Novo, Catalent Deal Set to Underpin FTC Vertical Merger Scrutiny

A bid by the owner of Wegovy maker Novo Nordisk A/S to buy a key manufacturer presents an opening for the US Federal Trade Commission to take action against vertical mergers and pharmaceutical industry consolidation.

The FTC last week requested more information about Novo Holdings A/S’s proposed $16.5 billion acquisition of Catalent Inc.—a step that could lead to a formal antitrust investigation and potential lawsuit. Novo Nordisk, Europe’s most valuable company, makes blockbuster diabetes and obesity drugs Ozempic and Wegovy, while Catalent is one of the largest manufacturing providers for the pharmaceutical industry.

The deal is grabbing the FTC’s attention, antitrust attorneys and professors say, because it falls neatly within two of the agency’s key areas of interest under the Biden administration: tackling vertical mergers, and using antitrust tools to ease drug prices for consumers.

“There’s reason for this to be on the top of their priority list,” said David Balto, a former policy chief in the FTC’s competition bureau who now runs his own antitrust firm.

The FTC, along with the Justice Department, released updated merger review guidelines in December, outlining the agencies’ focus on deals that could potentially limit access to a product or service that rivals use to compete. The FTC during the Biden administration has managed to thwart some big-name vertical acquisitions, including one involving defense contractor Lockheed Martin Corp.

Enforcers are particularly interested in “reshaping the paradigm” for merger review in the pharmaceutical industry, placing the Novo-Catalent deal at the intersection of two of the agency’s major initiatives, Balto said.

An FTC spokesperson declined to comment on the deal.

Laura Hortas, a spokesperson for Catalent, said the firm is “confident in the many benefits of the transaction” and expects the deal to close later this year.

Novo Holdings, which owns a controlling stake in Novo Nordisk, has said buying Catalent will help boost production of Wegovy. Novo Nordisk spokesperson Ambre James-Brown said the company is in the process of gathering information and documents to respond to the FTC’s request.

Vertical Mergers

In December, Illumina Inc. said it would sell off cancer startup Grail Inc., marking a win for the FTC in successfully litigating to unwind a vertical deal. The FTC had initially challenged the tie-up in 2021, arguing it would cut off competitors’ access to vital technology.

Similarly, the FTC will likely assess whether the Novo-Catalent deal would limit competitors’ access to products and services Catalent provides, said Alice Bonaimé, a professor of finance at the University of Arizona who focuses on mergers and acquisitions.

“In the past, these vertical challenges had not been on the forefront,” said Michael Carrier, a professor at Rutgers Law School who teaches antitrust. “But it seems like now, they are moving up in priority.”

The Novo-Catalent deal “fits into that more expansive window in which the FTC is looking at these mergers,” Carrier added.

The FTC under Biden has also sued to block Nvidia Corp.‘s semiconductor chip deal and Lockheed Martin’s attempt to acquire a major rocket propulsion firm. Those two vertical merger challenges prompted the firms to abandon the deals.

Pharma Consolidation

The antitrust agency is also zeroing in on skyrocketing drug prices, taking aim at allegedly anticompetitive dynamics in the pharmaceutical industry.

The FTC last year challenged Amgen Inc.‘s takeover of Horizon Therapeutics Plc, alleging the deal would entrench drug monopolies—the agency’s first federal court challenge to a pharmaceutical deal since 2009. The FTC ultimately settled that case, allowing the deal to move forward after Amgen agreed not to bundle its products with Horizon’s drugs.

The agency’s heightened focus on pharmaceutical deals under the Biden administration is partly a response to criticism that it hasn’t been aggressive enough challenging consolidation in the sector, Carrier said. The Novo-Catalent deal, moreover, involves popular diabetes and obesity drugs, “factors that the FTC would consider,” Carrier added.

Novo Nordisk’s Ozempic is also among 20 branded drugs the FTC is targeting as it challenges more than 300 “junk patent listings” in the Food and Drug Administration’s registry of approved drugs, in an effort to accelerate generic competition.

The FTC and other agencies have scrutinized drug prices and consolidation in the pharmaceutical industry since President Joe Biden singled out the sector in his 2021 executive order promoting competition, said Robin Feldman, a law professor at University of California College of the Law, San Francisco, who focuses on drug pricing and markets.

Historically, the FTC greenlit pharmaceutical deals on the condition that companies sell off drugs already in the pipeline, Feldman said. But the current FTC has been more active in examining and challenging tie-ups among pharmaceutical companies.

“That doesn’t mean the agency will block the deal or try to prevent it in any way,” Feldman said of Novo’s efforts to acquire Catalent. “But the ongoing discussions hint at concerns in the backdrop.”