Hey, everyone. Thanks for joining us on day one of our Healthcare Conference. I'm Tejas Savant, and I cover the life science, tools, and diagnostics sector here at Morgan Stanley. I'm delighted to have Catalent join us today, and representing the company is Tom Castellano, CFO. Welcome, Tom. Before we get started, I just want to run through some important disclosures. Please see the research disclosure website for Morgan Stanley at morganstanley.com/researchdisclosures, and if you have any questions, do reach out to your sales rep. With that, Tom, do you want to just go through your safe harbor quickly, and then we can begin? Yeah, love to. Thanks, Tejas, for the time. Happy to be here. Look forward to today's discussion. Just a reminder that I may make some forward-looking statements here today, and I would just draw your attention to the risk factors that were recently included in our recently filed 10-K that we filed last week. With that, maybe, Tejas, I can just start with a couple of opening comments and then jump into some of your questions. Just want to highlight that Catalent is in the strongest financial position we've ever been in, coming off of what was really a record year for us in our FY2021, as well as a record quarter in our Q4. We did see 26% organic growth from a top-line perspective and 32% organic growth from an adjusted EBITDA standpoint. That was really driven on the heels of our biologics business and some of the tailwinds we saw as a result of our response to the COVID-19 pandemic and the strategic partnerships that we've set up with several customers that have really put us on the map from a COVID-19 and, I would say, mRNA and vaccine perspective going forward. Also want to just draw the group's attention to the recent acquisition that we did with Bettera, that we announced a $1 billion acquisition for a leading CDMO in the gummy, soft chews, and lozenge business. This is a real differentiated player in the space and a difference maker, quite frankly, for our softgel business unit. So I'm sure some of your questions will be around this acquisition, and we'll get into that in a little bit more detail through the call. Lastly, I would say, both from a financial guidance perspective, we put out a robust FY2022 guidance last week that had top-line growth of 13%, EBITDA growth from 11% to 18%, both of those being about one or two points higher on an organic basis than what you would see at face value. And that's with indications that we would see growth above our long-term at or above our long-term outlook across all four of our business segments for FY20 22. And then lastly, just the approach that we took to raising our long-term growth outlook. We've moved that from where we were 6% to 8% to 8% to 10%. And we've done that through, I would say, a shift towards biologics, where we now see biologics approaching 50% of our revenue stream at a much faster clip than we had originally anticipated. We thought that would be by FY 2024, and we've managed to get very close to that in FY 2021, and we'll get there in FY 2022. So very pleased with the financial strength of the business going into our FY 2022. Got it. That was a great overview, Tom. In a sense, you've grown up with Catalent, so I couldn't think of a better person to ask this to. In your view, I mean, how has the company evolved over the last 13 years? And on a related basis, how do you think the industry has evolved as well? Yeah, great question, Tejas. So as you said, I have grown up in Catalent. I've been here for 13 years and joined back in 2008 when we were private equity-backed under Blackstone's ownership. And it's been a whirlwind ever since in terms of what we've been able to accomplish as a company. When I first joined, I would say we were known as the softgel company. And softgel is still a very important part of our business in our SOT segment. But the strategic investments we've made to accelerate growth within our OSD business and within our biologics business, I think biologics is probably, at the time I joined the company, maybe double digits of millions of revenue. Fast forward today where we are with nearly 50% of our revenue being tied to biologics in the current fiscal year, it's just been incredible to see what we've been able to do. We've done that through a series of capital deployments, both on the organic side and the inorganic side, all of which have created, I would say, significant value for the company, for our customers, for patients, and obviously for investors as well. When I think about the industry overall and how that's developed, I would say we were probably seeing drugs in development across the industry back 13 years ago that were being a little bit more weighted towards small molecule than they are today. I think if we look at this today, it's probably 55%-60% small molecule related, and I would say that it's probably 5%-10% higher several years ago. I think we're probably seeing even over the next five-plus years more of a shift towards biologics. So for the company to have made the investments that we have to be prepared for that shift towards large molecule, I would say, has been important. The other thing I would say is we're really seeing continued momentum around outsourcing, especially for the business lines in which we have. We're talking about a very diversified portfolio of assets that we've been able to pull together in technically differentiated offerings, both on the small molecule and the large molecule side. And we're seeing more of a shift from our customers in terms of wanting to work with quality CDMO providers versus having building that capability and capacity in-house for whatever the pipeline of drugs that they may be attempting to develop and bring to market. I would also say we've seen a little bit more of a shift in terms of how CDMOs like Catalent are viewed by our customers. Going back 13 years ago, we were having more conversations with procurement folks at our major customers as just an outsourced provider versus a strategic partner, and I would say that's the role that we play today with a very diversified customer base of over 1,000 customers and 7,000 products, but customers looking at Catalent, our capabilities and what we can bring to their development and ultimately commercialization of molecules in both small and large molecule has more of a strategic partnership. Got it. That was a lot of interesting points to unpack there. But maybe we'll start with just an industry-wide dynamic of the decision to outsource versus insource and the customers building their own capacity. How do you see that trend going forward as more specialized modalities like cell and gene therapy and mRNA therapeutics, etc., enter the market? Is it sort of a net positive, a net negative, or is it sort of a net neutral dynamic where, because you're a strategic partner, the customer essentially decides to dual source as a hedging strategy? Sure. I would say counterintuitively, to hit your second point of your question there, we see dual sourcing very not many times at all. Most times we're sole sourcing products. And as I said, that may seem counterintuitive, but customers looking to get product to market as quickly as possible. And the fastest track to that is being plugged in with a single provider. Anytime you introduce another provider, whether that's in-house or whether that's another CDMO, that's another facility that a regulator has to visit, etc., that can delay the time in getting a product to market. In terms of the first part of your question, I would say at the worst-case scenario, I would say this is sort of neutral, but I would say it feels to be more of an accelerator in terms of growth opportunity as our customers look to outsource more and more. So I think over the next couple of years, we'll see outsourcing rates, which have already steadily increased over the last three to five years, continue to increase, especially to your point around some of the more complex dosage forms that we continue to participate in, both within our small molecule businesses, but obviously very much so within our large molecule business. And I think from a biologics perspective, we're seeing a lot of innovation here from customers that have been more virtual, that are not looking to have a strong pipeline, that they're not looking to build in-house capability and capacity, and are looking for strategic partner work not only with whatever the molecules are that are further along within their pipeline, but their full pipeline to be able to help with the development as well as ultimate commercialization of these. So I do think we will continue to see this industry move towards more and more outsourcing, which is obviously a bit of a tailwind for a CDMO like ourselves. Got it. And Tom, one question which we've been getting a little bit more recently as these new modalities start to scale, partly driven by the pandemic and the mRNA vaccine work, is that the advantages of a long track record and a track record of getting customers what they need on time are diminishing over time because of this acute supply-demand imbalance. So right now, if there's a new CDMO that comes up that just puts capacity on the market because a Catalent or a Patheon can't do the work for, I don't know, 12 months or something like that, that opens up the opportunity for new incumbents to make headway. Is that what you see? I would say we could certainly see elements of that, Tejas, but I would be more concerned with that if Catalent hasn't done the job that we've done to stay ahead of the capacity constraints in the industry. I mean, when you take a look at the elevated levels of CapEx that we've been deploying in our FY20 21 years, 15%-16% sales, similar in our FY2020. We've talked about a similar rate of capital deployment from an organic growth perspective in FY20 22. And that's to stay up with the capacity challenges that we have across parts of our business. And that's not a general comment that I would say crosses all 50-plus sites and four BUs that we have within the portfolio. But certainly within our biologics, we've seen that. And given the pipeline that I have, given the strategic partnerships that we've developed, we've done a really good job staying ahead of the capacity constraints. And the investments that we've made in FY 2021, where we brought on two vial lines dedicated to key strategic partners on the COVID-19 vaccines, those lines today remain dedicated to those customers. The prefilled syringe capability that we will be bringing online within our Bloomington facility later in the fiscal year, investments that we've started to make within biologics in Europe, both on the drug substance and the drug product side, that's to continue the fuel, the 10%-15% growth that we expect to see from a top-line perspective within our biologics. So I think your point is valid. However, I would say if CDMO providers that already have the well-established track record and the success in the industry from a quality and operational standpoint continue to invest and have available capacity, that's where customers will look first, and that's certainly what we continue to see and hope to continue to see into the future here. Got it. So switching gears to COVID, I mean, you didn't provide sort of specific guidance around COVID in terms of your next fiscal year's guide, but you did mention sort of the durability of that revenue stream. Acknowledging that there's a lot of uncertainty here, can you walk us through how you think about that opportunity evolving for you beyond FY 2022? And do you expect that at some point Catalent might run into a year where revenues might be flat as those COVID contributions normalize at a lower level? Maybe they don't go away, but they normalize. Sure. Look, I would say for FY 2022, we have changed the way we're going to disclose and talk about COVID, as you mentioned. We do expect it to be a growing opportunity for us here. We've talked about the fact that we don't see any meaningful COVID cliff on the horizon here, just given the multi-year duration that we're likely to see given variants, given booster shots, given the fact that we're still not dealing with certain age populations being eligible for vaccines, as well as, I would say, the general just immaturity of where COVID vaccination rates are in the rest of the world versus where they are in the U.S., where we've been able to get to higher levels than what we see in many other countries. All of those things point to us believing that this is a durable revenue stream that will be around for the long term. I would say the commitments that we have from customers also echo those thoughts. And we've talked about some of those publicly around disclosures going out to the end of our calendar 2022 timeframe, which goes well into our FY 2023 timeframe in terms of minimum volume requirements with many of the strategic partners that we're working with from a vaccine as well as other COVID treatment perspective. And then we can't underestimate, I would say, the fact that Catalent is now an established player in the advanced vaccine space. And I do think that that's going to be a strategic platform that's now opening up for us that we didn't necessarily have access to pre-COVID. And I think we could very easily see customers that we're working on today that have dedicated space in our facilities wanting to keep dedicated space for their pipeline of other vaccine-type products in the event that we started to see COVID wind down or tail off. So I'm not going to provide specific guidance in could we ever see a flat or a down year in biologics other than to say we talk about a continued long-term growth outlook that business from 10%-15%. We've talked about Catalent overall increasing our revenue consolidated long-term growth outlook to 8%-10% and feel like we have line of sight to that for years to come. So that's how we think about COVID and what that could mean outside of FY 2022 from a revenue contribution perspective. Got it, and one of the comments that I thought John made on the earnings call, which was quite interesting, was the point around new formats like single-dose vials and prefilled syringes being a net positive for you because you're paid per fill rather than per dose. Is that something that you essentially see as upside or have you sort of factored that in in terms of how you think about the COVID outlook internally? So we're in very early innings around that changeover. We could very easily see a shift from not only fewer doses per vial, as John mentioned, but even to prefilled syringes, which is a very common way to deliver vaccines. You think about flu vaccines in your general practitioner's offices, that's typically through a prefilled syringe. So we could be heading that way from a COVID vaccine perspective as well. I would say it's very early, as I said, to be able to tell what that means from a tailwind. And what we know today is what's factored into our guidance for FY 2022. I will say this is certainly not something we view as a headwind for the company. If we were to see a shift to fewer doses per vial or even prefilled syringes, at the worst case, it's economically neutral and there's a chance it could be a bit of a tailwind here, but certainly nothing that I would say we know today and are committing to or have factored into FY 2022 just based on, as I said, factoring in what we knew at the time of guidance and from a take-or-pay minimum volume requirement perspective, as well as commitments from customers being what we included from a guidance standpoint. Got it. You've recently acquired a couple of businesses on the biologics side. I mean, there was RheinCell for iPSCs and Delphi Genetics on the plasmid side. What do you see as key remaining gaps in your portfolio, and how are you thinking about sort of filling them organically versus continuing to buy up assets that make sense? Sure. Yeah, so we continue to be more of a first and foremost organic growth company, and the levels of CapEx that we've been deploying recently certainly speaks to that, Tejas. I would say that the deals you mentioned within biologics were relatively small, but great acquisitions in terms of strategic rationale and what they can bring to the table, just not overly material from a financial contribution right out of the gate here, and right now, our biologics business has a lot to digest. We've done a lot of organic investments as well as inorganic investments, and we're in the process of making sure we integrate and bring on new capacity to be able to continue the growth trajectory that we see in that business. From an M&A perspective, we've more recently mentioned the Bettera acquisition, which was not a biologics investment, but I just think it speaks to the breadth of the pipeline that we truly have on the M&A front. Catalent has built out a very robust internal corporate development group that has a significant pipeline of assets that we currently look at from both a small molecule and large molecule, and both from a tuck-in and transformational perspective. And that's what I can say here. So I can't think of anything in terms of legs of the stool here that we don't necessarily have today that we're looking for, other than we continue to have a significant pipeline of both small molecule, large molecule, and tuck-in and transformational type acquisitions that we continue to look to cultivate relationships with donors of those assets. And we know exactly strategically what we're interested in and try to find ways to turn deals that may not be transactable into transactions and then run the Catalent play of being able to scale those up and create value as a result of that. And that's been pretty successful for us as we look at the last few deals we've done going back to 2017 when we did the Cook Pharmica acquisition. That's become what we refer to as our Bloomington site and has really been the site that's been instrumental along with our Anagni acquisition in Italy. Both of those have been really instrumental in helping us play the role we have in terms of the global pandemic. Got it. And with a number of pharma patents rolling off here, how do you think about biosimilars fitting into that long-term growth profile for the biologics segment you've laid out? Would that be upside? Because it seems like a two-speed situation with biosimilars, more adoption in certain geos versus others. Yeah. Look, I don't necessarily think about biosimilars as having a material impact for the company in our biologics business. I think we're more likely to see biosimilars materialize with larger scale products that you would not fit well into the drug substance capability that Catalent has today, given that we've been very focused on the sub-5,000-liter single-use bioreactors. And you're more likely to see biosimilars materialize for products that may need 25,000-plus liters of capacity. And you look at Catalent's drug substance capacity cumulatively across our network, it's in that sort of 20,000-30,000 range here. So I don't view biosimilars as either a headwind or tailwind for the company. I think our pipeline certainly has some bio-sim activity, but I would say it's more on the innovative side or the innovator side that we see the most opportunity. Got it. Prior to Bettera, and we'll get to that in a second, biologics was about sort of 48% of the overall company. From that perspective, I mean, the question that we've gotten is, is 50% too conservative in terms of a FY 2024 target? Yeah. So it's a great question. I mean, when we put that target out there, we were in, it was January of 2020, I believe. And at the time, we were probably looking at a biologics business that was 30% or 32% of the total portfolio. And fast forward a year and a half later, and we're standing here today approaching 50%. And we'll probably get there in the FY 2022 timeframe. So look, at this stage, we're happy with where we are from a biologics standpoint. We feel like we have the right mix. We continue to feel like this business is going to grow off of its new higher base with the COVID business included in that 10%-15% range. It's given us the confidence to be able to increase our long-term consolidated growth rate as a company from 6%-8% to 8%-10%. And then from a margin profile, we also highlighted at that disclosure time that we were going to be looking at taking the business to a 28% EBITDA margin by 2024. And we continue to feel like we're on track for that. And the shift towards biologics and its margin profile and the margins we can continue to drive out of that business is a big contributor of how we have the confidence to be able to get to that 28%. Got it. Quickly on segment margins here. I mean, you've called out sort of pass-through revenues with some of the COVID work as coming with a lower margin profile. You've also got the CapEx investments in cell and gene therapy. How do you see that impacting segment margins here for biologics next year? Yeah. So we don't typically disclose the margin profile of each of our segments, Tejas. We did obviously get some questions around the Q4 margin in FY 2021 related to biologics, which was at 31%. And I mentioned on the call that that was in line with management's expectations and where we thought we'd see the business. The headwinds related to the pass-through revenue on the consumables is certainly a driver of that, as is investments that we continue to make in cell and gene therapy, but not necessarily on the CapEx side, but more on the operating expense perspective. And bringing online some relatively immature or earlier stage assets within cell therapy, particularly that are operating at margins that would not be living up to what you would expect from a business that's operating at scale, which we're not seeing from that business at this point in time. So that having a little bit of a headwind to margins within that segment also. The last thing I would say around this, the margin profile within biologics is this is also a business that's still very heavily weighted towards development revenue versus long-run commercial revenue. And anytime you see that, you can see more variation in any 90-day period from a margin profile. And that was part of what we saw in the Q4 as well. So look, I ended the last question talking about the 28% margin growth profile that we feel like we're on pace to continue to drive the business towards. We are. We can't get there without margin expansion within biologics, which is 50% of our overall portfolio. So hopefully that's at least a directional indicator for you and for others that Catalent feels like there's opportunity to expand margins within biologics to help us drive towards that 28% goal without talking about what that specific target is for the biologics business. Got it. Fair enough. Softgel, the question that we've been getting after the print was just the degree to which a normalized flu season is factored into the guide and in a sense, I mean, the continued recovery here for cough, cold, and OTC pain relief? Yeah. So we're certainly seeing the right signals here. And I think that's what we alluded to on the call. I would say what we've assumed from our guidance perspective, I said in my opening remarks that we expect every one of our segments to grow at or above its long-term outlook. So for Softgel on a pre-Bettera basis, that's a 3%-5% top-line growth rate, which we have a lot of sight to today. We're certainly seeing a bit of the recovery, as we mentioned, or signs of that. But we're not getting out ahead of our skis here and saying that what we expect to see is a 2X type growth profile to recover for the year-on- year and a half of challenges we saw in the business. Just as we said within biologics, biologics now has a new baseline, and we expect that base to grow at 8%-10%. I would say, sorry, 10%-15%. And I would say we see the same thing on the SOT side. On the flip side, which is now our SOT on a pre-Bettera basis, is now at its new baseline. And we expect that business to start to return to its normal growth rates of 3%-5%. We also get the benefit of taking a look at what we're seeing from a cough, cold, and flu season in the Southern Hemisphere here. And we're seeing some, I would say, directional improvements, although not any significant step change. So again, just confidence in being able to return this business to its 3%-5% growth rate, but just doing it off of the new baseline in which it operated out in FY 2021. Got it. Switching to Bettera, I mean, can you just walk us through the growth algorithm that gets you to 20%? I mean, it sounds like the market itself is sort of near about in that range, and Bettera is sort of the number two player there. So is it essentially just sort of making sure they keep doing what they're doing that's factored into the guide here versus share gains or versus sort of new customer acquisition? Sure. So Tejas, we certainly are seeing the nutraceutical market grow probably more in line with what we see from a drug perspective, which is somewhere in the 4%-5%. But we've seen the gummies and soft chews growing at about four times that in the high teens% basis. This is also an industry which the levels of outsourcing, like we talked about earlier, are actually already exceeding what we see in a typical CDMO business. This is about two-thirds outsourced today around the gummies, soft chew, lozenges, which again is a tailwind for the business. The business has, over the last couple of years, been growing in that 20% range. We have a line of sight to that continuing for the reasons I just mentioned around the strong market dynamics, but also around the, I would say, the success and track record that this business has had as a number two player in the space that's also done a great job in staying ahead of the capacity constraints that we see across the industry. This is an industry today that's capacity constrained, very similarly to what we've seen in biologics. They've done a good job in taking the Catalent approach, which is staying ahead of those investments and bringing on or inheriting, which is what we would be doing, some in-flight capital projects that give them the ability to continue the growth trajectory that they see. I'd also say there's an opportunity here. I mentioned in my opener, this is a gain for our SOT segment. There's synergy opportunities here both on the revenue side and the cost side here quite frankly in terms of customers that we're working with on the VMS side that never had access to gummies through Catalent, now having that through Bettera that aren't currently working with Bettera and vice versa. So we do think adding this to the portfolio is going to be a real differentiator for our SOT, VMS, and nutraceutical customers. The other thing I would highlight here within this business is gummies may have seemed like it was a bit out in left field for some analysts and investors when we announced a transaction, but this is right in our strategic wheelhouse when we think about the fact that we've been talking about internally a gummies business for the last four or so years through our annual strategic planning process with SOT and even took a shot at building out this capability in-house organically and proactively for our customers' needs and demands, and we just haven't been able to crack that code. There were two things we couldn't get right, which was the taste and flavor profile, which comes into play with the gummy, but also the texture and consistency of that as well. With some of the leading formulation and development experts that work in our SOT segment, we weren't able to get across the line on this technology. So found the asset that we wanted and went after it by cultivating relationships with the owners and looked for a way to turn a non-transactable deal into something that was transactable, and we couldn't be happier to have the Bettera team as part of Catalent's portfolio. Anytime you want people for doing taste tests, feel free to send gummies my way. Will do. Switching gears to wellness, Tom, a little bit of portfolio pruning there recently. You bought the spray drying facility from Acorda. You've divested BFS. Is the business sort of in a happy place in your mind at this stage? Yeah. I would say it is. I mean, and I really feel that way about Catalent overall. I mean, we're constantly looking at the portfolio to figure out what fits and what doesn't, what gaps do we have, what can we add to the portfolio. But obviously, we'll continue to do that, but very pleased with the portfolio of assets that we've pulled together within OSD and across the portfolio in general. And I think, as we said, OSD is another example of a business that will be returning to its long-term growth rate here in FY 2022. And that was assumed in our guidance. And again, that's on an organic basis as we will have three quarters of a headwind related to the divestiture of the blow-fill-seal technology, as you mentioned, which closed at the tail end of our fiscal Q3. That was out for the Q4, but in FY 2021 through Q1 through Q3. Got it. The respiratory product recall, that's largely behind you now. But are there any sort of learnings here in terms of measures you can put in place to mitigate the impact from these kind of ad hoc events? I mean, perhaps on the recall cost front or some such, or is it just the nature of the business Catalent is in and it tends to average out at the company level? Yeah. I would say it's the nature of the business we're in, Tejas, but this one felt a little bit more sizable because of the profit share arrangement that we had related to this particular product from a product participation standpoint. I would say the number of products that we have in the portfolio that fit into that type of mold are, you can count on one hand or less than that even. So this is part of operating in a highly regulated space. I think for us to have that type of headwind like we had over the last year and still be able to deliver what's a record year for the company in FY 2021 really and drive revenue growth that we did in the 26% range and get to an EBITDA of over $1 billion speaks to the diversification of the portfolio, which I really do believe is a strength of the company. Got it. And then quickly in terms of just the margins here, I mean, any supply chain or wage inflation pressures that you see creeping up? And do you still feel good about your ability to pass those through to your customers to a large extent? Yeah, we do. And I would say we took a very conservative approach here from a wage inflation perspective in terms of what we put out from the FY 2022 guidance. So we've done a great job internally in identifying this as a potential headwind, staying ahead of it in what we've put in. And anytime that on the supply chain side, if we have the ability, many of our customer contracts do have the ability to pass those on, we look to do so where we could. So I would say no surprises expected on either front from a FY 2022 guidance perspective. Awesome. And just to wrap up, Tom, I mean, one of the questions that sort of investors scratch their head about sometimes is just the valuation discount for Catalent relative to some of your peers. What do you view as the most underappreciated part of the Catalent story today? Well, that's a tough question. I'm not going to comment around the valuation for sure. I'll leave it to you, Tejas, and the rest of the Wall Street experts. But I would say as we look at the portfolio, it's really the diversification of the portfolio that I think is underappreciated from time to time. And we do get a lot of times questions these days around biologics, biologics, biologics. And I think we really need to take a look at the well-balanced, diverse portfolio that we have. There's growth trajectory here within our small molecule businesses. We're extremely happy with those businesses, what they're able to do and generate from a revenue margin and cash flow perspective that have given us the ability to be able to continue to invest both organically and inorganically in the higher growth businesses like biologics. So I would say looking at Catalent as a well-balanced company with significant diversification is one of the things that I would say could sometimes be underappreciated. Awesome. That's a great place to wrap it up. So thank you so much for your time today, Tom. We appreciate it. And hope you have a productive rest of the conference. Great. Thank you, Tejas. Appreciate it. Thank you.