Shares of Catalent CTLT lost 0.9% on Oct. 23 with the rise in uncertainty related to its acquisition by Novo Holding following a report from Reuters on opposition from several large pharma companies as well as an alliance of U.S. consumer, patient and workers advocacy groups.

CTLT and Novo Holdings, the parent company of Novo Nordisk NVO, entered into a merger agreement in February. Per the agreement, NVO’s parent company will acquire all outstanding shares of Catalent for $63.50 per share in cash. The deal values Catalent at $16.5 billion on an enterprise value basis. As part of the deal, Novo Nordisk will acquire three of Catalent’s fill-finish sites from Novo Holdings for $11 billion, which will support the manufacturing capacity at scale and speed for Novo Nordisk’s diabetes and obesity treatments.

The shares lost as these oppositions may cause hindrances for the deal, which, in turn, can hurt CTLT’s short-term prospects. CTLT’s shares have gained 32.2% so far this year against the industry’s decline of 2.4%. The S&P 500 Index has risen 22.7% during the same timeframe.

Image Source: Zacks Investment Research

Pharma Companies Oppose Deal

The proposed acquisition of Catalent by Novo Holdings, which controls Novo Nordisk, gave rise to opposition from various pharmaceutical companies and advocacy groups. Concerns are centered around the potential impact on competition in the growing market for weight-loss drugs and gene therapies, particularly those targeting the gut hormone GLP-1. While Catalent and Novo Nordisk have defended the deal, industry giants like Roche RHHBY, alongside advocacy groups, are calling for regulatory bodies to block it, citing anti-competitive risks.

Roche, one of the largest players in the pharmaceutical industry, has been vocal in its opposition. Though Roche is not directly affected by the deal, its CEO has expressed concerns that limiting competition in the contract drug manufacturing space could be detrimental to the broader industry. Roche's primary concern is the potential impact of this acquisition on smaller players that rely on Catalent and other contract manufacturing organizations (CMOs) for the production of weight-loss drugs and other pharmaceuticals.

The CEO specifically pointed out that if major players like Novo Nordisk start acquiring CMOs, it would restrict the number of independent manufacturers available, reducing options for other drugmakers. Roche argues that this would create a more consolidated market that could stifle innovation and increase costs for companies relying on external manufacturers.

Further opposition comes from a coalition of U.S. consumer, patient, and worker advocacy groups that petitioned the Federal Trade Commission (FTC) to block the deal. These groups believe that the acquisition would harm competition in both the weight-loss drug and gene therapy markets. Companies like Amgen, Pfizer, AstraZeneca, and even smaller firms such as Viking Therapeutics and Structure Therapeutics are reportedly developing their own obesity treatments, many of which require complex manufacturing processes. The advocacy groups argue that if Catalent’s capacity is absorbed by Novo Nordisk, competitors could face challenges in securing manufacturing capabilities. This would potentially limit their ability to bring competing products to the market.

Eli Lilly LLY, a key rival of Novo Nordisk in the obesity and diabetes drug sectors, has also expressed concerns. The deal would give Novo Nordisk direct ownership of three Catalent manufacturing sites in Italy, Belgium and the United States, where injection pens for its obesity treatments are produced. Eli Lilly and other opponents fear that this ownership shift could provide Novo Nordisk with an unfair advantage in securing manufacturing resources for its own weight-loss products, particularly in the highly competitive GLP-1 segment.

Catalent, Inc. Price

Catalent, Inc. price | Catalent, Inc. Quote

CTLT and NVO Defend the Deal

In contrast, Catalent and Novo Nordisk defended the transaction, arguing that it will not adversely affect competition. A Novo Nordisk spokesperson emphasized that the acquisition only involves three out of Catalent’s nearly 50 manufacturing sites, meaning Catalent would continue operating most of its locations independently. Novo Nordisk asserted that the deal would not significantly impact the availability of contract manufacturing options for other pharmaceutical companies. The spokesperson pointed out that several other contract drug manufacturers exist, providing ample choice for firms looking to outsource production.

Novo Holdings has also reiterated that Catalent will remain an independent operator, ensuring that other companies can still use its services. Catalent itself has echoed this, asserting that it is unaware of any GLP-1 product being produced for commercial sale at the three sites in question.

Furthermore, Novo Nordisk highlighted that it is not uncommon for major pharmaceutical companies to own CMOs while still serving competitors. For instance, Pfizer and Boehringer Ingelheim operate contract manufacturing units that produce drugs for rival firms without causing significant market disruptions. This precedent is being used to argue that the Catalent-Novo Nordisk deal would follow a similar model, maintaining healthy competition within the industry.

The company remains confident that the transaction will not harm competition, stressing that it will continue to work closely with regulators in both the United States and Europe to ensure a smooth closing of the deal by the end of 2024. Earlier this month, Catalent entered into a definitive agreement to sell its oral solids development and small-scale manufacturing facility in Somerset, NJ, to Ardena prior to closing its deal with NVO.

Zacks Rank

Cardinal Health carries a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Roche Holding AG (RHHBY) : Free Stock Analysis Report

Novo Nordisk A/S (NVO) : Free Stock Analysis Report

Eli Lilly and Company (LLY) : Free Stock Analysis Report

Catalent, Inc. (CTLT) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research