Novo digs $11.5 bln moat around weight-loss jewel

Catalent

06/02/2024 08:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
    By Aimee Donnellan
       LONDON, Feb 5 (Reuters Breakingviews) - Novo Nordisk
 NOVOb.CO  is creating a moat for its obesity drug crown jewel.
On Monday, Novo Holdings, the parent company of $400 billion
Novo Nordisk, scooped up contract drug manufacturer Catalent
 CTLT.N  for $16.5 billion including debt. The deal helps Novo
bulk up its manufacturing, and also makes it harder for rivals
to muscle in on the market.
    Novo Nordisk’s CEO Lars Fruergaard Jorgensen has been
grappling with an enviable problem for nearly three years.
Having launched the hugely popular weight-loss drug Wegovy in
2021, his company cannot keep up with demand. Last year, the
Danish giant’s sales soared by over 31% to $33 billion and this
year analysts expect another 25% increase, according to LSEG
forecasts. But manufacturing capacity is holding the company
back from delivering even bigger growth.
    That explains why Novo Holdings is buying Catalent and
offloading choice manufacturing sites to Novo Nordisk. Novo
can’t afford to dawdle. There are currently over 40 other
drugmakers working on obesity remedies to try and get a slice of
a market that analysts at Goldman Sachs reckon could be worth
$100 billion annually by 2030. Meanwhile, $650 billion Eli Lilly
 LLY.N  has already launched a rival medication to Wegovy called
Mounjaro, which is facing similar shortages due to soaring
demand. If Novo Nordisk can hoover up manufacturing capacity
before rivals, it has a better shot at maintaining its first
mover advantage.
    The deal doesn’t come cheap. The Catalent offer is less than
half what the company was worth in 2021 at the height of
pandemic-augmented demand. But its $550 million of estimated
operating profit in the year to June 2025, per LSEG, implies a
return on invested capital on the $16.5 billion purchase price
of less than 3%. And if competition authorities in the U.S.
think that Novo Nordisk is trying to establish itself as a
dominant player and hurting future competition, they may block
the deal.
    Still, Novo’s move could equally prompt copycat deals:
Catalent’s $4 billion Spanish rival ROVI  ROVI.MC  was up 3%
following news of Novo Holdings’ approach. And either way, the
scope of the opportunity for obesity drugs makes it logical for
incumbents to pay up to protect their turf.
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    CONTEXT NEWS
    Novo Holdings, parent of Novo Nordisk, will buy contract
drugmaker Catalent in an all-cash transaction worth $11.5
billion to expand its capacity for popular weight-loss drug
Wegovy, the companies said on Feb. 5.
    Catalent, whose shares rose 12% to $61.50 in premarket
trading, is the main supplier of fill-finish work, or filling
and packaging syringes and injection pens, for Novo Nordisk’s
Wegovy.
    Under the deal, Novo Holdings, which holds 76.9% of the
voting shares in Novo Nordisk, will buy all outstanding shares
of Catalent for $63.50 per share in cash, a premium of 16.5% to
Catalent’s last trading price.
    Under a separate deal, Novo Nordisk will acquire three
fill-finish sites from its parent, which is expected to
gradually help increase Novo’s filling capacity from 2026
onwards. 
    Elliott Investment Management and some of its affiliates
have agreed to vote their shares of Catalent common stock in
favour of the merger with Novo Holdings.
    The Danish company will also take on Catalent’s debt, taking
the total enterprise value of the deal to $16.5 billion.
    Shares in Catalent were up 10% to $60 as of 1415 GMT on Feb.
5. Novo Nordisk’s stock was up 4.6% at 817 Danish crowns.

 (Editing by George Hay and Oliver Taslic)
 ((For previous columns by the author, Reuters customers can
click on  DONNELLAN/ 
Aimee.Donnellan@thomsonreuters.com; Reuters Messaging:
Aimee.Donnellan.thomsonreuters.com@reuters.net))