When contract drug manufacturer Patheon bought the Bend startup Agere Pharmaceuticals in March of 2015, co-founder Dan Smithey said he and others wondered whether the new owner would close down the site.

So far Patheon, based in Durham, North Carolina, is renovating its leased space on the northeast side and adding manufacturing capacity. Patheon, which employs more than 8,000 at 23 sites worldwide, has designated the Bend office as a “global center of excellence” for solubilization, processes that make it easier for the human body to absorb certain pharmaceutical ingredients.

Acquiring companies like Agere has made Patheon the only player in contract pharmaceuticals to cover every aspect of development, formulation and commercial production, in other words, a one-stop shop for brand-name drugmakers. The breadth of Patheon’s portfolio — it’s also involved in development of more than 500 different drugs — is one reason Wall Street analysts are fawning over the company since its initial public offering in July. Ten firms have issued positive ratings over the past three weeks.

Patheon’s Bend site is preparing to add a second line for pilot-scale spray-dry dispersion, the same basic process Bend Research perfected in the 1990s for its former client Pfizer Inc. A solubility-enhancing process, spray-dry dispersion is part of what made Bend Research attractive to one of Patheon’s competitors, New Jersey-based Capsugel, which acquired Bend Research in 2013.

In both cases, coming under the roof of a larger company has brought growth back to Bend. Ryan Minikis, senior director of pharmaceutical development services operations for Patheon, said Bend is getting new clients now that it’s part of Patheon.

“There’s definitely been benefit to the site by being able to access a global sales and marketing network,” he said.

Patheon’s comprehensive array of services means it could become the default contractor for large drug companies, said Ross Muken, head of health care research at Evercore ISI, one of the 10 firms telling investors to buy Patheon’s stock.

Patheon launched its IPO on the New York Stock Exchange at $21 per share, and the stock has traded between $25 and $28. It closed Thursday at $27.97 per share.

Capsugel was rumored to be considering an IPO, according to a Reuters report in March. Asked whether that’s still on the table, Capsugel spokesman Frank Briamonte said the company doesn’t comment on rumor or speculation.

Brand-name pharmaceutical companies get the glory for discovering new drugs, but Wall Street analysts are enthusiastic about the more anonymous business of formulating and cranking out pills. Evercore estimated the contract development and manufacturing industry to be worth about $40 billion with no single company holding more than 5 percent of the market. Other publicly traded companies in the industry include Catalent in New Jersey and Lonza in Switzerland.

“We believe Patheon will serve as a key player in an industry ripe for consolidation,” Muken wrote in his report on the stock.

Much of analysts’ enthusiasm has to do with the growing market for biological pharmaceuticals, or biologics, which are protein-based and have to be administered by injection or infusion. Two of the top-selling biologics are Humira for rheumatoid arthritis and Rituxan for certain cancers.

Patheon, which also acquired Gallus BioPharmaceuticals, is one of a few contractors working with biologics, as well as the traditional “small white pill” market, Muken wrote.

Analysts are excited about the prospect of further consolidation in contract pharmaceutical work because big companies can leverage resources to increase their profit margins, but Smithey said it will be a challenge for growing firms to maintain a culture of agility and efficiency.

“When you get to Patheon and Capsugel’s size, you can be just as bureaucratic as the company you’re trying to support,” Smithey said. “That’s the real challenge for the industry.”

Critical technology

The work at Patheon Bend and Bend Research centers on that slower-growing “small white pill” market, but it’s no less critical.

“I think for the foreseeable future, the kind of technologies done in Bend are going to be important to the industry,” said Smithey, who is starting his own biotech firm after selling Agere.

Patheon estimates 60 to 90 percent of traditional drug development involves molecules with low solubility, meaning they don’t dissolve well in water, Minikis said. Solubility is a critical trait for any drug that’s going to be taken orally because it has to dissolve in the stomach to pass into the patient’s bloodstream.

And when it comes to enhancing solubility, spray-dry dispersion is one of the most commonly employed techniques, Minikis said.

When Agere started up in 2008, Bend Research and one other company in Portugal were the only places in the world doing spray-dry dispersion for drugmakers, Smithey said. “So we saw a huge opportunity,” he said, referring to his co-founder Marshall Crew, now a vice president with Patheon.

With 66 full-time employees, Bend is still a small shop for Patheon, but Minikis expects to add new employees across all departments as the company renovates and expands the facility on NE 18th Street.

In Bend, Patheon renovated a 2,500-square-foot quality-control lab, which was commissioned in April, and 3,000 square feet of manufacturing space, commissioned at the end of June, for drug formulation and process development, Minikis said.

Patheon started design work in July on a 4,000-square-foot project, to be commissioned in September of 2017, for a second pilot-scale spray-drying line and additional manufacturing space, Minikis said.

Patheon’s Bend site produces small batches, ranging from 1 gram to 10 kilograms at a time, of pills and capsules to be used in preclinical trial-stage research or first and second-stage clinical trials, Minikis said.

Close competition

Patheon’s labs are about 1.5 miles from Bend Research’s $25 million commercial production facility, which opened in 2015. The company employs 350 in the Bend area.

In addition to spray-dry dispersion, Bend Research is helping its customers develop therapies for rare cancers and genetic disorders, said Briamonte, the spokesman for its parent company. It’s also using new technology to improve the taste of drugs for children, he said.

It’s not unheard of for two companies competing in the same niche to co-exist in a small geographic area, Muken said. Two orthopedic device specialists, Zimmer and Biomet, thrived side-by-side in Warsaw, Indiana, for years before merging, he said.

Said Briamonte, “As the number of pharmaceutical and biotech companies in the area has grown, so has the region’s reputation as an emerging hotbed for innovation and as a great place to forge a career.

“This has benefited all of us in terms of attracting more talent to the area.”

— Reporter: 541-617-7860 kmclaughlin@bendbulletin.com