Throughout 2024, the acquisition of Catalent, one of the world’s biggest CDMOs, by Novo Holdings, the holding company for the global pharmaceutical giant Novo Nordisk, prompted much concern among big pharma, lawmakers and consumer groups alike.
Nevertheless, to some surprise from commentators, the acquisition has now been completed and without any conditions attached. The Pink Sheet takes a closer look at the controversies surrounding the agreement and what European decision makers may have considered when examining the deal.
Key Takeaways
Novo’s acquisition of Catalent produced some unusual public objections, but was ultimately cleared without any conditions from regulators.
Catalent offered customers assurances that it would continue to focus on their manufacturing needs after the merger, but that was not a provision of regulatory approval.
The Novo/Catalent deal may have been simpler for antitrust authorities to clear because it involved a vertical acquisition rather than a horizontal one.
The deal was first announced on 5 February 2024, and closed on 18 December. As part of the $16.5bn cash agreement, Novo Holdings sold three of Catalent’s fill-finish plants to Novo Nordisk for $11bn, the aim of which was to allow Novo Nordisk to better meet soaring demand for semaglutide, its GLP-1 agonist used to treat diabetes type II under the brand name Ozempic and obesity under the name Wegovy.
Thy European Commission cleared the deal on 6 December and the US Federal Trade Commission declined to challenge the transaction. Some observers had expected more scrutiny from the FTC, which in May 2024 made a so-called “second request” for “additional information and documentary materials” from the companies. This meant that the FTC would have longer to look over the deal.
Competitors Voice Concerns And Get Some Reassurance
The deal generated worries from the usual coalition of consumer interest groups and left-leaning politicians such as Sen. Elizabeth Warren (D-MA), who wrote to the FTC in October to say she was “concerned that this deal could increase Novo Nordisk’s dominance over vital GLP-1 inhibitor drugs, reducing competition and increasing prices for patients.”
More noteworthy is that the deal also caused a stir among Novo Nordisk’s competitors, and surprisingly at least two made their objections public. Such public complaints from pharma companies about competitor M&A moves are very rare, so the comments from the heads of Eli Lilly and Roche underscored the depth of concern about the transaction.
Shortly after the agreement was announced in February, David Ricks, CEO of Lilly, which manufacturers GLP-1s that compete with Ozempic, said that the deal should be examined by antitrust authorities.
And on 23 October, during a Q3 earnings call, Roche CEO Thomas Schinecker claimed the agreement was anticompetitive and said the deal should be blocked. “In general, I think that limiting the competition in this space is not a good idea. So it is not a problem for us but it could be a problem for other, smaller players if there is a restriction in how many CMOs are available,” he said in response to a question about the deal.
Roche hopes to enter the obesity market and used a merger to strengthen its own position when it acquired Carmot Therapeutics last January, bringing three development candidates into its pipeline.
And in another uncommon move, Catalent CEO Alessandro Maselli wrote an open letter on 21 October to reassure the company’s “valued customers.” He said that under Novo Holdings, Catalent would “continue to operate as a leading global, independent, full-service CDMO” and that the remaining network of almost 50 sites would continue to meet its customers’ needs.
“I want to be clear: our commitments to you will not change, your products will remain our focus and your proprietary information will be protected.”
It is not unusual for companies wishing to compete a deal to make overtures to competitors to smooth the path of the agreement. However, such approaches are usually confidential, a legal expert told the Pink Sheet.
Vertical Orientation May Have Help Merger Succeed
Despite the controversy, the deal went through without issue and closed before the end of 2024, as scheduled. The transaction did not raise any competition concerns in the European Economic Area and no conditions to the merger were attached, declared the European Commission in its 6 December statement.
The agreement was simpler in some respects because it involved a vertical acquisition rather than a horizontal one. This meant that there were no direct competition issues regarding companies operating in the same market or concerns that the acquiring company would eat up market share, a source close to the commission commented.
Because the deal involved a downstream acquisition, the commission looked at how Catalent customers would be damaged by Novo’s ownership of the CDMO and whether they would continue to be able to supply and compete downstream, the source said.
The commission also wanted to know if Catalent’s rivals would continue to have access to the market and whether a sufficient customer base for them would still be available after the acquisition, the source explained.
In its public statement the European Commission said it specifically looked at the transaction’s impact on the markets supplying pre-filled syringes (the dosage form of Ozempic and Wegovy) as well as orally disintegrating tablets (ODT). Orexo, another subsidiary of Novo Holdings, supplies Zubslov (buprenorphine/naloxone), an ODT for treating opioid dependence.
Customers of pre-filled syringes would have access to several “significant and credible CDMOs” after the transaction, including Thermo Fisher, Vetter and Pfizer CentreOne, the commission concluded. There was no shortage of supply alternatives to Catalent and that there was also enough spare capacity in the market, the commission said in the statement.
ODT customers would have access to sufficient alternatives to Catalent, and the possibility to switch between CDMOs, the commission concluded.
However, upstream markets, including weight loss and diabetes, were also part of the commission’s investigations, with Novo Nordisk’s competitors in these markets being interviewed, according to the source close to the commission.
Anticipating Objections To Avoid Delays
Companies can predict roadblocks to mergers and try and create ways to clear them, often in the runup to notification of the deal. When a deal is notifiable to the European Commission, companies generally discuss the deal with the appropriate case team at the commission. When the team has enough information, the company will formally submit notification.
Novo may have spent considerable time working with the commission in the run up to notification, said the legal expert said. Novo Holdings announced the deal on 5 February and filed with the commission on 31 October, indicating a prefiling period of around nine months.
That timeframe is longer than the usual period of two to three months, which suggests that there was some effort to ensure that the deal could achieve clearance after a Phase I investigation, the legal expert said.
Under a Phase I investigation, a deal is passed more quickly, usually within 25 working days, with or without “accepted remedies.” A Phase II investigation is opened when the case requires a more in-depth analysis of how the agreement will affect competition.
It is also possible that Catalent’s letter to its customers may have provided some reassurance to the commission, although the legal expert noted that the measures proposed by Catalent were not formalized in any way. Usually commitments are formalized in a conditional clearance.
Novo Holdings told the Pink Sheet that it “followed all regulatory requirements and collaborated with the European Commission and the FTC to obtain antitrust regulatory clearance for the merger as expeditiously as possible. We were pleased to fulfill all regulatory closing conditions and are enthusiastic about partnering with and supporting the Catalent team, who share our mission to drive innovation in the healthcare system and improve patient outcomes.”
Catalent declined to comment.
