Catalent, Inc., a 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.

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.

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.