Catalent has agreed to acquire Paragon Bioservices, a Baltimore, Maryland-based contract provider of viral vector development and manufacturing services for gene therapies, for $1.2 billion.

Paragon has specialized expertise in adeno-associated virus (AAV) vectors, the most commonly used delivery system for gene therapy as well as capabilities in GMP plasmids and lentivirus vectors. The company provides GMP development and manufacturing services for recombinant viral vectors, vaccines, hard-to-express recombinant proteins, and oncolytic viruses from research and process development to GMP manufacturing for clinical trials and commercial launch.

Earlier this month (April 2019), Paragon opened a new 200,000-square-foot GMP gene-therapy biomanufacturing facility in Maryland’s Anne Arundel County. The facility is equipped with several 500-liter and 2,000-liter single-use bioreactors for clinical through commercial material production.

The definitive merger agreement for the acquisition is 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 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 US antitrust laws, and is expected to close in the second quarter of 2019.

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.

Upon completion of the transaction, Paragon’s entire organization will remain under the leadership of Pete Buzy, Paragon’s current CEO and President, and management team with 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.

Source: Catalent and Paragon Bioservices