While analysts are bullish on Novo Holdings’ $16.5 billion acquisition of Catalent, they say it raises questions for companies that have contracted the CDMO for manufacturing.
Pictured: Novo Nordisk sign on building/iStock, hapabapa
One of the biggest recent deals on the production side of pharma came Monday as Novo Holdings, the investment arm of the Novo Nordisk Foundation, announced it would acquire the contract manufacturer Catalent for $16.5 billion in cash.
The agreement involves the secondary sale of Catalent’s manufacturing sites in Bloomington, Indiana; Brussels, Belgium; and Anagni, Italy, from Novo Holdings to Novo Nordisk, its pharmaceuticals arm, for $11 billion upfront. Once the deal closes, the facilities will produce Novo Nordisk’s blockbuster GLP-1 drugs, Wegovy and Ozempic.
The deal itself is undoubtedly “unique” in the CDMO world, Gil Roth, the president of the Pharma & Biopharma Outsourcing Association (PBOA), told BioSpace. Catalent is a member of PBOA, a non-profit trade association representing CMOs and CDMOs in the biopharma industry.
“In an industry where the opposite tends to happen, where larger pharma spin-outs manufacturing facilities, this is certainly a unique event.”
But the deal comes following some turbulence for Catalent. Last year, the CDMO detailed that it was facing issues with productivity and costs at several of its facilities, which led to the departures of its management personnel and, eventually, Elliott Investment management taking a stake in the company.
Sean Dodge, an equity research analyst at RBC Capital Markets, told BioSpace it wasn’t a surprise that Elliott was looking to sell the company, as the investors’ goal was to sell it or break it up. Still, Dodge was surprised at the timeline of how this came about, as he thought it would take a lot of time to get a deal together.
Max Smock, a research analyst at William Blair, told BioSpace the deal reveals that there is not a large amount of capacity, at least on the contract manufacturing side, to handle the production of blockbuster GLP-1 drugs. From Novo Nordisk’s perspective, it makes sense to get as much production space as possible, he said.
What Will Happen to Existing Contracts?
Smock noted that one of the more significant questions was what would happen to other customers who rely on those facilities to make other products. Dodge speculated that contracts at other Catalent facilities are likely to be unaffected, while contracts at the three facilities sold to Novo Nordisk will more than likely be in place for several years. Indeed, in a statement emailed to BioSpace from a Novo Nordisk spokesperson, all 3,000 or so employees at the three sites will transfer to the company, and Novo plans on honoring all current manufacturing contracts once the deal closes.
Eli Lilly CFO Anat Ashkenazi said on an earnings call this week that the pharmaceutical company, which uses third-party manufacturing sources, has questions about the Novo/Catalent deal and needs more information. She noted that Catalent is an “integral part” of commercial and pipeline products, specifically in obesity and diabetes, and Lilly does have “products with these sites as well.” Ashkenazi said the focus will be on ensuring Lilly’s supply of medicine will continue but intends on “holding Catalent accountable for their contract with us.”
A Boon for the CDMO Industry
For the wider CDMO industry, Roth noted that the GLP-1 space presents many opportunities for contract manufacturers as more companies and modalities are coming online and will need manufacturing capabilities.
“There are a few instances where a drug takes off like this, or drug class takes off like this; that’s going to demand a lot of capacity out there,” Roth said. “You can contrast it with what happened with Operation Warp Speed, how Moderna didn’t have much internal manufacturing capacity and used Lonza for bulk vaccines, and other CMOs like Catalent and Grand River to make the vial version. That was a huge demand, and they saw outsourcing as the way to pursue that.”
Roth also said that on the back of this deal, there could be another wave of consolidation or M&A activity and “significant capital investment” in CDMOs, especially those with sterile fill-finish and prefilled syringe capabilities.
Smock also said he sees the Catalent/Novo deal as a “tailwind” for the CDMO industry. Dodge, too, noted that the agreement is a positive for contract manufacturers and validates the “strategic importance” they play in the drug supply chain.
Tyler Patchen is a staff writer at BioSpace. You can reach him at tyler.patchen@biospace.com. Follow him on LinkedIn.
Editor’s note (Feb. 8): This story has been updated to note that Catalent is a member of PBOA.
