Investor Elliott steps in to help turn around bedraggled Catalent

Catalent has set-up a Strategic and Operational Review Committee to address recent missteps as part of a deal with activist investor group Elliott Investment Management.

Catalent’s woes go beyond the simple post-pandemic slowdown felt by many of its fellow contract development and manufacturing organizations (CDMOs). Operational issues at facilities in Harmans, Maryland, Bloomington, Indiana and Brussels, Belgium, coupled with struggles to report timely quarterly results have led to analyst downgrades and allegations of financial mismanagement.

In May, the firm’s stock price hit a six-year time low of $32.14, a fraction of the $141 price per share seen during the height of the pandemic in September 2021.

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Step in one of Catalent’s largest investors, Elliott Investment Management, which has struck a deal with management to help steer the ship around. As part of the arrangement, the investor group will establish a “Strategic and Operational Review Committee to conduct a review of the Company’s business, strategy and operations, as well as the Company’s capital-allocation priorities, in order to maximize the long-term value of the Company.”

The Committee will be led by John Greisch, who has been appointed executive chair of the Board, and supported by four new independent directors appointed by Elliott Group: Industry stalwarts Steven Barg (global head of Engagement at Elliott Investment Management), Frank D’Amelio (former Pfizer CFO), Stephanie Okey (former Genzyme SVP), and Michelle Ryan (former J&J treasurer).

“Elliott shares the Board’s confidence in Catalent’s leading position as a key partner for the biopharmaceutical industry and is committed to working with us to drive shareholder value,” said Greisch this week on the firm’s fiscal year Q4 results.

Elliott and Catalent senior management will be “acting quickly and taking decisive action to strengthen operational performance, enhance profitability and create value for all stakeholders,” said Greisch.

A source close to the matter told this publication selling Catalent is one of the options being explored, including to the likes of Danaher Corporation, which was allegedly linked to the company earlier this year.

RW Baird analyst Eric Bardwell described Elliotts’ intervention, the “highly impressive” new board members, and “vigor and active oversight” of the new executive chair as bringing a “sense of urgency” to the business.

“Next couple quarters look rough, though it’s difficult not to see light at the end of this tunnel,” Bardwell wrote. “Perhaps takes a little extra faith, and a lot of execution, but back-half FY24 should bring renewed optimism, while Elliott and [Strategic and Operational Review Committee] add bite to the bark.”

For the fourth quarter fiscal year 2023, Catalent saw revenues of $1.07 billion, down 17% on the same period last year. The biologics business fell 37% year-on-year to $306 million, while the segment made an EBITDA loss of $12 million, down from positive $194 million in FY 2022.

“Not entirely convinced to take the leap of faith today, but we’re standing nearer the ledge and feeling more confident in the path to recovery,” Bardwell concluded.