Intensifying Scrutiny of Novo’s .5B Acquisition of Catalent as FTC Review Progresses
Novo Holdings made headlines in February when it declared its intention to acquire Catalent, a contract development and manufacturing organization, for a staggering .5 billion. The acquisition aims to integrate three of Catalent’s production facilities to enhance the output of Novo Nordisk’s leading diabetes treatment, Ozempic, and its popular weight-loss drug, Wegovy. However, concerns have been raised by Senator Elizabeth Warren (D-Mass.) regarding the ramifications of this transaction.
In a letter addressed to FTC Chair Lina Khan, Warren expressed apprehensions about Novo’s substantial market share, which stands at 55% in the rapidly expanding sector for obesity and Type 2 diabetes treatments, largely due to its successes with Ozempic and Wegovy. She also pointed out Novo’s previous actions to limit competition and focus on maximizing its earnings from these drugs.
This scrutiny of the Novo-Catalent agreement arises as Eli Lilly’s obesity treatment tirzepatide has recently been removed from the FDA’s drug shortage list. Meanwhile, Novo still faces persistent supply challenges regarding the lowest dosage of Wegovy, which remains unavailable.
Evan Seigerman from BMO Capital Markets highlighted that maintaining production capacity is a crucial differentiator for Eli Lilly as it continues to capture market share from Novo. The acquisition of Catalent may alter this competitive landscape in favor of Novo, however.
Jefferies analyst Peter Welford noted that by assimilating the three Catalent facilities, Novo has the potential to significantly enhance its fill-finish capabilities for Wegovy in the U.S. Welford’s insights, based on talks with a former Novo site manager, suggested that doubling theoretical capacity within a few years could be achievable.
Various industry analysts have echoed the sentiment that acquiring Catalent could be a wise move for Novo Holdings, enhancing its manufacturing capacity for diabetes and weight-loss medications.
Nonetheless, the deal is pending as the FTC conducts its review. Warren has urged the agency to consider how Lilly might be impacted, given that it relies on Catalent to supply some of its GLP-1 products. Should Novo gain control, Lilly’s production capabilities could be compromised, Warren asserted.
The acquisition could provide Novo with unmatched insight and influence over its rival’s production processes, expenses, and operational strategies, she warned, allowing Novo to prioritize its drug manufacturing while hindering competitors’ access to Catalent’s services for GLP-1 products.
Lilly’s leadership is also apprehensive. CEO David Ricks stated during a Q2 earnings call in August that the company remains vigilant regarding the potential impact of the Novo-Catalent agreement.
“Our reliance on one of the Catalent facilities for GLP-1 and diabetes production complicates matters, especially with a primary competitor also functioning as our contract manufacturer,” Ricks noted. “We’ve raised our concerns in various forums and await the outcome.”
Amid ongoing debate surrounding the Catalent purchase, questions linger about how it will affect existing partners like Lilly and the possible regulatory ramifications, especially with the European Medicines Agency examining its impact on drug availability. In the U.S., Warren has urged the FTC to meticulously assess the acquisition and prevent any actions deemed illegal under antitrust law.
Although William Blair analyst Max Smock presumes the deal will finalize towards year-end, the FTC’s evaluation cannot be completely brushed aside. Under Lina Khan’s stewardship, the FTC has demonstrated an assertive antitrust agenda, with pharmaceutical giants under scrutiny.
Correction (Oct. 11): The headline of this story has been revised to better clarify that Novo Holdings, not Novo Nordisk, is pursuing the acquisition of Catalent.