Catalent reaches settlement with Elliott to explore strategic review By Reuters

By Svea Herbst-Bayliss, Maggie Fick and Sriparna Roy

(Reuters) -Contract drug maker Catalent (NYSE:) 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 recently 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 and said it would delay its annual report, but issued a better outlook for fiscal year 2024.

Catalent’s stock price, which has lost nearly half its value in the last year, jumped more than 8% in early trading on news of the deal with Elliott, which confirmed a Reuters report on Monday.

The U.S.-based contract drugmaker is Danish company Novo Nordisk (NYSE:)’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 sky-rocketing 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 predicted could become a $100 billion market by 2030.

The company named three pharmaceutical 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.

It means the board will 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 is one of Catalent’s biggest investors and has been engaging with the company behind the scenes for months.

The board seats will give the activist investor, one of the industry’s busiest, a say in determining future strategy, including a possible sale of the entire company or pieces of the company at a time contract drug makers are seen as being very attractive to potential bidders, sources familiar with the matter said.

Catalent, which has been seeking to return to growth and cut costs as production snags and regulatory inspections at several facilities hit profit margins, said quarterly revenue fell 17%, hurt by persistent production-related challenges.

But it offered a rosier outlook for fiscal 2024, guiding that revenue would be between $4.3 billion and $4.5 billion, topping consensus expectations.

On a call with analysts, Catalent executives said more cost cuts are on the horizon. They also said margins would likely improve in the second half of fiscal 2024. Chief Executive Alessandro Maselli, who has been under pressure from investors, said the company aims to play a “major role” in GLP-1 drug production.

Novo’s Wegovy injection pen, which Catalent currently 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 market for obesity drugs booms.

Reuters reported on Monday that a settlement was close and that a strategic review, including a possible sale of the company, would be undertaken.

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

Two of the directors were picked by Elliott, while two were mutually agreed upon between Elliott and the company.

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 clean up past 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.

“Our board shares Elliott’s confidence in the long-term value creation potential of Catalent,” Greisch said in a statement.

Earlier this year, Danaher (NYSE:), which on Monday agreed to acquire Abcam, was reported as a possible suitor for Catalent. Merck KGaA had also last year expressed interest. I