Novo's New Deal May End Wegovy Shortages. It Could Reshape the Pharma Industry Along the Way. -- Barrons.com

Dow Jones2024-12-16

By Josh Nathan-Kazis

The end of Novo Nordisk's supply problems could bring new headaches for the rest of the pharmaceutical industry, which now has to consider what it means to outsource its manufacturing to a company that owns a major competitor.

Novo says that it has regulatory clearance to buy three key manufacturing sites used to make drugs like Wegovy, its blockbuster obesity medicine. That could ease the supply shortages that have dogged the launch of Wegovy and its sister drug, the Type 2 diabetes treatment Ozempic. However, the acquisition of the sites is part of a larger deal that could bring a reordering of the pharmaceutical industry.

Drugmakers have come to rely more heavily on outside contractors in recent years to test and manufacture their drugs. Now, Novo Holdings, Novo's controlling shareholder, will buy one of the largest contract manufacturers, Catalent, for $16.5 billion. Novo will then buy three Catalent manufacturing sites from Novo Holdings for $11 billion.

When the dust has settled, Novo will own three highly specialized facilities formerly owned by Catalent that do the difficult, finicky work involved in the last steps of manufacturing Wegovy and similar drugs. Novo has said it will "honour all customer obligations" at those three sites.

At the same time, the rest of Catalent will be owned by Novo Holdings, which controls three-quarters of the votes and more than a quarter of the share capital, of Novo Nordisk.

There are other large contract manufacturers, including Lonza Group and Thermo Fisher Scientific. But Catalent is a major player and says it makes one out of every 28 doses of pharmaceutical and consumer health products taken by patients each year worldwide and that it worked on more than half of new drugs approved by the Food and Drug Administration over the past 10 years.

Competitors, watchdogs, and some politicians had asked regulators to block the deal, and there had been significant questions about whether it would close.

Novo's American depositary receipt finished Monday up 1.1% at $108.08 following regulatory clearance on Saturday. The market reaction to the closing of the Catalent deal may have been dampened by impending data. Investors are waiting for the trial results of a next-generation Novo obesity medicine called CagriSema, which is anticipated to be announced imminently.

The competitor that could see the most direct impact from the deal is Eli Lilly. The company has also struggled to keep up with demand for Zepbound and Mounjaro, which compete with Novo's Wegovy and Ozempic. Lilly will now face a boosted Novo manufacturing operation.

Lilly shares closed 1.3% lower at $779.02 on Monday. In an August earnings call, the company's CEO, David Ricks, said he wasn't concerned about his company's ability to manufacture Zepbound, but that "it's more the oddity of your main competitor being also your contract manufacturer and how to resolve that situation."

On Monday morning, a spokesperson for Lilly said that it has used Catalent to manufacture "a wide range" of its drugs. "Our expectation is that Catalent will perform on its obligations to Lilly," the company said. "In terms of the long-term outlook for our company, our primary strategy is self-run sites and, as you may have noticed, we're building aggressively."

In a public letter to its customers sent this fall, Catalent's CEO, Alessandro Maselli, said that the company will continue to operate as a private firm under the ownership of Novo Holdings and that he would remain president and CEO. The letter seemed an effort to reduce worries that Catalent would somehow be subsumed into Novo Nordisk.

"A key factor in my decision to continue in my role is Novo Holdings' commitment to provide support and capital to ensure unparalleled service to our customers and create new jobs as we drive Catalent's growth," Maselli wrote at the time.

Other drugmakers had little to say Monday. A Roche Holding spokesperson said that the company had no comment on Saturday's announcement. "We continue not having concerns for Roche being impacted by this transaction and we don't comment on our relationships with [contract manufacturers]," the spokesperson said. CEO Thomas Schinecker had told reporters in October that fewer independent contract manufacturers would lead to less competition. "It could be a problem for other smaller players," he said at the time, according to a report in Reuters.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

 

(END) Dow Jones Newswires

December 16, 2024 17:03 ET (22:03 GMT)

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