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Three’s a crowd
COPENHAGEN—In an effort to find a cheaper option to third-party manufacturing, Danish drugmaker H. Lundbeck A/S has acquired French contract manufacturing organization (CMO) Elaiapharm S.A., one of Lundbeck's principal suppliers.
The deal will provide the group with production and packaging facilities to complement its facilities in Copenhagen. By taking over the former supplier, Lundbeck enhances flexibility in its pharmaceutical production, while also reducing its costs. Financial terms of the deal were not disclosed.
Based in France, Elaiapharm offers a range of dry, liquid and sterile form manufacturing capabilities as well as packaging and European distribution services. The company has worked with Lundbeck for almost a decade as a subcontractor.
Lundbeck spokesman Mads Kronborg says the acquisition provides a unique opportunity and the companies' past relationship provides a number of strategic advantages.
"The fact that we know Elaiapharm from working with the company for several years was an important factor when we decided to do the deal," he says. "Elaiapharm was already producing for Lundbeck, so in terms of integration we really got off to a head start. Also we already knew the high quality and flexibility that Elaiapharm's employees are capable of delivering which made the deal very attractive to us."
Elaiapharm employs 130 people at its factory near Nice in the south of France. A profitable business generating annual revenue of approximately $22.1 million, Elaiapharm manufactures and packs pharmaceuticals for a number of international pharmaceutical companies.
Elaiapharm owns a pharmaceutical factory that processes active pharmaceutical ingredients from chemical factories into finished tablet or vial medicines and subsequently packs the products. The factory complements Lundbeck's pharmaceutical production unit in Copenhagen so that the group will now have two pharmaceutical factories, copying the structure of its chemical production, which is handled by two factories in Lumsås, Denmark, and Padua, Italy.
Through the deal Lundbeck gains Elaiapharm's active pharmaceutical ingredient (API) production facility in Nice, which it believes will complement its manufacturing plant in Copenhagen, Denmark.
Lundbeck will retain all 130 Elaiapharm employees, expects the integration process to be completed this year and, according to Kronborg, does not plan to alter operations at the CMO in the short term.
"Elaiapharm will continue its operations as before and all employees will be retained," notes Kronborg. "Going forward, the biggest change will probably be the fact that an increasing share of capacity will be taken up by Lundbeck ourselves."
According to Kronborg, the advantages over outsourcing are twofold: "We are able to lower costs when producing in-house instead of outsourcing and we increase our flexibility within our global production by getting a new production site," he notes.
Having two pharmaceutical factories also makes Lundbeck less vulnerable to business interruptions at one factory, as it would then be able to transfer assignments to the other factory. The new structure optimizes Lundbeck's opportunities for retaining and improving its very high reliability of supply.
"For quite some time, we have reaped the benefits of having two chemical factories, and the Elaiapharm acquisition provides us with a similar structure for our pharmaceutical production. Our production output will become more flexible and even more reliable than it is today," adds Lars Bang, executive vice president of supply operations and engineering at Lundbeck.
The acquisition also fits with other recent strategic moves undertaken by the Danish drugmaker, most notably in September when it announced plans to cut as many as 220 jobs in favor of greater use of insourcing and changing the travel activities of its employees.
Moving forward, there will be some clear markers that will enable Lundbeck to achieve success of the acquisition.
"For years, Lundbeck has been increasing its production efficiency and bringing down its production costs," notes Kronborg. "We want to continue doing that and buying Elaiapharm is one of our initiatives to secure that. So we will be looking at the development in our combined production when measuring the take over of Elaiapharm."