Is Catalent set to make another major acquisition?

With CDMO Catalent set to raise around $550 million in a public offering, some commentators believe another large acquisition could be around the corner.

Contract development and manufacturing organization (CDMO) Catalent has announced the pricing of a public offering of shares of its common stock, expected to close next week resulting in proceeds of approximately $550 million.

This is the third time in two years that the firm has tapped the public equity market.

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In July 2018, the CDMO announced it was to raise $387 million through a public share offering. The following month, the firm closed its $133 million acquisition of Juniper Pharmaceuticals.

In February of this year, the firm offered up shares of common stock with an aggregate offering price of $500 million, $315 million of which was used to fund the acquisition of cell therapy manufacturer Masthercell from Orgenesis.

In the interim, Catalent has also forked out $1.2 billion to buy gene therapy firm Paragon Bioservices, and bought facilities from both Bristol-Myers Squibb and Novavax.

Thus some analysts wonder if this latest public offering will support what is clearly becoming an M&A trend for Catalent.

“Investor thoughts likely center on capacity for another large M&A transaction. Company has shown willingness to flex to ~4.5x leverage for strategic assets. Depending on multiple paid, it looks like Catalent might have ammunition for another $1bn+ acquisition,” Baird Equity Research analyst Evan Stover wrote in a note.

“Beyond M&A, we note the several-year elevated CapEx outlook (13%-14% of revenue) and recently elevated working cap partially attributable COVID as potential uses for additional liquidity.”

While the CDMO space continues to be fragmented and acquisitional assets could further boost Catalent’s broad offerings, Catalent rebuffed the prospect of a deal when asked, hinting that capital expenditure and organic growth is a higher priority than acquisitions.

In a statement sent to this publication, the firm said: “Catalent intends to use the net proceeds from the Offering to repay in full the $200 million of outstanding borrowings under the revolving credit facility under its senior secured credit facilities and for general corporate purposes, which may include, without limitation and in Catalent’s sole discretion, working capital, capital expenditures, and funding its growth strategy through organic investments and potential future acquisitions.”

Catalent and Spicona

In related news, Catalent has partnered with Spicona to develop a virus-like protein (VLP)-based vaccine against COVID-19. The deal sees Catalent use its GPEx cell line development technology to develop a cell line expressing the recombinant VLP from its Madison, Wisconsin facility.

“Catalent’s GPEx technology and the Madison facility provide proven technology and expertise that are a perfect fit for Spicona’s unique vaccine approach to address COVID-19.” said Mike Riley, region president of Catalent Biologics, North America. “We are pleased to be working with Spicona and other partners on all major classes of COVID-19 vaccines in development.”

This is the third COVID-related vaccine deal announced by Catalent. The CDMO is set to make scaled-up batches of Arcturus Therapeutics’ mRNA vaccine candidate against COVID-19 from a customized suite at Madison.

Meanwhile, Catalent’s Bloomington, Indiana site is providing fill and finish services to Johnson & Johnson in its pursuit to bring a COVID-19 vaccine to fruition.

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