Catalent sees $1B Bettera deal as a key to growth in nutrition and consumer health

 

Solid pills—small, mostly round, and easy to swallow—are a tried and true drug  formulation, and making them contributes to much of Catalent’s revenue. But consumer spending on nutritional and nutraceutical products is growing, and with it, demand for softer and even chewable formulations. Catalent wants to bite off a big chunk of this market, so the contract drug manufacturer has committed $1 billion to acquire Bettera Brands, a company specializing in such products.

Catalent announced the Bettera acquisition on Monday, concurrent with its report of fiscal fourth quarter 2021 financial results. Catalent said its net revenue in fiscal 2021 was nearly $4 billion—a 29% increase over the prior year. The vast majority of that revenue came from its business segment producing biological drugs, the largest division of the Somerset, New Jersey-based company.

In addition to biological products made for biotechnology companies, Catalent makes medicines for branded and generic drug companies. The contract manufacturer also makes products for companies selling consumer health products, such as over-the-counter vitamins and nutritional supplements. Bettera will bring Catalent further into that consumer-facing space. In an investor presentation, Catalent said Bettera helps the company diversify, setting it up for long-term revenue growth.

Bettera, based in Plano, Texas, was formed by investment firm Highlander Partners, which combined four of its acquisitions into a single company. Though the first of those transactions happened in 2017, Bettera’s roots date to a candy-making business founded in the late 19th century. That company, San Francisco-based Gimbal Brothers, was a maker of gourmet jellybeans. Gimbal later expanded to gummy vitamins and dietary supplements. Highlander acquired Gimbal and paired it with a confectioner already in its portfolio, Hillside Candy. In 2018, Highlander added Indiana-based Queen City Candy, which brought to Bettera capabilities in producing pectin and gelatin-based products.

Two years ago, Highlander purchased Chantilly, Virginia-based Nutravail, a company that brought into the mix its soft-chew products and patented technology to make them at low temperatures. The temperature feature is key because high-temperature cooking degrades the beneficial aspects of nutritional ingredients. Highlander framed the Nutravail acquisition as a way to enable Bettera to offer a full spectrum of delivery systems, including gummies, lozenges, and chewables. The nutritional emphasis became clearer last year after Bettera sold the legacy Gimbal candy brands to Jelly Belly Candy Company. Bettera said at the time that the deal would enable it to hone its focus on making and selling vitamin gummies and lozenges.

In the investor presentation, Catalent said that Bettera is at the intersection of macro consumer health trends. Citing data from the Nutrition Business Journal’s 2021 supplement report, the company noted that traditional delivery systems had a 4% compound annual growth rate from 2016 from to 2021. By comparison, innovative delivery systems, such as gummies, showed a 16% compound annual growth rate during the same period.

Catalent already has the capability to manufacture soft gelatin formulations. Softgel and Oral Technologies’ $1 billion in fiscal 2021 revenue was second only to the $1.9 billion from the company’s Biologics business segment. Bettera will become part of Softgel and Oral Technologies, where Catalent expects the acquisition will accelerate the growth of that division by providing customers new formulation choices for new products.

“This acquisition is a key strategic move for Catalent’s consumer health business, where our leadership in manufacturing technologies and formulation can offer customers more product development opportunities and add manufacturing capacity in this dynamic and fast-growing segment,” Aris Gennadios, president of Catalent’s Softgel and Oral Technologies unit, said in a prepared statement.

Catalent said it will pay for Bettera with cash and it expects to complete the transaction by the end of this year. When the deal closes, all of the approximately 500 Bettera employees will join Catalent, bringing with them product development, manufacturing, and packaging assets, as well as production facilities in California, Indiana, New Jersey, and Virginia.

Photo by Flickr user Marco Verch Professional Photographer via a Creative Commons license

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