No ‘easy way forward’ as Novo-Catalent deal could exacerbate Lilly’s manufacturing woes
06 Feb 2024
Acquisition
After GLP-1 competitor Novo Nordisk and its holding company snapped up CDMO Catalent on Monday, Eli Lilly has limited options to similarly buy its way into a manufacturing increase of the highly in-demand obesity and diabetes drugs.
The US drugmaker’s shares dipped slightly on Tuesday despite posting fourth quarter results that blew past analyst estimates. Eli Lilly also guided for 20% revenue growth this year, banking on increasing sales of tirzepatide as Mounjaro for diabetes and Zepbound for obesity. Investors may have been reacting to a realistic, but less-than-positive manufacturing outlook that CEO David Ricks shared on an investor call Tuesday, during which executives also acknowledged a contract with Catalent covering some of its products.
Lilly’s Catalent contract
Eli Lilly reported its fourth-quarter earnings the day after Novo Holdings said it’s shelling out $16.5 billion in cash to acquire manufacturing company Catalent. Novo Nordisk’s parent company then plans on turning around and selling three of its fill-finish sites to the Dutch pharma for $11 billion to boost manufacturing of its obesity and diabetes products, including Wegovy (semaglutide). While the deal might seem costly at first blush, the possibility for Novo Nordisk to score even bigger returns on the back of the obesity drug makes the transaction a no-brainer. For more, see Spotlight On: Novo Nordisk’s Catalent deal marks shrewd strategising to make the most of obesity opportunity.
The acquisition could have major ripples in the metabolic disease space.
“Catalent is an integral part of manufacturing both commercial and pipeline products for the industry, especially in diabetes and obesity, and we have products with these sites as well,” chief financial officer Anat Ashkenazi said on Eli Lilly’s investor call Tuesday. “Our focus today is on ensuring that continuity of supply of medicine for patients is uninterrupted, as well as, we intend on holding Catalent accountable to their contract with us as we look at and we gain more information on this proposed transaction.”
Nothing to buy, years to build
In response to a question from Deutsche Bank’s James Shin about whether Eli Lilly could leverage its capital to buy, rather than build, its way around some of the manufacturing bottlenecks, Ricks said that that pathway wasn’t really an option.
“We don't think of ourselves as capital constrained buying or building in the space,” Ricks said. “The reality is there just isn't built capacity that's available. Most of it that's being used is already deployed against the leading products in the GLP-1 space, at least any at-scale, and new capacity has a lead time of three to four years.”
Ricks pointed to Eli Lilly’s new site in Concord, North Carolina, as an example of this timeline. The facility was announced two and a half years ago and is expected to come online by year end.
“These are technically complex facilities. There's not an infinite number of people who know how to set them up. And the supply chain for the machines that make the products is also constrained,” he said.
Ricks’ cited ramp-up timeline for new capacity may apply to Novo Nordisk and limit its ability to immediately make use of its newly purchased trio of fill-and-finish sites. “I think even for the purchaser, our competitor, it will take many years for them to be able to increase capacity within that purchase,” he added.
“At this point, I don't think there's an easy way forward,” Ricks said of increasing manufacturing capacity. “It's just not an easy problem to solve. I think over time it will ease, there'll be more capacity brought on line by us, or competitors, and maybe others including third parties, and new technologies will emerge like orforglipron and or other oral options that tap into different asset bases.”
Morgan Stanley analysts similarly agreed that oral products might be the best way to meet patient demand for Mounjaro and Zepbound, as they don’t need the fill-finish manufacturing step required by injections.
In a recent note, the firm said it expects that as Eli Lilly’s North Carolina manufacturing facilities come online this year and next, they’ll help mitigate constraints — and increase peak capacity by three-fold — but anticipates that “orals will be key to fully supply the projected demand.”
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