A Swiss drug supplier has made Orange County part of its diversification plan.
Siegfried Holding AG will pay $58 million for Irvine-based Alliance Medical Products Inc. The deal also has incentives that could hike the price tag based on milestones for profits for 12 months ending in December 2013.
Alliance is a privately held contract manufacturer that was established 11 years ago in a divestiture by Rochester, N.Y.-based Bausch & Lomb Inc.
Alliance specializes in “difficult to manufacture” drug formulations, according to its website.
Siegfried is apparently interested primarily in Alliance’s sterile filling business, which involves processing drugs in a way that meets purity standards.
The company, based in Zofingen, Switzerland, called the business line an “attractive segment of the pharmaceutical custom market” in a release announcing the deal.
Being part of Siegfried opens “growth and expansion possibilities,” Juan Valdes, chief executive of Alliance, said in a statement.
Valdes and the rest of Alliance’s management will remain in place in Irvine, according to the new owner.
Alliance was founded in 2001. It has annual revenue of about $20 million and some 100 workers here. Siegfried’s release noted that Alliance was operating profitably and had a “substantial project pipeline.”
“Integrating (Alliance) into the Siegfried Group is an asset for both companies,” said Rudolf Hanko, Siegfried’s chief executive.
He also said that Alliance is expected to continue to grow its operations here and contribute to Siegfried’s equity value.
Siegfried is publicly traded on the Swiss Stock Exchange in Basel. The company has annual sales of some $349 million, 700 employees and locations in Pennsville, N.J., and the Mediterranean island of Malta, among others. It makes active ingredients for some drugs and various controlled substances such as opiates, methylphenidates, barbiturates and nicotine products. Siegfried also provides development and production services as a contract drug maker.
Contract Manufacturing
Contract manufacturing is a growing business, with a broad field of competitors in the U.S. and around the world. San Antonio-based market tracker Frost & Sullivan estimated that such businesses generated $10.7 billion in revenue last year, and expects it to grow in a range of 7% to 9% annually until 2016.
“The expansion of the (contract manufacturing) market is being driven by the steady growth of the U.S. pharmaceutical industry, as well as increased outsourcing of large pharma companies that are focusing on core competencies to improve profit margins,” Frost & Sullivan analysts Jesse Sullivan and Jennifer Brice wrote in a report published last month in trade magazine Contract Pharma.
Expectation
Sullivan and Brice said that they expect the contract manufacturing organization market to start consolidating in the next three to five years, although they didn’t cite deals such as Siegfried’s buy of Alliance as a reason.
The consolidation would instead mainly be driven by companies leaving the industry or abandoning market segments.
“As a result, we expect 30% of the market to exit over the next five years,” they said.
A round of consolidation would likely improve the pricing power of remaining companies, the analysts wrote.
Alliance offers several types of laboratory testing, including microbiological testing and analytical testing, in addition to drug manufacturing. The company was established at a time when Bausch was consolidating its operations. Valdes and Tom Lucas, Alliance’s vice president of administration and cofounder, are former Bausch executives.
Alliance took over a former Bausch surgical facility at 9342 Jeronimo Road in the Irvine Spectrum. The building still had five high-volume, automated aseptic filing suites and three semi-automated, low-volume aseptic filing suites.
Valdes said in a previous interview that he “stepped away, looked at this as a great opportunity and we formed the team here.”
The Bausch operations that evolved into Alliance included production of a medical device that delivered retinal drugs to people with end-stage AIDS, and a system to house corneas that are taken from cadavers for transplantation, Valdes said.
Alliance was looking to other areas for growth in its early days. It began to handle manufacturing for biotechnology drug makers on a contract basis.
“For us, Orange County’s the perfect location being between San Diego and the Bay Area,” Valdes said. “If you’re in the medical device business, especially the aseptic fill and solid forms business, you can’t be in a better spot. This is the happening area.”
