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As Novo and Lilly fight to dominate this lucrative market, gaining an edge in manufacturing power is emerging as a new front. Both drugmakers are racing to secure the highly specialized plants that can churn out enough of their top-selling drugs to keep up with demand. Novo took this to a new level when its controlling shareholder acquired Catalent, flipping three plants to the drugmaker for $11 billion in an effort to accelerate its production.
Anat Ashkenazi, Lilly’s chief financial officer, told analysts on Tuesday, “We certainly have questions about that transaction and need to learn more.”
She added, “We intend on holding Catalent accountable to their contract with us.”
The dueling medications — Novo’s Ozempic and Wegovy, and Lilly’s Mounjaro and Zepbound — are often known as GLP-1 drugs, named for the gut hormone they mimic. The drugs work by slowing the stomach from emptying and sending a signal of fullness to the brain. By helping people lose meaningful amounts of weight with a weekly injection, Ozempic — a diabetes drug and the best known of the bunch — has become a blockbuster and cultural touchstone, popularized by celebrities and sought out by millions of patients.
Some financial analysts expect GLP-1 drugs — which have applications beyond diabetes and weight loss — could become the biggest-selling class of all time, with annual sales that could top $100 billion.
“There’s this mad rush to have the capacity that they need,” said Howard Forman, director of the health-care management program at the Yale School of Public Health. If Novo can convert Catalent’s production capacity into its own, “this will be brilliant,” he said. But if Catalent’s existing contracts constrain Novo from fully leveraging its manufacturing power, “then it could turn out to be an albatross.”
Novo and Lilly have struggled to keep up with demand that has exceeded their projections, leading to customer frustration at the pharmacy counter. The U.S. Food and Drug Administration placed tirzepatide and semaglutide — the active ingredients, respectively, in Lilly and Novo’s prized drugs — on its shortage list starting in 2022.
Novo cut back on supplying low doses of Wegovy beginning in May to ensure there was enough for existing patients. Wegovy prescriptions topped 500,000 that month but subsequently averaged around 430,000 a month for the remainder of the year, according to data provider IQVIA. Novo said last week that it is boosting supplies of Wegovy and days later announced the Catalent deal.
Novo said the deal would help it “gradually increase” its capacity but did not provide specifics, and it isn’t clear to what degree it could help relieve the current shortage of Wegovy.
Novo said in a statement Wednesday that once the deal closes, Catalent facilities “will over time provide capacity for our current and future injectable product portfolio, including obesity, while honoring the current [contract manufacturing organization] customer relationships.”
“Catalent has been a contract manufacturer that we have selectively utilized on a wide range of medicines to supply our patients around the world,” Lilly said in a statement. “Our expectation is that Catalent will perform on its obligations to Lilly.”
The problem for the drugmakers isn’t cash. Novo posted its highest annual sales in at least decades and Lilly brought in the most revenue in its history last year.
“The reality is there just isn’t built capacity that’s available,” David Ricks, Lilly’s chief executive, told analysts Tuesday, according to a transcript compiled by S&P Global Market Intelligence. “These are technically complex facilities,” he continued. “There’s not an infinite number of people who know how to set them up. And the supply chain for the machines that make the products is also constrained.”
Both companies are spending heavily to boost their manufacturing capacity. That could help them fend off competition from specialized pharmacies that are making imitation versions of semaglutide and tirzepatide, an option created by the FDA designating the drugs in shortage. But the drug giants are also taking a longer view beyond their current blockbusters, planning for drugs in development that could be even more popular.
Lilly is conducting late-stage trials for orforglipron, a weight-loss pill, and retatrutide, an injectable that could be even more powerful than the current weight-loss blockbusters. The company is building new manufacturing plants in North Carolina and its hometown of Indianapolis, along with a $2.5 billion plant in Germany.
Novo is also running a late-stage trial for a weight-loss pill, while exploring approaches for new injectables that could be administered once a month. It expects to ramp up its spending on physical infrastructure this year by more than 70 percent.
Analysts said the Catalent deal could help Novo’s production challenges. “Given the alternative means of GLP-1 supply expansion was ground-up construction of new plants, this deal will likely boost production faster,” TD Cowen analysts wrote in a research note Tuesday.
Even with the manufacturing challenges, Novo and Lilly are raking in cash from their top-selling drugs. Novo’s sales jumped 31 percent last year, helping it become Europe’s most valuable company by stock-market value.
Lilly’s stock-market value has risen to about $670 billion, the largest of any drugmaker tracked by S&P Global.
Appraising Lilly’s latest financial performance in a note to clients, Akash Tewari, an analyst at Jefferies, said that the company “remains the golden child in healthcare.”
