Catalent Leaders Allegedly Misled Investors on Revenue, Demand

Catalent Inc.‘s current and former executives and board members misrepresented the drugmaker’s business and finances for more than a year, a shareholder derivative suit says.

Catalent experienced rapid growth in the beginning of the Covid-19 pandemic, working with Moderna and AstraZeneca to package vaccine syringes. But Catalent allegedly cut corners in production to keep pace with rapid growth, which defendants hid from investors in misleading public statements, a shareholder said Aug. 11 in a lawsuit filed in the US District Court for the District of Delaware.

Catalent’s executives and directors also allegedly began inflating reported revenues and falsely representing demand for its products. The company sold more to direct customers including Johnson & Johnson, Pfizer, and GlaxoSmithKline than those buyers could ultimately provide to health-care companies and consumers, according to the complaint.

When Catalent disclosed that demand for its Covid-19 products was facing substantial headwinds, the news prompted a 7.4% stock decrease to close at $92.28 per share on Aug. 29, 2022, according to the complaint. After that, however, the defendants allegedly continued to misrepresent Catalent’s revenue, earnings, and demand, the complaint says.

Then on Nov. 1, 2022 the company lowered its financial guidance, reported that its quarterly earnings declined to zero due to falling demand, and disclosed the regulatory issues at its key facilities, which were negatively impacting the financial results. Later that month Catalent revealed that it was carrying $400 million in excess inventory, according to the complaint.

GlassHouse LLC, a stock analyst company, issued a report the following month highlighting “accounting red flags” at Catalent, which detailed the inflated revenues and demand, the complaint says. Catalent’s stock price dropped 3.6% to close at $45.54 on Dec. 8, the day that report was released.

Bloomberg

The shareholder suing on behalf of Catalent seeks to recover damages for the period between Aug. 30, 2021 and Oct. 31, 2022. He alleges that current and former executives and directors violated the Securities Exchange Act, breached their fiduciary duties and unjustly enriched themselves, and wasted corporate assets.

A separate class action filed against Catalent in February is still pending in the District of New Jersey. That suit also alleges that the company inflated its revenue figures through fraudulent accounting, padding its financial results to portray continued growth after its initial surge from packaging the vaccines into syringes.

Catalent didn’t immediately respond to a request for comment.

Rigrodsky Law PA and The Schall Law Firm represent the plaintiff.

The case is Husty v. Carroll, D. Del., No. 1:23-cv-00891, complaint filed 8/11/23