Implications of Novo Nordisk Acquisition of Catalent Reverberate Through Industry

Wegovy

Novo Nordisk’s parent company recently announced that it has agreed to purchase Catalent. As part of the acquisition, Novo Nordisk will purchase three of Catalent’s manufacturing sites. This is part of a move by the company to increase its ability to meet the demand for Wegovy, a highly popular weight loss drug.

Bruce Phelan, senior partner at Blue Fin, spoke with Pharmaceutical Executive about the larger impact that this purchase will have on the industry. The pharma industry has seen a return of mergers and acquisitions in the past year, and Phelan discusses how this trend may continue.

Pharmaceutical Executive: Will other pharmaceutical companies need to start buying CDMO/CMOs to ensure they have the capacity they need?
Bruce Phelan: The pharmaceutical manufacturing market has been undergoing significant growth since 2015 and is divided between CDMOs (contract development and manufacturing organizations) and CMOs (contract manufacturing organizations). There has been a significant shift of pharmaceutical manufacturers core competencies, especially in manufacturing expertise and increased sophistication of complex products, and an increased reliance on CDMOs and CMOs for capacity and expertise, inclusive of API manufacturing as well as Finished Goods manufacturing.

As such, small and large pharmaceutical companies have increased their outsourcing to their drug manufacturing CDMO or CMOs partners because they need access to manufacturing capacity or technological manufacturing capabilities beyond what they have within their in-house manufacturing capabilities and capacities and to mitigate potential risk of under supply or low yield.

The global need for manufacturing capacity and technical expertise has significantly accelerated over the past 7-8 years and furthermore during the pandemic. The advent of mRNA, increased vaccine production, precision medicine, CGTs and radio-pharmaceuticals manufacturing has absorbed a lot of the sophisticated CDMO and CMO available manufacturing capacity, making more complex manufacturing more valuable and less available. These product-level demands require CDMO and CMO manufacturing line dedication, personnel expertise, technology transfer, and specific manufacturing understanding to operate CDMOs and CMOs.

Purchasing and vertically integrating a CDMO or CMO into pharmaceutical manufacturers supply chain is worth considering dependent upon the need for increased/excess supply of the Finished Goods (product), specific manufacturing requirements, the need for excess or increased capacity based on commercial product forecasting, and to manage downside risks of the lack of outsourced manufacturing capacity or the trained personnel to operate sophisticated manufacturing processes.

For example, manufacturing delays and stock outs for key medicines have highlighted downsides of outsourcing to manufacturers with short-term, arm’s length partnership models. Buying a CDMO and/or CMO puts the control of manufacturing back into the hands of pharmaceutical manufacturers to ensure their own product supply.

The current independent CDMO/CMO markets continue to operate through expanded demand, limited capacity, and under a high degree of fluctuating uncertainty.

Generally:

• CDMO and CMO Market(s) lacks clarity on future capacity needed for pandemic-related projects—potential that vaccine will be needed on an annual basis, but is subsiding.
• Demand for “traditional biopharma” capacity is volatile in the short-to-mid-term – depending on product demands for products and indication expansions for PD-1 / PD-L1 inhibitors, CGT, and vaccines (among others).
• Shortage of capacity to satisfy current and future manufacturing needs of CGTs (sophisticated manufacturing techniques)–but bulk of pipeline is in pre-clinical phase and degree of progression to later stage trials is uncertain.

PE: Will pharmaceutical companies need to invest in building out their own facilities?
Phelan: Creating external CDMO and CMO supply chains and manufacturing product supply may be a manufacturing scaling option and potential value driver for many established global pharmaceutical companies. However, scaling into additional CDMO and CMO manufacturing platforms to accomplish capacity and efficiency requires aligned business processes, software supporting manufacturing, digital systems, and interfaces with the parent pharmaceutical company, and detailed manufacturing analytics supporting capacity and capability.

In addition to the costs of building or acquiring the manufacturing physical plant, footprint, licensures, and construction; pharmaceutical companies are confronted with significant operational burden, digital integration, and managing manufacturing personnel outside of their current bandwidth and expertise.

Reasons to invest capital into building manufacturing facilities:

• Multiple promising technologies entering market that require unique manufacturing capabilities.
• mRNA therapy development is expected to expand rapidly post COVID and well into the future.
• Precision Medicine, Personalized Medicine, and Cell and gene therapy is a major focus of development, but commercial timelines, demand, and impact is uncertain.
• Increased pressure to manufacture within same country/region due to nationalist/regionalist interests.

PE: If you are a pharmaceutical company, will you want to do business with a CMO/CDMO that is beholden to a competitor?
Phelan: Large CDMOs and CMOs support multiple small and large pharmaceutical companies’ products. For example, Lonza supports multiple and potentially competing products they manufacture for several pharmaceutical companies. Although companies and products compete for the same limited capacity, CDMOs and CMOs are not constrained by competitor products. Instead, the challenge is meeting the capacity requirements of current and future capacity requirements by multiple pharmaceutical companies vying for the same limited manufacturing sites and techniques. Not only are site and capacity limited placing high concentration on certain CDMOs and CMOs, so too are the technically trained personnel who operate pharmaceutical manufacturing sites. Ultimately, pharmaceutical manufacturers compete for manufacturing line space and capacity as well as the trained human capital it takes to manufacturer pharmaceutical API and Finished goods and the strategic capabilities to manage future capacity and growth trajectory.

PE: What does this mean for the weight loss/diabetes group of drugs from other companies like Lilly?
Phelan: The unprecedented and significant increase in product demand for GLP-1 products for the treatment of diabetes and weight loss has surpassed the original contracts, production forecasts, and capacity for CDMOs and CMOs and particularly those that specialize in API manufacturing as well as biosimilar manufacturing.

The risk of market failure (where supply ≠ demand) in the short-to mid-term is real. Continued high demand for CMO capacity due to COVID-19, vaccines, and specialty products coupled with substantial demand volatility in other key areas, has increased the probability that CMOs may under commit to the necessary capacity expansions needed to sufficiently meet demand for traditional biopharma manufacturing, inclusive of diabetes, weight-loss, and GLP-1s.

CDMO/CMO shift to a sellers’ market suggests they may seek longer term, comprehensive partnerships with pharmaceutical manufacturer partners. The line between CDMO and CMO is getting smaller as development timelines are shortening and pharmaceutical product launches shift to smaller volume and highly specialized products that consume capacity and manufacturing expertise.

To leverage the benefits of a CDMO/CMO end-to-end manufacturing models, which may be required to support products such as a GLP-1 model, a manufacturer must involve commercial manufacturing network planning early on in the clinical development process. Without this early commercial integration, selection of a CDMO is only based on “D” capabilities, not “M” capabilities to try to support the excess demand.