Mallinckrodt has agreed to sell its wholly owned subsidiary BioVectra to an affiliate of private equity group H.I.G. Capital for $250 million.

The price includes a fixed sum of $175 million, made up of an upfront payment of $135 million plus a long-term note for $40 million, as well as contingent payments of up to $75 million.

BioVectra is a Canadian contract development and manufacturing organization (CDMO) specializing in API drug development and biologics. It will continue to supply an API in support of Mallinckrodt’s specialty brands business under a long-term arrangement.

The transaction, which is expected to close in the fourth quarter of 2019 subject to customary conditions, is anticipated to include all of BioVectra’s sites in Prince Edward Island and Nova Scotia, Canada.

“This transaction continues to advance Mallinckrodt's strategic focus on branded, high-growth biopharmaceuticals by monetizing a non-core business,” said Mark Trudeau, Mallinckrodt’s president and CEO. “While we recognize the longer-term growth potential for BioVectra, we believe that the structure of this deal enables us to participate in the future success of the business, and therefore we see this sale as the best option for both Mallinckrodt and BioVectra moving forward.”

Mike Gallagher, managing director at H.I.G. Capital, added that BioVectra is completing major capital expenditure programs to significantly expand capacity and the company is well positioned to capitalize on growing demand for its services.

In March, the CDMO announced a five-year Can$144.6 million expansion project to expand its biopharmaceutical capabilities in both Charlottetown, Prince Edward Island and Windsor, Nova Scotia. The project will see API production expanded in Charlottetown and biologics capabilities extended in Windsor, where a mammalian cell culture facility will also be added.