FTC decided not to block an acquisition that could impact supply and prices of important medicines.

Maker of Wegovy can move ahead on acquisition of major drug manufacturing company

Health care

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Do you know how drug companies get their medications to pharmacy shelves? Most of us don’t. But we all know the fear that arises when we hear there is a shortage of our needed medicine. And that’s why PIRG is disappointed in the Federal Trade Commission’s recent decision not to block an acquisition by a major drug company of a large U.S. drug manufacturing company. PIRG and other patient and health groups urged the FTC to carefully scrutinize the proposed merger because we’re worried about drug supply, higher drug prices and the precedent this vertical consolidation establishes in the pharmaceutical world.

Why you should care about the Novo – Catalent merger.

When it comes to keeping our pharmacies stocked with biologics (complex drugs made from living organisms), many drug companies outsource the manufacturing to “contract development and manufacturing organizations” (CDMOs). Advanced medication therapy for cancer and genetic disorders, as well as other conditions, requires specialized production facilities. Think about how much more complex it is to create an insulin “pen” or a medication delivered through a small syringe, rather than a pill or gel cap. CDMOs are used by drug companies to, among other services, “finish and fill” their biologic drugs in an FDA-regulated sterile manufacturing facility. These CDMOs are an important part of our drug supply chain. 

People with cancer, diabetes and other life-threatening conditions who rely on daily or weekly treatments need a consistent supply of fresh medication. If any part of the drug supply chain is disrupted, lives are at stake.

That’s why PIRG along with our coalition partners told the Federal Trade Commission our concerns about a proposed acquisition by a large pharmaceutical company of a large CDMO. Novo Holdings, part of larger entity which also owns drug maker Novo Nordisk, agreed to pay $16.5 billion for Catalent, a major CDMO that operates 50 drug manufacturing plants. The deal indicates that three Catalant plants will be sold to the drug company arm of the bigger entity.

When one pharma company buys up several manufacturing plants, who loses?

Two different drug companies own popular GLP-1 medications which are used to treat type 2 diabetes, cardiovascular disease and obesity: Novo Nordisk owns Wegovy and Ozempic, Eli Lilly owns Zepbound and Mounjaro. Around 12 percent of U.S. adults have taken GLP-1 medications – about 43% of those with diabetes, 25% with heart disease and 22% diagnosed as overweight or obese report using these drugs at some point. And demand is growing as these medications are showing the potential to treat chronic inflammatory diseases, depression, and other conditions. Medications for anti-obesity are expected to reach 15 million U.S. patients by 2030

Novo Nordisk likely benefits from adding manufacturing capacity for its blockbuster drugs Wegovy and Ozempic by making this acquisition. By gaining ownership of Catalent plants, Novo Nordisk can control the pipeline of which drugs its own manufacturing facilities will produce. Although the terms of the acquisition deal state that only three plants will be turned over to Novo Nordisk for production purposes and the company says it will honor existing contracts, we can’t predict whether more facilities will come under the drug company’s control in the future.

PIRG has a long history of flagging potentially troubling mergers and acquisitions that could negatively impact competitive markets. That’s why we asked the FTC to consider the potential anticompetitive impacts of the Novo – Catalent acquisition. In our multiple meetings with FTC investigators and senior staff, along with coalition partner T1 International, we made the following points: 

  1. Novo Nordisk is one of the two major manufacturers of GLP-1 drugs. The acquisition, if allowed, could set up a scenario where it could impact competition from other GLP-1 makers by either blocking manufacturing capacity in its Catalent plants or by getting access to important information about its competitors if they do contract with the Catalent plans. Today it is rare to have competition when drugs are still new on the marketplace – but in this case both Eli Lily and Novo Nordisk have GLP-1 drugs. That’s a good thing for patients and payers – more options. Catalent currently contracts with Eli Lilly for some of its products Eli Lilly expressed concern that the acquisition could mean that Catalent could decrease manufacturing capacity for its injectable drugs. And loss of manufacturing capacity at one of the major CDMOscould seriously impact drug access overall and potentially patients’ choice and access to a GLP-1 alternative to Novo Nordisk’s drugs. 
  2. Controlling manufacturing capacity through ownership, Novo Nordisk will be able to charge Eli Lilly or other competitors higher prices to use its manufacturing plants. The acquisition could distort the market, allowing Novo Nordisk to build market power and force its competitor to raise prices on its drugs. Demand for GLP-1s is growing – not just for treating diabetes and obesity – and it appears more therapeutic indications are coming. Both Eli Lily and Novo Nordisk will need more capacity to meet that demand. Novo could better meet that demand by using as many Catalant facilities as it wants – but that would mean eliminating or decreasing those plants’ capacities to produce other drugs for other companies – drugs other than GLP-1s. According to Catalent’s website, it contracts with “large and small innovators in over 100 markets including 36 of the top 50 biotech companies and 49 of the top 50 pharmaceutical companies.” What does the acquisition mean for the dozens of companies that currently use its services? What it means for price or for access for patients needing other drugs is simply unknown but quite worrying. Building new CDMOs and getting them approved by the FDA is not a quick and easy task. That means there aren’t a lot of other options for drug companies to turn to if they are closed out of access to Catalent services.
  3. Long term public health consequences might also result from the merger. Will the FTC’s decision not to intervene to block the acquisition start a snowball of larger drug companies buying up CDMOs. What does that mean for smaller drug companies’ access to manufacturing facilities they need to make their drugs or meet their “finish and fill” needs? If there is an uptick of vertical integration of CDMOs and drug companies, what will that mean if another public health crisis requires fast production from multiple facilities? Will those branded manufacturing facilities be willing to lend their sites to manufacture a competitor’s new vaccine or other therapy in the wake of another pandemic?

We raised all of these concerns with the representatives of the FTC – the agency tasked with reviewing mergers and acquisitions to prevent anticompetitive practices.

After 8 months of investigating the proposed acquisition, the FTC ultimately decided not to act to block the vertical integration of these companies. We’re frustrated that the agency did not decide to intervene on behalf of the public to prevent the acquisition to avoid the potential for anticompetitive practices in the wake of the merger. We’ll be watching for the possible consequences: higher prices for GLP-1s, disruptions in access to other drugs or Novo Nordisk competitors and new moves by more drug companies to buy up their own CDMOs to block competitors and improve their bottom line by raising prices.

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Authors

Patricia Kelmar

Senior Director, Health Care Campaigns, U.S. PIRG Education Fund

Patricia directs the health care campaign work for U.S. PIRG and provides support to our state offices for state-based health initiatives. Her prior roles include senior policy advisor at NJ Health Care Quality Institute, associate state director at AARP New Jersey and consumer advocate at NJPIRG. She was appointed to the Ground Ambulance and Patient Billing Advisory Committee in 2022 and works with patient advocates across the U.S. Patricia enjoys walking along the Potomac River and sharing her love of books with friends and family around the world.