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Catalent delivers with $871 million biotech IPO

A high price for a groundbreaking treatment.A high price for a groundbreaking treatment.
A high price for a groundbreaking treatment.Photograph by Dwight Eschliman—Getty Images

Catalent, a biotech company that develops drug delivery methods, priced its shares on early Thursday at $20.50 apiece, at the mid-point of its expected range, as part of a plan to raise a total of $871.3 million in its initial public offering.

The Somerset, N.J.-based company will begin trading on the New York Stock Exchange under the ticker CTLT on Thursday.

Catalent works with pharmaceutical companies like Johnson & Johnson (JNJ), Novartis (NVS) and Pfizer (PFE) to determine the best way for patients to take new drugs, as well as vaccines and generics re-packaging. Catalent develops everything from extended-release tablets to respiratory inhalants to eye-related solutions.

While the company has struggled to turn a profit over the past several years, sales of its pharmaceutical products brought in about $1.8 billion in 2014. Catalent also has financial backing from private equity firm Blackstone, an assuring seal of approval for some investors.

Blackstone (BX) bought an 86.3% ownership stake in the company in 2007, and it will maintain majority ownership even after the IPO. The private equity firm now holds about 55% of shares.

Biotech companies have had a banner year on the public market. The Standard & Poor’s biotech index gained 18.2% since the start of the year, blowing past the S&P 500’s 6.4% year-to-date gain.

The strong showing has brought more healthcare developers into the market. In the second quarter, U.S. and European biotech IPO announcements reached an all-time quarterly high when 33 companies indicated they would go public in the near future, according to Bloomberg data.

Biotech companies raised about $3.4 billion dollars in the first half of the year, and another 20 companies are on track to list their shares in the second half.

As the $800 billion market for pharmaceuticals grows, driven by aging Baby Boomers and growing demand in China, Catalent is hoping to cash in by working with drug makers to develop more efficient medicine delivery methods like super-fast dissolving tablets and single-dose pre-filled syringes.

The drug-delivery industry is highly fragmented. Catalent, which has already bought five companies over the past five years, doesn’t have any direct competitors, it said in a filing. At the same time, many pharmaceutical companies plan to keep this sort of work in house—about 30% of industry spending is outsourced today.

The company is highly dependent on the fortunes of its pharmaceutical clients. Any decline in drug sales recorded by the likes of Pfizer or J&J could have a major impact on Catalent’s sales.

The firm plans to use part of its newly raised cash to pay off debt, and it will pay $29.8 million in termination fees to Blackstone and other existing owners.

Catalent’s offer was managed by JPMorgan and Morgan Stanley.