Novozymes acquires PrecisionBiotics to harness probiotic-enzyme synergies

26 Jun 2020 --- Denmark-based Novozymes has acquired PrecisionBiotics Group for DKK 600 million (US$90 million) in a move to advance its activities in biological solutions for human oral and gut health. While Novozymes has experience in enzymes, PrecisionBiotics’ primary capabilities cover probiotics for human health. Novozymes notes that when combined, enzymes and probiotics work synergistically to address health benefits from different angles in more powerful ways.

“We are looking at the whole space of human health with a focus on irritable bowel syndrome (IBS), and we believe we have a unique position here because we can combine enzymes and probiotics. PrecisionBiotics already has a leading solution (Alforex) within this space,” Ulrich Irgens, Vice-President General Manager at Novozymes. 

“We welcome employees in PrecisionBiotics Group to Novozymes. PrecisionBiotics Group brings in complementary technologies, a similar science-based approach and a matching culture. With our unique expertise within discovery and enzymes and PrecisionBiotics’ strong capabilities and network within probiotics for human health, we will be in a unique position. It’s a position where we can expand market opportunities and develop new and highly efficient products,” adds Ester Baiget, President and CEO of Novozymes.

This move gives Novozymes broader access to the overall consumer health market and, more specifically, a stronger entry point into the DKK 40 billion (US$6 billion) human probiotic supplements market, which it expects to grow with a high-single-digit CAGR over the next three to five years.

Data from Innova Market Insights also supports this rise of probiotics. In 2018, they accounted for 10 percent of new supplement launches, up from just 3 percent in both 2015 and 2016. In April, Probi stated that the global probiotics market is pegged for growth as consumer interest in immunity is on the rise in light of the COVID-19 outbreak. The following month, DuPont Nutrition & Biosciences reported that its probiotics section saw its strongest growth period to date.

“Novozymes is based on innovation and sustainability, and we have made the UN Sustainable Development Goals (SDGs) a part of our strategy. One of the SDGs is about human health, so we think the area has a good fit with our purpose and vision. At the same time, we have a huge knowledge of microbes as we use them in our enzyme production and supply them for agriculture. Also, the market for probiotics is growing, and we think we can innovate new products by combining enzymes and probiotics,” continues Irgens.

Novozymes has acquired 100 percent of the equity in PrecisionBiotics on a cash and debt-free basis.A synergistic move
PrecisionBiotics has strong expertise within clinical development, upscaling and commercialization, as well as already having several clinically backed products already in the market. Additionally, it is based in Cork, Ireland, home to a leading academic society within human gut health. In 2019, it had a revenue of DKK 100 million (US$15 million) in 2019 with solid margins and positive free cash flow.

Meanwhile, Novozymes has established OneHealth to market solutions within human health under one umbrella. The aim is to help people live healthier and better lives by using probiotics and enzymes. This expansion of human oral and gut health is one of the growth pillars of its strategy “Better business with biology.” The company already has businesses within the human health space, including Pylopass, which is used in dietary supplements. 

Novozymes has acquired 100 percent of the equity in PrecisionBiotics on a cash and debt-free basis. The transaction is structured with an earn-out model, is financed with cash and bank facilities, and does not change the capital structure policy of Novozymes. The transaction is expected to have a neutral impact on Novozymes’ EBITDA margin this year, but a minor negative impact on the EBIT margin and ROIC including goodwill due to higher invested capital and increased amortizations.

The expected annualized effect of the transaction on the EBITDA margin is neutral, while the annualized negative effect on ROIC, including goodwill and EBIT margin, is roughly 1.0 and 0.5 percentage points, respectively. The acquisition is expected to be EPS accretive by 2022. Novozymes’ dividend policy is unaffected by the acquisition, and the stock buyback program totaling up to DKK 1.5 billion (US$226 million) will continue as planned.

By Katherine Durrell