Wegovy Maker to Boost Production Capacity With Multibillion-Dollar Deal
Novo Nordisk’s controlling shareholder buys Catalent for $16.5 billion, including debt
Novo Nordisk’s owner wants to solve the Danish company’s weight-loss-drug production woes by buying up one of the world’s biggest contract manufacturing firms.
Novo Holdings, which owns a controlling stake in Wegovy maker Novo Nordisk NOVO.B 3.63%increase; green up pointing triangle, agreed to buy Somerset, N.J.-based Catalent CTLT 9.37%increase; green up pointing triangle for $16.5 billion, including debt. In turn, Novo Holdings will flip three of the most critical Catalent plants to Novo Nordisk for $11 billion, which will help the drugmaker boost production of its hot-selling diabetes and obesity medications.
Demand has been off the charts for Novo Nordisk’s anti-obesity drug Wegovy and its cousin diabetes drug Ozempic, along with similar drugs from rival Eli Lilly LLY 6.44%increase; green up pointing triangle. The companies haven’t been able to keep up despite continuing efforts to boost output.
The deal for Catalent, which provides outsourced manufacturing for many top drug companies, suggests the unusual lengths that Novo is willing to take to shore up its production and fill spiraling prescriptions that are expected to generate tens of billions of dollars in yearly sales. It is also a fresh sign of just how much the weight-loss drug market is booming.
“Supply is so critical here,” Kasim Kutay, chief executive of Novo Holdings, said. “There are benefits to owning something so critical to your growth and profitability and to have full determination on how you want to scale.”
Not every day does a pharmaceutical company seek to solve its manufacturing shortfalls with an outright purchase of a contract manufacturer. In fact, many pharmaceutical companies have turned to contract manufacturers in recent years, rather than build more of their own plants, to help control their costs and improve margins.
Yet the runaway success of Ozempic and Wegovy—and their Lilly competitors—have put a premium on their manufacture. It has also boosted the two stocks, turning Novo Nordisk into Europe’s most valuable company, surpassing $500 billion last week, and giving its holding company the wherewithal to buy Catalent.
The acquisition will give Novo direct control of plants that could ease some of the production bottlenecks.
The weight-loss drugs, and their diabetes cousins, have emerged as one of the hottest segments of the pharmaceutical industry. Novo’s weekly injections and similar drugs from Lilly are in high demand because they can help people with obesity shed much more weight than older medicines, and to keep it off.
Average weekly U.S. prescriptions for Wegovy this year are up 148% from a year earlier, while Ozempic is up 43%, according to JPMorgan Chase. Prescriptions for these and other drugs in the category, known as GLP-1’s, are averaging more than one million a week.
Many people have turned to a gray market of custom-made, or compounded, medicines because they can’t get supplies from their local pharmacy. The U.S. Food and Drug Administration has warned that it can’t verify the safety of these compounded versions.
Novo Nordisk and Lilly are spending billions of dollars to expand existing factories, build new ones and form external partnerships in a bid to boost output. In recent months, Novo Nordisk has outlined plans to invest more than $6 billion to increase capacity.
Last month, the company began gradually increasing supplies of lower-dose strengths that are typically given to new patients, having reduced supply in the U.S. since May to safeguard access for current patients.
The Catalent deal is an outgrowth of an unusual and complicated ownership structure for Novo Nordisk. A nonprofit foundation, the Novo Nordisk Foundation, has voting control of the drugmaker’s shares through its investment arm, Novo Holdings.
The dividends flowing back to Novo Holdings and the foundation—which is now among the world’s largest because of Novo Nordisk’s stock—have enabled more charitable grants, investments and acquisitions in recent years. One area of focus for Novo Holdings’ investments has been companies that provide services to the pharmaceutical industry, Kutay said.
“The acquisition complements the significant investments we are already doing in active pharmaceutical ingredients facilities, and the sites will provide strategic flexibility to our existing supply network,” said Novo Nordisk CEO Lars Fruergaard Jørgensen.
Catalent is one of the largest providers of outsourced manufacturing for the pharmaceutical industry, with more than 50 global sites and $4.3 billion in sales last year. It played a big role in manufacturing Covid-19 vaccines during the pandemic.
Yet its performance had suffered recently. In 2021, Catalent temporarily stopped deliveries and manufacturing at its Belgium plant after FDA inspections found faulty air filters and damaged equipment, contributing to early shortages of Wegovy.
The three sites that will be sold to Novo Nordisk—in Italy, Brussels and Bloomington, Ind.—together employ 3,000 people and specialize in sterile filling of medicines into syringes and injection devices. They have existing manufacturing collaborations with Novo Nordisk.
Novo Holdings will pay $63.50 a share in cash for Catalent, a premium of 16.5% to Catalent’s closing price on Friday and a 47.5% premium to the 60-day volume-weighted average price as of Friday.
The Novo Holdings purchase of Catalent is projected to close toward the end of 2024, after which the three Catalent sites would be sold to Novo Nordisk. Novo Nordisk expects the three Catalent sites to help increase the company’s filling capacity starting in 2026.
After the closing of the merger, Catalent shares will no longer trade on the New York Stock Exchange, and it will become a private company.
Catalent shares rose 10% to $59.99 in recent trading. Novo Nordisk’s American depositary receipts rose 3% to $117.12.