts to drive revenue growth at this segment. Management expects to realize total synergies of approximately $120 million by year three following the close of the acquisition, consisting of approximately $90 million of cost synergies and $30 million of adjusted operating income benefit from revenue-related synergies.

According to a report by Markets and Markets,the global laboratory equipment services market is estimated to reach $11.51 billion by 2021, at a CAGR of 10.0% during 2016-2021. Looking at the bountiful opportunities in this niche space, we believe this development is a strategic fit.

We are upbeat about the other takeovers by Thermo Fisher in recent times. In this regard we note that Thermo Fisher’s $4.2-billion buyout of FEI Company, which closed late in 2016, has helped Thermo Fisher to access FEI’s industry leading high-performance electron microscopy platform used for protein study, facilitating life-science research.

The company’s latest takeover of Affymetrix also deserves a mention here. In genetic analysis, Affymetrix’s technologies should perfectly complement Thermo Fisher’s products in targeted clinical and applied markets.

We also take into consideration the other strategic purchases by Thermo Fisher like that of Finesse Solutions, Alfa Aesar, Advanced Scientifics, One Lambda and Doe & Ingalls.

Over the past three months, Thermo Fisher has been trading above the broader industry. Per the last trading price, the stock has gained 4.5%, better than the broader market’s decline of 0.8% in this period.

Zacks Rank & Key Picks

Thermo Fisher carries a Zacks Rank #3 (Hold). A few better-ranked medical stocks are Edwards Lifesciences Corporation (NYSE:EW) , Lantheus Holdings, Inc. (NASDAQ:LNTH) and IDEXX Laboratories, Inc. (NASDAQ:IDXX) . Edwards Lifesciences sports a Zacks Rank #1 (Strong Buy), while Lantheus Holdings and IDEXX Laboratories carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. The stock has rallied roughly 19.04% over the last six months.

Lantheus Holdings has a long-term expected earnings growth rate of 12.5%. The stock has gained 26.1% over the last six months.

IDEXX Laboratories has a long-term expected earnings growth rate of 19.8%. The stock has gained around 2.3% over the last six months.

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