Danish multinational drug manufacturer Novo Nordisk may be poised to sustain its growth from widely accepted weight loss GLP-1 drugs, a December 5 decision by the European Commission (EC) suggests.
The EC's approval of a pending $16.5 billion cash buyout (Novo Holdings taking U.S.-based contract development and manufacturing organization [CDMO] Catalent) has been causing consternation for several months among competitors in or entering the GLP-1 space.
In October, Reuters reported Roche's strong opposition of the takeover of Catalent by Novo Nordisk's controlling shareholder, citing the potential for wide-ranging repercussions to other companies not only in GLP-1 weight-loss drugs but gene therapies as well. Roche has a stake in both a new oral GLP-1 drug and cell therapies.
"Limiting the competition in this space is not a good idea," Reuters noted of a Roche investor call and the comments made by CEO Thomas Schinecker, who will become president of the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA) January 1, 2025. "In general, if companies start buying up CMOs (contract manufacturing organizations), that will limit the amount of competition that there can be."
A Novo Nordisk spokesperson said that what will happen is that if the deal is approved, Novo Nordisk will purchase three manufacturing sites from Novo Holdings, and Catalent will still operate close to 50 sites independently and separately from Novo Nordisk, Reuters also noted.
Legal practice Goodwin Procter (Goodwin) said in September that U.S. Federal Trade Commission (FTC) inquiries into potential antitrust issues with the transaction are not surprising considering Catalent’s role in the broader pharmaceutical supply chain.
Novo could potentially disadvantage its competitors (such as Eli Lilly) that use Catalent’s services, in particular to manufacture prefilled syringes, which may be the container-closure format of choice in many therapeutics areas in which Novo has a significant presence, such as obesity and diabetes, according to Goodwin.
Given the already high demand for GLP-1s and that the demand for prefilled syringes is only expected to continue to grow, manufacturing capacity is a material competitive issue in this space, the firm noted.
FTC investigation
The FTC has had its attention on pharmaceutical mergers in recent years. In 2021, the agency hosted a workshop where an expert from the Wharton School of the University of Pennsylvania said firm size enabled by merger and acquisition activity may provide advantages in contracting, marketing, financing, and regulatory activities. Additionally, large pharmaceutical firms may be able to limit or block access to smaller companies' products.
However, in relation to the pending deal between Novo Holdings and Catalent, a spokesperson for the FTC would not confirm an investigation and told LabPulse that the agency does not comment on the status of pending mergers or acquisitions.
Dealings far-reaching
New Jersey-based Catalent, which has been a publicly traded company with revenues around $4.4 billion this year, has 22 subsidiaries in countries across the world, including Belgium, China, France, Germany, Italy, Japan, Canada, and others, with a variety of operations throughout the U.S.
Among Catalent's dealings, the company formulates, develops, and manufactures prescription and consumer health drugs, works in analytical and bioanalytical development and related testing services, and is a major player in patient kits for clinical trials.
Catalent also supplies prefilled syringes for Novo Nordisk's Ozempic and Wegovy diabetes and weight-loss drugs, as well as orally disintegrating tablets (ODTs).
Since June 2023, Catalent has been restructuring, according to a U.S. Securities and Exchange Commission (SEC) filing.
On December 5, Catalent and Novo Holdings issued a joint press release announcing that the EC granted unconditional approval for the pending transaction under which Novo Holdings will acquire Catalent. Novo Holdings, a global life sciences and healthcare investment firm, is wholly owned by the Novo Nordisk Foundation. The transaction, which is expected to close by year-end, is subject to closing conditions and regulatory clearances.
Commission findings
Based on its market investigation, the EC found that customers of prefilled syringes will continue to have access to a number of significant, credible CDMOs after the transaction, including Thermo Fisher, Vetter, and Pfizer CentreOne, among others, and thus the transaction would not lead to customers lacking sources of supply alternative to Catalent.
The EC also found that there to be sufficient spare capacity in the market. Customers for ODTs will continue to have sufficient alternatives to Catalent, as well as the possibility to switch between CDMOs.
Further, the EC noted that alternative drug formats (e.g., conventional tablets, loosely compressed tablets, and capsules) exert competitive pressure on ODTs, because ODT customers could ultimately switch to suppliers of these other formats.
The EC (under the EU Merger Regulation) therefore concluded that the proposed merger would not raise competition concerns on any of the markets examined in the European Economic Area (EEA) or on any substantial part of it, the Commission stated.
Going private
After the transaction, Catalent will become a private company where it will benefit from access to additional capital and resources toward its next phase of growth, public information at transaction.catalent.com stated. In a separate transaction that will occur post-close, Novo Holdings intends to sell three Catalent fill-finish sites located in Anagni, Italy; Bloomington, IN; and Brussels, to Novo Nordisk.
The acquisition is expected to gradually increase Novo Nordisk's filling capacity from 2026 and onwards, according to a company announcement in February. The three sites employ more than 3,000 people, and all have ongoing collaborations with Novo Nordisk. Under the terms of the agreement, Novo Nordisk will acquire the sites for an upfront payment of $11 billion.
CDMOs rising
CDMOs now play a central role in the production of medicines and have been on the rise since 2012, according to EY Parthenon, a global consultancy. Seen as flexible third-party service providers, CDMOs open pathways to capacity and revenue streams for pharmaceutical companies. Through acquisitions, CDMOs can rapidly expand their capabilities and, thus, are able to deliver technically advanced services at scale.
After analyzing M&A activities, EY Parthenon has further distinguished CDMOs as falling into three models: players at scale, extenders, and complementors.
- Players at scale have the purchasing power to move into new areas quickly, to broadly extend their business model, and are typically already vastly integrated.
- Extenders invest heavily in selected segments along adjacent growth trajectories; for example, to increase their manufacturing service capabilities by adding fill and finish capabilities.
- Lastly, complementors are careful expanders that are typically small and highly specialized and invest in complementing areas.
High-dollar CDMO transactions, such as one with Novo Holdings and Catalent, may not come as a surprise by now.
While the EC has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it, the Commission's decision may not quell concerns of rival pharmaceutical companies and their advocates in the U.S., where GLP-1 drug demand is surging.
