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Summary

  • CTLT, global provider of drug delivery technologies and solutions, plans to raise $871.2 million in its upcoming IPO.
  • CTLT is a leader in a field with massive barriers to entry; and has done particularly well under Blackstone's leadership (despite many cases of excessive compensation).
  • CTLT's proven ability to build relationships with the world's largest drug developers should serve it well moving into the future.
  • We suggest investors consider buying into this Blackstone bailout IPO despite huge debt load.

Catalent, Inc (Pending:CTLT), global provider of drug delivery technologies and solutions, plans to raise $871.2 million in its upcoming IPO.

The Somerset, New Jersey-based firm will offer 42.5 million shares at an expected price range of $19-$22 per share. If the IPO can reach the midpoint of that range at $20.50 per share, CTLT will command a market value of $2.5 billion.

Filing, Underwriting

CTLT filed on January 24, 2014.

Lead Underwriters: J.P. Morgan Securities LLC; Morgan Stanley & Co. LLC

Underwriters: Blackstone Advisory Partners (NYSE:BX); BofA Merrill Lynch; Deutsche Bank Securities Inc; Evercore Group L.L.C; Goldman, Sachs & Co; Jefferies LLC; Piper Jaffray & Co.; Raymond James and Associates, Inc; Wells Fargo Securities, LLC; William Blair and Co., L.L.C

Summary: Long-Term Relationships, Array of Product Successes

CTLT is a global provider of drug and health product delivery technologies, including small molecules, large molecule biologics and consumer health products.

CTLT's solutions have been involved in almost half of the new drug products approved by the FDA over the last ten years, and the firm produces over 70 billion doses for nearly 7,000 products per year. Major customers include Johnson & Johnson (NYSE:JNJ), Pfizer (NYSE:PFE), GlaxoSmithKline (NYSE:GSK), Novartis (NYSE:NVS), Merck (NYSE:MRK), Teva (NYSE:TEVA), and many others.

CTLT often forms long-term relationships with its customers lasting over the course of a given product's lifetime, and the complexity and specificity required of the firm's solutions often lead to CTLT's inclusion in its customers' regulatory filings. The firm holds some 1,300 patents and patent applications related to its products. CTLT's numerous technologies include its oral dissolving tablets, softgel capsules, unit dose liquids and many others.

The Blackstone Group acquired CTLT in April 2007; the firm had previously been the Pharmaceutical Technologies and Services segment of Cardinal Health (NYSE:CAH). CTLT has seen consistently growing revenues since Blackstone's takeover, and has also seen declining losses, though it has not yet achieved profitability.

Valuation

CTLT offers the following figures in its S-1 balance sheet for the nine months ended March 31, 2014.

Revenue: $1,308,100,000.00

Net Loss: ($11,800,000.00)

Total Assets: $3,091,000,000.00

Total Liabilities: $3,486,900,000.00

Stockholders' Equity: ($400,000,000.00)

Product-Only Competitors

CTLT competes with various other firms on a product-by-product basis, but has no directly comparable competitors.

The firm may face problematic competition in some markets from firms with greater financial resources, as well as in markets where its intellectual property rights may not be respected, such as India.

Management Highlights

President and CEO John R. Chiminski has served in his current positions since March 2009.

He previously served in various in engineering, operations, and senior leadership positions with GE Healthcare over the course of more than two decades, including stints as the President and CEO of GE Medical Diagnostics, Vice President and General Manager of GE Healthcare's Global Magnetic Resonance Business, and Vice President and General Manager of Global Healthcare Services.

Mr. Chiminski received a B.S. from Michigan State University and an M.S. from Purdue University, both in electrical engineering, as well as a Master in Management degree from the Kellogg School of Management at Northwestern University.

Conclusion: As An Industry Leader, Strong Reason to Buy

We are positive on this IPO in the proposed range. Recent Blackstone IPOs have performed well out of the gate and we are hearing that the deal is building and over subscribed.

CTLT is a leader in its field, and its ability to fend off competition through the massive barriers to entry in terms of technical know-how, proprietary technologies, and manufacturing demands should help to keep the firm in its leadership position.

CTLT has done well under Blackstone's leadership, though some of CTLT's employees have been massively overcompensated given its continuing losses; President and CEO John Chiminski's total compensation exceeded $5.3 million in 2013.

CTLT's proven ability to build relationships with the world's largest drug developers should serve it well moving into the future.

We suggest investors consider buying into this IPO.

We invite readers wishing to join the discussion on IPOs to click the +FOLLOW button above the title of this article -- and those looking for the latest developments to click +Get real-time alerts.

Note: As a large sample of information sources does not yet exist for CTLT, we have taken much of the information for this article directly from CTLT'S S-1 filing.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in CTLT over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Catalent IPO Should Rock Given Blackstone Backing