Catalent expands biologics capacity even as it looks for M&A targets

Catalent Madison, WI plant

Catalent ($CTLT) is looking for M&A targets to help its growth, but until it finds ones it likes, executives point to a plant expansion in its biologics operation as the kind of organic growth that it is pursuing as it evaluates M&A deals.

Executives of the Somerset, NJ-based CDMO told analysts in a call Monday that it is “aggressively growing organically” in biologics, investing $34 million in a biologics plant in Madison, WI that it opened several years ago. That outlay will add a 2/2,000 liter single-use bioreactor system, which will be capable of running either 2,000-liter or 4,000- liter batches to support late-phase clinical and commercial production, CEO John Chiminski told analysts.

The expansion is on top of a nearly $30 million investment Catalent made in the Madison facility a couple of years ago, Chiminski said. The capacity from the earlier expansion is “more or less already called for and the investments that we'll make will enable us to continue to accommodate the strong organic growth that we see within the biologics business.”

CFO Matt Walsh defined that growth for analysts. “We continue to believe that our biologics business is well positioned to drive future growth and comprise an increasing percentage of our overall business,” he said according to a Seeking Alpha transcript of the call. Walsh explained that at the time of Catalent’s IPO in 2014, its dedicated biologics business comprised about 1% of sales. Since then they have grown to 3% of sales in FY16 which ended June 30, more than doubling the business over a three-year timeframe."

The info came after the CDMO reported Q4 2016 revenue of $532.2 million, up 6% in constant currency and FY 2016 revenue of $1.85 billion, also up 6% in constant currency. Fiscal year 2016 net earnings attributable to Catalent were $111.5 million, or $0.89 per diluted share, compared to net earnings of $212.2 million, or $1.75 per diluted share, for the same period a year ago.

Walsh assured analysts that Catalent expects M&A to play a part in its growth as the market consolidates.

“I will tell you that our level of interest and our level of effort expended on pursuing M&A activities have not changed. The deal flow that results from that is as you stated less than people's expectations,” he acknowledged. “I would say it is probably less than management's expectation." 

That M&A approach will continue in FY 2010, Walsh said, but comes in priority after organic growth. "We will continue to aggressively reinvest organically in the business that's our first priority to generate attractive returns on capital. Second priority would be growth through M&A to expand areas of our business where we can accelerate growth versus what we can do organically.”

What none of the execs addressed were reports that Catalent might itself be the target of M&A designs by Swiss CDMO Lonza. Reports this spring said the competitor was interested in buying Catalent. 

- read the earnings release 
- here’s the Seeking Alpha transcript

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Catalent opens larger U.S. biologics plant 
Reuters: Lonza attempting buyout of Catalent