Novo Holdings’ acquisition of Catalent has ignited concerns from industry stakeholders, who fear that the consolidation could limit competition, but there is also the possibility that the deal could represent an opportunity for smaller-scale CDMOs to find new partners.
Novo Holdings’ proposed buyout of Catalent, a contract development and manufacturing organization (CDMO), for $16.5 billion initially appeared to be a straightforward acquisition, but the deal has stirred controversy over its impact on competition.
For Catalent, the deal represents a shareholder-friendly way out of its recent troubles. For Novo Holdings, the transaction will add one of the leading CDMOs to its portfolio, with three fill-finish facilities being immediately sold to Novo Nordisk for $11 billion to bolster production of its blockbuster GLP-1s.
However, the outcry against the deal has come from all angles—the political sphere, consumer groups andrival companies in the obesity space. These groups are urging the Federal Trade Commission (FTC) to block the acquisition on the grounds it would harm competition in the space and restrict access to manufacturing capacity for future GLP-1 treatments.
The latter point is significant because Catalent is the third-largest CDMO by revenue, with the fourth-largest, WuXi Biologics, facing an uncertain future in the U.S. with the BIOSECURE Act looming. Catalent, therefore, remains an important partner to many companies across the pharmaceutical and biotech industry, and the potential deal “represents a defining moment for the sector,” Dirk Lange, CEO of Pyramid Labs, a contract manufacturing organization, told BioSpace by email.
“Catalent is a cornerstone provider in fill-finish services, and its acquisition by Novo Holdings signals a shift in the dynamics in the CDMO space, influencing everything from capacity allocation to partnership models,” Lange said.
A Change of Strategy
The Novo-Catalent deal highlights a shift in dynamics for Big Pharma and the CDMO industry, said Janel Firestein, partner at Clarkston Consulting. She explained to BioSpace that, prior to COVID-19, the trend had been to divest manufacturing capabilities and instead outsource to contract manufacturers, but post-pandemic, this movement is now reversing, with more pharma companies working to secure access to manufacturing capacity through acquisitions or building facilities. In turn, this means that companies working with CDMOs are operating in a riskier environment.
“During the pandemic, we talked a lot about supply chain resilience and shortages. This deal is reinforcing the need for companies to look at supply chain resilience across their portfolio and look at the potential risks that come into play, such as manufacturing capacity within a CDMO that gets acquired or a facility being sold off,” Firestein said.
In the short term, this leaves customers of Catalent needing to plan how to mitigate any potential shortfall in capacity. The CDMO’s CEO, Alessandro Masellu, released a statement hoping to assuage concerns that clients could be left adrift by the acquisition, stating that the company will be “independent” and their “products will remain [its] focus.”
This has not stopped other industry players from chiming in, with Eli Lilly being particularly critical of the deal that could see its main competitor in the GLP-1 space taking control of manufacturing facilities owned by its currently contracted CDMO. Recently, Roche CEO Thomas Schinecker said on a third quarter earnings call that “limiting the competition in this space is not a good idea,” noting that it could be a problem for other “smaller players” in the market. Roche declined to provide additional comment for this story.
An Opportunity for Smaller CDMOs?
While some speculate that the loss of fill-finish capacity or difficulty in sourcing alternative partners could potentially harm development timelines for companies developing GLP-1 treatments, the Novo-Catalent deal could provide an opportunity for smaller players in the CDMO sector to tap into this booming demand. Firestein said it will take some time for additional capacity to come online across the industry but she has observed smaller CDMOs seeking to win the drug development work that will move away from Catalent due to the deal, which could increase competitiveness across the sector.
Stephens analyst Jacob Johnson agreed, previously telling BioSpace that “in some ways I think this Catalent deal has actually created opportunities.”
For example, Lange said, though the loss of fill-finish capacity is substantial, the “constantly increasing demand for sterile drug product capacity . . . fuels investment across other CDMOs.” Indeed, in an industry note, Johnson referenced “additional capacity coming online as a result of the deal.”
While the acquisition has not yet been cleared by the FTC, Novo and Catalent have stated that they expect the deal to close before the end of the year. EU antitrust regulators announced this week that they will decide by Dec. 6 whether to authorize the deal to go forward.
Ultimately, Firestein said, it will be difficult for companies to prove that the deal blocks competitiveness and it would therefore likely go ahead. But for now, she added, the industry is in a “wait-and-see” situation.
“This acquisition has catalyzed discussions on the future of the CDMO market—whether we’re heading toward greater consolidation or whether this could instead fuel expansion and innovation among smaller, specialized CDMOs,” Lange said. “It’s a moment that compels industry stakeholders to assess their strategies and plan for a rapidly evolving landscape.”
