Catalent cuts 2023 sales expectations as productivity issues and costs pile up at 3 plants

After several banner years fueled by COVID-19 production contracts, manufacturing juggernaut Catalent has waded into choppy waters.

Alongside news that Catalent's chief financial officer, Thomas Castellano, stepped down Thursday, the company disclosed “productivity issues” and high costs at three major production sites—including two of the CDMO’s largest. The factors are expected to put a squeeze on third-quarter earnings and dampen Catalent’s outlook for the entire fiscal year, which runs through the first half of 2023.

The news, unveiled late last week, sent Catalent’s shares plummeting more than 20% to $45.20 on Friday, marking a roughly $3 billion market capitalization loss, Reuters and others reported.

Catalent singled out productivity hurdles at its gene therapy manufacturing site in Harmans, Maryland, where plans to increase capacity to ramp up production for an undisclosed drug moved “slower than expected.” Amid the delays, operational challenges “significantly reduced the expected revenue in the third fiscal quarter associated with the site, and will also impact revenue previously expected in the fourth quarter,” Catalent explained in a release.

Attempts to sort out issues in Harmans were further stalled by regulatory inspections of the site, which were successfully completed, according to Catalent. While none of the issues are expected to take a toll on commercial launch quantities of any product made at the site, revenue from “unproduced batches” won't be recouped in Catalent’s 2023 fiscal year.

Catalent does expect a related revenue rebound in the second half of 2023, which marks the first half of the CDMO’s 2024 fiscal year.

Aside from its gene therapy woes in Maryland, Catalent also suffered productivity challenges and higher-than-expected costs at its drug product and drug substance plants in Bloomington, Indiana, and Brussels where it failed to hit anticipated productivity levels and associated revenues. The company blamed those shortfalls, in part, on improvements required in the wake of regulatory inspections earlier in the fiscal year.

Problems at Catalent’s Brussels plant were previously pegged as part of the reason behind a supply squeeze on Novo Nordisk’s Wegovy in 2022. In a seven-observation FDA Form 483 published last January, regulators chided Catalent for failing to thoroughly investigate batch failures or discrepancies and other shortfalls.

Novo has since resolved the supply constraints on Wegovy, and, in a bid to meet intense demand for its obesity blockbuster-in-waiting, the Danish drugmaker has enlisted a second contract manufacturer that’s in line to kick off production of the GLP-1 med to further boost supply.

Catalent was previously the sole contract manufacturer for Novo’s Wegovy, which, alongside its sister med Ozempic, ran short for much of 2022.

Back to the affected plants, Catalent says it’s taking “a number of measures” in Harmans, Bloomington and Brussels to address manufacturing shortfalls at each facility, which encompass both “management and operational changes.”

Meanwhile, Catalent’s Castellano hit the exit late last week, prompting the company to slot its president and division head for clinical development and supply, Ricky Hopson, into the finance chief’s seat.

When it comes to concrete numbers, Catalent has yet to release its third-quarter fiscal results, which it plans to present May 9. Catalent’s full 2023 fiscal year is due to wrap up June 30.

Over the past several years, Catalent has been flying high on COVID-19 manufacturing contracts from the likes of Moderna, Johnson & Johnson and AstraZeneca. But that pandemic windfall wasn't fated to last: In February, Catalent reported weaker second-quarter sales, which it blamed on “a substantial decrease in COVID-19-related" sales.

At the same time, the CDMO said its production ties with mRNA wunderkind Moderna were stronger than ever. Alongside plans to continue drug product fill/finish services and production capacity for Moderna's COVID-19 programs, the partners will expand their production accord to include non-COVID-19 programs such as flu and respiratory syncytial virus.