Catalent stock launched higher Monday on a rumor that Danaher could acquire it in a bid to compete with Thermo Fisher Scientific.
Bloomberg reported Danaher's potential interest on Saturday. RBC Capital Markets analyst Conor McNamara says the deal makes sense "strategically and financially."
"But longer term, we don't know whether this is the best use of (mergers and acquisitions) capital for Danaher and question its ability to compete with Thermo," McNamara said in a note to clients.
On today's stock market, Catalent stock soared 19.5% to close at 67. Danaher stock sank 2.3% and ended the day at 263.75. Representatives of Catalent declined to comment in an email to Investor's Business Daily. Danaher representatives didn't return a request for comment.
Catalent Stock: Rivaling Thermo
Catalent is a contract development and manufacturing company, or CDMO. These companies offer drug development and manufacturing services for pharmaceutical companies. Meanwhile, Danaher is pushing into the bioprocessing segment with a series of recent acquisitions.
The addition of a CDMO would allow Danaher to compete more directly with Thermo. Thermo is now a one-stop shop for biopharma companies with the acquisition of a CDMO called Patheon in 2017 and the takeover of PPD, a contract resource organization, in 2021.
"But Thermo would have a five-plus years head start and has a long history of integrating/cross selling, which Danaher has never done," McNamara said. "We believe that if a deal were to be announced, it would validate Thermo's one-stop-shop strategy."
Catalent stock rocketed to its highest point since late October on the news. Shares have a low Relative Strength Rating of 14, however. This reflects the recent setbacks. The RS Rating is a 1-99 measure of a stock's 12-month performance on Wall Street, according to IBD Digital.
Adding A CRO?
To effectively compete, Danaher would also have to take on a contract resource organization, or CRO. These companies help ease the path to drug approvals.
He suggests Bio-Rad Laboratories or Illumina could help Danaher on the analytical instruments/drug discovery side. Further, Repligen or Maravai Lifesciences would be helpful for drug production.
McNamara also notes Catalent has faced a series of recent setbacks that have lowered the valuation of Catalent stock, making this a good time for Danaher to pounce.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
