Catalent: A Lesser-Known Investment Opportunity Behind COVID Vaccines

By: Nina Deka, Sr. Research Analyst at ROBO Global


Fun fact: There are millions of people who received a COVID-19 vaccine that was manufactured by the same company that invented the softgel.

Catalent, long known for its world market leadership in softgel manufacturing, has shifted gears toward the future of therapeutics. As the pharmaceutical world increasingly focuses on new and more complex therapies, Catalent has positioned itself to be the partner of choice to help bring these therapies to market.

Both Moderna and J&J partnered with Catalent to bring their innovative new COVID vaccines across the finish line. These are just two examples of Catalent’s extensive portfolio of capabilities. Catalent is a proven technology leader with a long runway for potential growth, which makes it a strong fit for the HTEC ETF.


A Differentiated Company in a Growing Industry

While many CDMOs, or contract development manufacturing organizations, focus exclusively on mass production of high-volume drugs, Catalent is more heavily focused on highly specialized therapeutics, such as biologics (drugs synthesized from living organisms), and can do it at scale. This is important as pharma innovation gets more and more targeted, because there is an increasing number of clinical trials for rare diseases or cancers that have less than a few dozen trial participants. When these drugs eventually make it to market, there will continue to be a very finite number of people for whom the treatment is intended. For many pharma companies, manufacturing something so specialized in such small quantities is not economically viable. In fact, most small biotech startups don’t have any in-house manufacturing capability at all and need to outsource. Thus, a relationship with a CDMO is a critical part of the success of many pharma companies, large and small.

Source: Catalent, Clinical Supply Services ultralow-temperature handling of biologics.

Catalent estimates that biopharma outsourcing has increased 8% per year since 2015 and represented 37% of the $160B industry’s development and manufacturing expenditure in 2020. With all the innovation in this industry—in proteins, RNA, and gene editing—we expect momentum in this industry to remain strong for the long term and that the demand for Catalent’s specialized services will continue to grow in conjunction with the growth of the biotech industry.


From Small Molecule to Large, Catalent Remains on the Cutting Edge

Catalent’s roots date back to Robert Pauli Scherer’s invention of a machine in 1934 that developed soft-gelatin capsules to contain medication.1 His company ultimately became what is now Catalent.

Source: Catalent, Softgels and 2-part capsules

Most drugs have historically been in the small-molecule classification; drugs in this category are chemically synthesized and easier and cheaper to make. About 30 years ago, the large-molecule or biologics classification of drugs began to take hold. These therapies are made from living organisms and include modalities such as proteins, antibodies, mRNA, gene editing, etc. To stay abreast of this trend, Catalent has gone all in over the last decade to position itself as the partner of choice for biologics innovators.


Focus on Biologics is Paying Off

Catalent has spent over $4B in the last five years through capex and M&A to drive growth, and it’s paying off. The biologics segment in particular has been growing as a percent of total sales, from 10% in 2014 to 37% today. Given the growth in the industry and investment in capacity, the company expects biologics to comprise 50% of its total revenue by 2024. We are encouraged by this, because these specialized services have strong pricing power, and as this business grows as a percent of revenue, so doe margins. The company expects its adjusted EBITDA margin to increase by 400 bps by FY2024 to ~28%.


Pharma Companies Rely on Catalent's Expertise to Develop New Products

Catalent has decades of expertise that customers leverage to determine the best way to manufacture medicine and deliver it into the human body. For example, if a drug needs to be administered via nasal spray, Catalent’s got the science down to the optimal angle and amount of solution needed for the treatment to be effective. If the medicine is orally administered, Catalent can design tablets that can dissolve on the tongue. This type of tablet is not only more convenient but can be essential in regions where water is not available. The company has also mastered slow-release medications. Because of these different drug delivery methods, Catalent has the potential to take a product and extend its lifespan in the market simply by offering new ways to administer the medicine. One notable example is the way Catalent’s innovation played a significant role in the multidecade success of the Advil brand.


A Business Model with a Strong Moat

As mentioned previously, many clients partner with Catalent very early in their R&D process to formulate the drug needed for their clinical trials. Being a part of the process early in development positions Catalent well to continue to be the manufacturer when the drug eventually gets approved. Eventually, if the drug’s patent expires, Catalent is also well positioned to be the manufacturer of the same drug for generics producers. Not only is Catalent’s business sticky, but the company has over 1,000 clients, including 86 of the top 100 branded pharma companies. They also manufacture over 7,000 different products and launch over 160 new projects per year.

Due to these factors, we believe Catalent offers investors exposure to the potential growth in the biotech industry while providing a lower risk profile than biotech companies that have less than a handful of products in development.

The ROBO Global Healthcare Technology & Innovation ETF (NYSE: HTEC) offers exposure to Catalent through our Process Automation subsector. This is one of nine subsectors that we believe represent the next decade of disruption in health care. Learn more at



Unless otherwise indicated, the data presented above was obtained from Catalent company filings.


This information should not be relied upon by the reader as research or investment advice regarding the funds or any security in particular.


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