Catalent reaches settlement with Elliott to explore strategic review

By Svea Herbst-Bayliss, Maggie Fick and Sriparna Roy

(Reuters) -Contract drug maker Catalent Inc said on Tuesday it had added four new directors to its board and will conduct a strategic review after reaching a settlement with activist investor Elliott Investment Management.

The company, which has struggled with manufacturing problems at three plants and has been the target of takeover interest from both private equity firms and strategic buyers in recent months, also reported a double-digit drop in quarterly revenue.

It added it would delay its annual report, but issued a better outlook for fiscal year 2024.

“We have the right strategy in place,” Catalent Chief Executive Officer Alessandro Maselli said on a call with analysts after the announcement in which executives said more cost-cutting measures would come. The company has been working to improve “rigor and discipline” in its financial forecasting process, he added.

Catalent’s stock price, which has lost nearly half its value in the last year, was up 6.2% at 1445 GMT following the announcement of the deal with Elliott, which confirmed a Reuters report on Monday.

U.S.-based Catalent is Danish company Novo Nordisk’s main manufacturing partner for its popular weight-loss drug Wegovy.

Novo is spending billions of dollars to make more of the obesity drug amid increased demand, particularly in the United States. Catalent’s deal with Elliott now makes the hedge fund an indirect player in the story of Wegovy, the first-to-market in a new class of highly effective weight-loss drugs which some analysts predict could become a $100 billion market by 2030.

Catalent named three pharma industry executives and a senior Elliott executive to its board and said John Greisch, who has served on the board since 2018, will become executive chairman.

“While the four board additions bring significant financial leadership experience, we would have liked to have seen more focus on bringing in individuals with operational background and proven track records of executing in the contract drugmaker space,” Max Smock, an equity analyst covering Catalent for William Blair, told Reuters.

The board will now have 16 members for a few months but will shrink back to 12 when a number of current directors retire, sources familiar with the matter said.

Elliott, whose stake in Catalent became public last month, has been engaging with the company behind the scenes for months. Tuesday’s statement from Catalent identified the hedge fund as one of its “largest investors”.

The board seats will give Elliott a say in determining Catalent’s future strategy, which could include a possible sale of the entire company or pieces of it at a time contract drugmakers are seen as very attractive to potential bidders, sources familiar with the matter said.

Catalent said quarterly revenue fell 17%, hurt by persistent production-related challenges.

Though it made a windfall filling syringes for big pharma companies during the COVID-19 pandemic, since last August its share price has tumbled on output issues, including regulatory problems with the U.S. Food and Drug Administration.

It gave a rosier outlook for fiscal 2024, guiding that revenue would be between $4.3 billion and $4.5 billion, above consensus expectations.


Maselli said the company aims to play a “major role” in GLP-1 drug production in coming years.

Novo’s Wegovy injection pen, which Catalent helps manufacture at its Brussels plant, is from the class of GLP-1 receptor agonist drugs. Several investors have recently told Reuters that Catalent is one of the few Western contract drugmakers with significant “sterile fill-finish” production capacity, and that is why its services are in hot demand as the obesity market booms.

Elliott’s global head of engagement, Steven Barg, a former Goldman Sachs banker, will join Catalent’s board along with former Pfizer chief financial officer Frank D’Amelio, former Genzyme executive Stephanie Okey and Michelle Ryan, a former Johnson & Johnson executive.

Two of the directors were picked by Elliott, while two were mutually agreed by Elliott and Catalent.

It is unusual for Elliott to put one of its employees onto a board and signals to investors how committed the firm is in helping guide management to fix mistakes and unlock value for shareholders.

Catalent is also forming a new strategic and operational review committee which Greisch will chair. It is also highly unusual for Elliott to have pushed for such a role, signaling again to investors that a sale of the company will be seriously considered, sources familiar with the matter said.

Danaher, which on Monday agreed to acquire Abcam, was reported earlier this year as a possible suitor for Catalent. Merck KGaA last year expressed interest.

(Reporting by Svea Herbst-Bayliss in Boston, Maggie Fick in London and Sriparna Roy in Bengaluru; Editing by Shinjini Ganguli, Catherine Evans and Mike Harrison)