By Elsa Ohlen

Novo Nordisk got European approval to move forward with its planned buyout of U.S.-based drug manufacturer Catalent, which produces much of its popular obesity drug Wegovy. That leaves the U.S. Federal Trade Commission as the last hurdle to overcome.

The European Commission said that the proposed deal "wouldn't raise competition concerns on any of the markets examined" and that customers of pre-filled syringes and orally disintegrating tablets would continue to have sufficient alternatives if the merger was approved.

The booming market for weight-loss drugs has been somewhat restrained due to lingering supply issues. Against that backdrop, Novo Holdings, Novo Nordisk's controlling shareholder, said in February it had reached a $16.5 billion deal to acquire Catalent in one of the biggest biotech deals of the year. After the deal closes, Novo Holding plans to resell three so-called fill-finish sites to Novo Nordisk, which is expected to gradually increase Novo's capacity to put finished drugs into the syringes sold to patients from 2026 onward.

"We are pleased with the European Commission decision showing that the fulfillment of various customary closing conditions is progressing," a Novo spokesperson told Barron's. Both Novo and Catalent said they expect the transaction to be completed by the end of 2024.

New Jersey-based Catalent manufactures medicines for pharmaceutical companies on a contractual basis. After the deal closes, Catalent will continue to serve customers across pharma, biotech, and consumer health, a spokesperson told Barron's.

Only Novo and Eli Lilly currently have approved weight-loss drugs on the market. Lilly's Mounjaro and Zepbound recently came off the Food and Drug Administration's shortage list, while Novo's Semaglutide (which it sells under the brand name Wegovy for weight loss and Ozempic for diabetes) is still listed as in short supply.

There has been no shortage of investment in drug manufacturing capacity by pharmaceutical companies. Lilly on Thursday announced a $3 billion investment to expand manufacturing at a Wisconsin plant, adding to the $23 billion the company has already committed since 2020.

All of this sounds like good news for the weight-loss drug market. But it might be overlooking one important point.

As Deutsche Bank analyst James Shin wrote in October shortly after Lilly's drug shortages were marked by the FDA as resolved: "If supply is indeed no longer an issue, we think it allows the Street to view LLY and its growth more fundamentally rather than leaning on momentum, thus exposing LLY to meeting growth expectations set by the Street."

While he was talking about Lilly, it also applies to Novo. Without the comfort blanket of a supply shortage, there is little to shield the stock from a potential reality where the market has overestimated the demand for its drugs.

Both Novo and Lilly disappointed investors with their latest earnings reports, where sales of weight-loss medicines were softer than anticipated. Both stocks are down double digits in the past three months amid increasing fears that an obesity sales boom may not materialize.

Novo's American depositary receipts, or ADRs, were trading flat at $110.82 Monday, while Lilly shares were down 1.9% to $810.68.

Write to Elsa Ohlen at elsa.ohlen@barrons.com

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December 09, 2024 12:44 ET (17:44 GMT)

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