Chemistry Outsourcer Discovers $35M

Furthering its efforts to provide outsourced drug development services to pharmaceutical companies, MediChem Research Inc. of Lemont, Ill., raised $35 million in private equity June 14.

Credit Suisse First Boston placed the deal with MedEquity Investors and Chase Capital Partners, said Michael Flavin, chief executive of MediChem. In addition to the equity financing, the company also received a debt facility from NationsCredit Capital Corp. of Atlanta, which will primarily be used for acquisitions, Flavin said.

“We will look to acquire companies that add capabilities that customers want to see,” Flavin said. Acquisition candidates will either offer a new chemistry-related technology or increase MediChem’s scale of production of chemical substances.

MediChem offers research and development services to companies that use chemical research to develop new products. Currently, the company takes outsourced assignment from pharmaceutical companies, agricultural companies and personal care companies. Flavin said approximately 80% of its assignments come from big pharma, but he expects inquiries from the other sectors to increase as those companies become more comfortable with outsourcing.

“They want clients to see them as a cost solution, rather than having to bring more chemists in-house,” said Damion Wicker, a general partner at Chase Capital.

Currently, MediChem has more than 150 scientists on staff who assist companies throughout the U.S., as well as in Western Europe and Asia. Its offices are located in Lemont, Des Plaines, Ill., South San Francisco, Calif., and New London, Conn.

Proceeds from the offering will be used to improve the infrastructure of these existing facilities and to construct a new facility and headquarters in Woodbridge, Ill.

Additional proceeds will be used to increase marketing through advertising and representation at trade shows as well as hiring new scientists to increase the efficiency and productivity of the operation.

“Currently, we can produce 20 kilograms, which only gets a product through Phase I trials,” Flavin said. “We want to go up to 100 kilograms of drug substance so the customers can get through Phase II.”

Flavin said the company intends for this offering, which was its first private equity round, to be MediChem’s sole foray into the private market prior to an initial public offering.

Following the transaction, Wicker, Brett Ingersoll, a Chase Capital principal, and Peter Gates, managing director at Wellesley Hills, Mass.-based MedEquity, joined the company’s board of directors.