Catalent faces another possible revenue 'cliff' after Sarepta's gene therapy trial miss: analyst

Even as Catalent dusts itself off from a pandemic sales plunge, the company may be teetering on the edge of another contract manufacturing precipice.

After getting past its "COVID cliff," the CDMO giant could face an "Elevidys cliff" after partner Sarepta Therapeutics missed the mark in a confirmatory trial for its Duchenne muscular dystrophy gene therapy, analysts at William Blair wrote in a note to clients.

Sarepta forms a large portion of Catalent’s non-COVID business, according to the analysts. While the CDMO’s financial performance appears protected in the near term, without a label expansion for Sarepta’s DMD gene therapy, the future of Catalent’s Elevidys manufacturing collaboration looks murky, the William Blair analysts said.

In the meantime, Catalent’s stock fell around 14% Tuesday on the back of Sarepta’s bad news.

Sarepta on Monday revealed that Elevidys, which won an accelerated FDA approval in June, failed to meet its primary endpoint in the phase 3 EMBARK study. Sarepta maintains that the drug showed “clinically meaningful” effects across secondary endpoints. With the results in hand, Sarepta is aiming for a label expansion to treat "all" DMD patients, executives said Monday.

As for why that news affects Catalent, Sarepta's business accounted for nearly 10% of the CDMO’s total revenue in the 2023 fiscal year, the William Blair team wrote. That figure climbs to 30% when taking COVID-19 biologics out of the mix, according to the analysts. Catalent's 2023 fiscal year ended June 30, and the company is now in its 2024 fiscal year.

For now, Sarepta is planning for the best-case scenario around Elevidys, and it’s keeping manufacturing at pace, executives said on the Monday call with investors.

“We have been and continue to plan for the broadest possible label from a manufacturing perspective,” Sarepta CEO Doug Ingram assured analysts during a conference call Monday. The company is continuing to ramp up production to support its assumed outcome of a full approval for Elevidys without age-related or ambulatory restrictions.

That means Catalent is relatively safe for the near future, the William Blair team said. But if Sarepta’s gene therapy doesn’t ultimately snag a label expansion, “it would clearly be a significant blow for Catalent moving forward,” the analysts said.

“Thus, right when [Catalent] is starting to get past its 'COVID cliff,' it could face a new 'Elevidys cliff,' which would represent a significant headwind to the top line, as well as a major hit to margins as the company scrambles to fill unexpectedly free viral vector capacity,” the William Blair team wrote.

Catalent, for its part, "does not comment on our customers’ clinical trials nor commentary and assumptions in market reports," a company spokesperson said via email. 

A key issue, to hear the analyst team tell it, is what happens beyond Catalent’s current fiscal year. Sarepta already has a “meaningful supply” of Elevidys doses on hand from the last few years, which means Catalent’s annual opportunity could “decline dramatically” to roughly $150 million in fiscal 2025 and beyond, according to the William Blair analysts.

Last year, the CDMO reaped about $425 million in revenues from its Sarepta collaboration, according to the William Blair team. Under ambitious growth assumptions, the figure could reach $700 million in the company's current fiscal year.

It’s important to note that Catalent and Sarepta’s production agreement, which runs through 2028, includes unspecified minimum order quantities each year, according to William Blair.

Catalent rode a wave of COVID-related manufacturing demand at the start of the pandemic, but its sales fell more recently as the crisis eased. The CDMO giant recorded $4.23 billion in overall sales during its fiscal year 2023, a decline of 11% from the prior year.