Good morning, everyone, and welcome to day three of the William Blair Gross Stock conference. Our next session is Catalent. Thank you all for joining us. I'm John Kreger, the Research Analyst at William Blair that covers Catalent. Before we get into our session, I am required to tell you that for any conflicts or other disclosures, please feel free to see our website at williamblair.com. As you guys have seen us do in the last couple of days, we're going to do a 30-minute fireside chat format. I'll be directing the questions to management, but if you've got any questions that you want to pass along, put them in the chat, and I will do my best to work them into the discussion. From the company, we've got two members of management: Alessandro Maselli, the President and COO, as well as Tom Castellano, day three in the seat of CFO. So thank you both for taking the time. Tom, I think we'll start with you. Again, since you're new to the CFO seat, why don't you just take a minute to kind of give us your background and anything you want to highlight in terms of a new approach to the CFO role, given the early stage of the transition? Sure, John. Happy to do so. Thanks for the opportunity. So yeah, certainly new to the seat here, three days in, but not new to Catalent by any stretch, not new to interacting with you or investors either. Been with the company for 13 years in various different financial leadership capacities. I've built out the FP&A team, been responsible for budgeting, forecasting, strategic planning, analytical support of the company. Built out that group, played a significant role in taking the company public back in 2016. From there, expanded to build out the investor relations function for the company. I was also treasurer of the company for several years during that period as well, where we raised over $3 billion of capital in both the equity and debt markets under my tenure in that capacity. For the last 18 months or so, I've been focused on the global operational finance side of Catalent, owning pretty much operations and finance across our network of 40+ sites across all of our business units. However, I spent the bulk of my time, I'd say 75%-80% of it, immersed in the biologics business, as well as cell and gene therapy as being part of that, as the business unit CFO for that business. Obviously excited now to move into the opportunity here as CFO of the company. I couldn't be joining at a more exciting time in this role. We are coming off a record quarter here for Q3. We've been in a position to once again take up our guidance. The part I'm most excited about is inheriting a balance sheet here that's the strongest that it's ever been for the company. Levered at 2.3 times today, over $1 billion of cash, so significant firepower to continue to invest in the business both organically and inorganically and accelerate value creation. In terms of change of approach, I would say I've been part of the executive leadership team for the last six years, partnering with Alessandro and John, very close to, I'd say very close to Wetteny. And not much change here. I think we're well-positioned here to continue to execute on our strategic plan and look forward to, once again, starting to interact with analysts and investors through the role. So that's how I'd summarize it. Great. Alessandro, how about you? You've been, I believe, at the company for 11 years, but you're not typically on the investor call. So you want to take a minute and introduce yourself? Yeah, sure. Sure. So I've been in the current job for the last two and a half years, since the beginning of 2019, serving on the executive team since 2016. Prior to this job, I was the SVP of global operations, taking care of the whole network of our manufacturing sites and some other functions. And really been in the company 11 years, worked mostly across all the business units. Lived and worked in different countries. So I'm a native of Italy, but worked for seven years in the U.K. And most recently, I moved to New Jersey. It's been a very exciting journey with the company so far. Great. I think back to what Catalent looked like at IPO versus today, it's changed an awful lot. In your COO role, does that make your job easier or harder since you've got a much broader menu of services to offer? So look, so I wouldn't say it's harder. In some ways, it's a little bit more complex, but surely in many ways, it becomes easier, right, to engage with the customers and surely to deliver on expectations. So from a growth standpoint, as we've grown in biologics, clearly we've been able to further accelerate the growth of the company and the margin expansion, which was always in our strategic agenda. Also, I believe the fact that you can scale, increase the level of reliability of our ability to deliver quarter on quarter, because as we diversify the portfolio, more and more we are not really relying on any single product or segment to succeed. We have many different ways to deliver our promise of growth. I mean, also the broader portfolio helps engaging more broadly and more deeply with the customers. And so you start really to move your relationship more to a strategic level, and you move your discussion in and around what other plans, how Catalent fits in their overall strategic plan, how we can help them accelerate in value. And clearly, that brand reputation is always helpful. And I would say it's helpful on two fronts, on the customer side, but also on the recruiting side. And I think the level of talent that we need to cope with that complexities, if you like, as we add more segments to the company. Great. That's a good segue. I would love to hear what you both think about what seems to be increasing vertical integration in the CDMO industry. Seems like a decade ago, this was pretty unusual. Now it's becoming increasingly common. What do you think about that, and how far do you think this trend will go? Yeah. So look, I would tell you every move you make, in my opinion, needs to make sense in the eyes of your customers and the customer base you're trying to serve, right? So I would tell you that there is this dichotomy now. Are you better vertically integrated, or are you better having a horizontal collection of different businesses? And when you look at the customer base, really, there is a different value to the different customer spectrum when you go from one way or another. When you are more early stage with a small biotech, with the companies that have less of a structure and infrastructure, maybe they like the fact that you can provide an end-to-end service like we do, for instance, in OSD, where we really can provide seamless services from the preclinical phase all the way through commercial packaging into the lifecycle management of the product. When you're dealing with more structured customers and surely broader partners, clearly having a collection of different businesses helps you to engage in different ways, broadening the scope of the relationship, becoming way more of a strategic partner, and going back to my point, starting to move really the relationship from a tactical opportunistic level more to a strategic level, which is helpful, right, so in this industry, investment takes years to come to fruition. So it's always helpful to have an observation point that gives you the ability to figure out what is going to be the need in four, five years down the road. Should we think about integration, or do you think about integration operationally? In the future, can we think about drug substance and drug product on the same campus linked together, or is this more about a commercial strategy of bundling different services that you have to offer? So I believe you can see that both ways. We have some experience of having integrated drug substance and drug product on the same campus with our Bloomington asset, for instance, where we have a sizable drug substance facility integrated with a drug product facility. Look, especially when it comes to biologics, moving product around is not easy and somewhat risky. There is a significant requirement of cold chain control monitoring of these products. It's not only expensive, but it's also risky. You can easily generate deviations and harm to the product by just transferring the product. So there is value operationally to customers to have some level of integration. When it comes to the commercial offering, again, I believe that as you look at more of the small customers versus the large customers, I believe that large customers maybe have more of a habit of shopping around and really getting what they really need because some part of it is complementary to their internal capacity. When it comes to more small customers without infrastructure, they might value more the fact that you can quote out of a, even if not necessarily you have the asset sitting in the same campus, having to deal with one organization, one partner, which simplifies all the management process of external partnerships, is valuable to them. I believe, again, both models can provide synergies and advantages to customers. Okay, thanks. Tom, I think the next one's probably for you. The most frequent question we get is, how do we get comfortable that you're not overbuilding, that you're not committing too much capital, and when demand cools off, maybe be in a position where you've got excess supply? So can you just talk about the way Catalent thinks about that sort of longer-term capital budgeting process? And I'm thinking about both internal CapEx and also how you think about assets that you might want to go out and purchase. Yeah, sure. I can jump in here, John. Alessandro, feel free to chime in as well. Look, I would say Catalent has not deployed a, "If you build it, they will come" type of model. Every investment that we make is backed by a strong pipeline, growth expectations here tied to customers and programs that support the capital investment. And what we've seen through COVID has been an acceleration of our strategic plan, but also an acceleration of the returns that we've been able to generate as a result of those investments. What we're starting to see now is additional capacity come online on the drug substance side. We have fourth and fifth train out of our Madison facility here on the drug substance piece of the business that's in the process of coming online and starting to ramp up in terms of utilization. We're yet to have our first commercial product here on the drug substance side, but several late-stage, I would say, molecules that are trending towards commercialization, which will bode well in our ability to continue to accelerate the growth trajectory of that business and realize the returns on the investments that we're making there. Within our drug product side, we've brought on some additional high-speed vial lines within our Bloomington facility, as well as additional capacity within Anagni to support COVID-related programs, and I would say free up additional capacity on non-utilized or non-COVID-specific assets to be able to continue to drive the organic growth that we've seen around the drug product side of the business as well, so investments that we'll continue to make, we've talked about elevated levels of capital deployment within the business at 15%-16% of sales within fiscal year 2021. We've talked about our CapEx investments and the capital we would deploy organically to remain elevated through our fiscal 2022 year. But again, these are well-thought-out strategic investments that align with growth opportunities and a pipeline of molecules to support those investments. Maybe I'll try to complement the integrated answer here. So I believe, look, in many ways, it's a little bit easier exercise. You can see this way. It's a little bit easier to plan for your capacity to help the clinical development of new assets into the biologics space. As in many ways, the future is written in the pipeline. You know that there are so many assets in phase one. Some of them will transition to phase two. Pretty much, you can model out how many clinical material, clinical batches are going to be needed to support the trials in phase two. You know the patient populations. You know how big is going to be the trials in many ways. We also have an observation point on that through our CSS business unit, which really gives us an observation point to understand the size of these studies, how much material could be really required, and so on, so on the clinical side, I believe there is more of a, if you like, rigorous process where you can go through to try to model your capacity and make sure that you don't have too much capacity. When it comes to how much capacity you need to support commercial assets, of course, now you start to enter into the probability weighting of which product is going to hit and which product is not going to succeed, and it's very much paramount to have those conversations with the customers in understanding what is their plan. What we're going to announce in the next few months. We have a lot of belief that this will come to fruition. That's great. Thanks. And then a follow-up on that, if you think about layering the COVID-19 impact on sort of, I guess, an extreme example of an unexpected event, how much visibility do you have over the next couple of years about what that stream of unit output is going to be? Is this again a scenario analysis type of planning process, or do you have better visibility from your customers that you can drop into budgets? I believe, look, I would probably bifurcate the discussion around the next 12-18 months towards more the longer-mid-term horizon. I believe that our visibility in the next 12-18 months is pretty good. We made the public announcements with those regards in terms of continued expanded partnership with some of our customers. And you're aware that some of those contracts have also some protections in terms of minimum volumes and some provisions to make sure that we are a little bit protected by the volatility of demand, if any. Not that they anticipate anything, because as much as we feel happy about the U.S. and the situation improving in Europe about vaccination rates that are still huge parts of the world where the vaccination is fairly low. With regard to the mid- to long-term, I believe is what you said, John, is more a scenario planning type of exercise. And then you start to try to plan ahead and say, "Okay, what is the scenario? Is it one and done? Is it one booster? Is it an early boosting? Is it going to be only for fragile population?" And so on. And so, yes, we go through all these scenarios, and we try to have a strategic plan, which is sound, and we can deliver on expectations no matter what the scenario is going to be, right? I will also point out, though, that Catalent is associated a lot with vaccines, but I don't want the fact to go unnoticed that Catalent is also very active in therapeutics for COVID, which I believe are going to be, as the vaccinations get to a steady state, an important asset for all these slices of the population, which, number one, either doesn't get vaccinated or for which the vaccination is not going to be effective, either because they are immunosuppressed or because they are on a transplant and they need to take immunosuppressant to deal with that. I believe having effective therapeutics is going to be as important in the different avenues of treating this virus in the future. Catalent has a lot of programs also on that front, which we believe are going to give us a good rate of revenues stream in the future. Okay, great. Let's pivot to biologics. You've made a lot of acquisitions in recent years. This is your fastest-growing business right now. And Tom, you mentioned you've got $1 billion in capital ready to deploy if you need it. Are you guys happy with the asset base in biologics as it stands now? Are you still looking to make more chess moves to fill out the asset base? So look, biologics is a wide definition. So I would articulate my answer a little bit going in the subgroups, if you like, of offering there. I believe that with regards of biotherapeutics and more monoclonal antibodies, therapeutic proteins, and the likes, I believe that we will continue to invest capital to organically grow the business through our CapEx expenditure primarily. We still see the opportunity for us in the single-use bioreactor space, which is the space really we play in with the opportunities of the demand to remain strong and for us to leverage the dynamics of the market there. I believe that with regards to the gene therapy business, it's a little bit the same. We have now the platform as we have for cell therapies. So we're going to continue to invest into the platform to scale up and out and to accelerate growth there. That being said, I believe that there are still interesting areas of the biologics world, if you like, with the new modalities and new offerings, which we're always looking forward to increase the collaboration with customers. So one example is our acquisition in plasmid recently. This is really synergistic with an investment we've done in 2019, acquiring a number of facilities from Novavax in Maryland, some of which we have repurposed for other use. And one specifically was repurposed for plasmid DNA production back then. And we've been investing for a couple of years in that facility, and now we acquired Delphi Genetics to really gain acceleration and scale there. So plasmid is a good example of a type of offering in which we might enter in the future just to get a wider portfolio of offering to the customers that now Catalent very well. We have an established brand, a reputation of a company with good performance, with outstanding performance. And so sometimes deepening the relationship with addition of these other modalities and offering is an easy sale to us. I would just add to that also, John, really quickly. As Alessandro said, we're very pleased with the portfolio of assets we've been able to pull together over the last several years and branch into. I will say, as we think about other gaps, I think they're more geographic in nature than they are in terms of capability in nature. What I mean by that, I think, is if you take a look at our drug substance business as well as our gene therapy businesses, those are two nice-sized businesses that are primarily domestically focused here in the U.S. today in terms of where we have capacity. So being able to potentially bring on drug substance and gene therapy capability in Western Europe, I think that's a pretty attractive area for us to look to continue to possibly expand into. Great point. I did want to ask about the plasmid DNA. I think that was Delphi. Does that give you the scale that you want, or is this an area where you want to ramp that further to be able to fully serve your customer needs? So I believe that gives us the platform we want. In terms of scale, we're going to, as we always do with these assets, we've done the same with MaSTherCell. We've done the same with the Paragon. When we acquired Paragon, we had one and a half suites running in our campus, and now we have 10 online, and we are building. We announced a build-out of additional five, which are well underway, and a potential of additional three. So this is really what we do, John. We acquire assets, and we invest organically into them to scale them, so I anticipate the same dynamic is applying already to the MaSTherCell acquisition, and we'll be applying also to the plasmid DNA where we see opportunity to scale and to increase the size of the offering to the customers. Great. So one last one on biologics, and then we can flip over to Oral Solid. When you look beyond COVID to a more normalized operating environment, what do you view as the normalized growth for biologics that you're planning for? And is that fairly equal if you think about drug substance versus sterile fill versus what you're doing in cell and gene therapy? Yeah, I'll take this one. Look, I would say we've talked about normalized growth rates within our biologics business unit being in that 10%-15% range. I would say that's still the range in which we feel very comfortable based on the pipeline we have, based on the assets we have, and the level of utilization that we're running at today. I'll fall short, John, of being able to provide specific growth rates at the subsection sectors within DS/DP and cell and gene. But on a blended basis, we feel very comfortable about the business's ability to deliver in that low to mid-teen range in terms of organic growth. Okay. Sounds good. Fair enough. Let's flip over to your two oral solid segments. We heard from you guys and a lot of other companies that the cold and flu season was quite impactful over the last couple of quarters. How do you feel about that business going forward? Are we kind of into recovery mode with more normalized demand trends, or should we still be thinking about maybe some destocking in the channel and restrained growth? So look, first of all, I will a little bit separate out the story of our SOT business unit from the OSD business unit, really. Both of them active in the oral space, but with a very different positioning there. So really, the flu season and some of the consumer health products, which are linked to the traveling of people, have been significantly impacted, as you said. And on that front, I believe on the consumer health, it's a little bit of a wait-and-see type of game, John. We need to understand, as we enter in the next potential flu season, which is after the summer or beginning at the end of the summer in the Northern Hemisphere, how really this is going to go if the habits that we have developed for COVID, washing hands, sanitizing hands, sanitizing surfaces, wearing masks, social distancing, we became way more aware of these infectious diseases, and so how these habits are going to impact the spread of flu is a question mark, and we need to wait and see. I will tell you, though, that the SOT business was also impacted by a natural one of these cycles where you have legacy products coming off and new products coming in. We had a very successful year last year in terms of launches of new products in SOT, but some of the growth of those products was really affected by the pandemic in that the sales rep of these companies couldn't really go to the GPs or primary physicians to try to promote the products. So we are seeing there an opportunity that as the society reopens, the pickup of these products can come closer to the expectations. So in many ways, in the overall balance, we do expect and we are hopeful that SOT will be coming progressively closer to our expectations in terms of long-term growth expectations from the business. With regards to OSD, there were a couple of very discrete events this year, which we don't believe are going to be repeating in the next periods. The wins in terms of immuno molecules is very, very reassuring there. Our Zydis franchise is very, very active and very, very healthy in terms of both pipeline and growth of new products. We have some products we've read out there that even recently received very good news about expansion of the use and expansion of the indication. So we feel excited about it, and so I believe that, again, OSD is well positioned to go back to mid-high single-digit growth, as we always indicated, so again, it's a little bit of a mixed bag, yet the impact of the flu, cold, and cough, and the traveling franchise, if you like, is as to be seen as we go into the next few months. Just a quick follow-up on that. We've got about four minutes, Alessandro. So you said mid- to high single-digit, kind of longer-term growth that you're comfortable with in OSD. SOT, what's your sort of longer-term comfort level in terms of growth goal? Yeah, I'll jump in here. I would say this feels more like a low single-digit grower for us on a normalized basis, given the mature nature of the portfolio. Great, great. Tom, I got a question from the audience, which I think is a great one for you. As you guys have gotten much more aggressive on the CapEx to fund biologics, the free cash flow dynamics have gotten a lot worse compared to, let's say, five years ago. Talk about how you sort of weigh the pros and cons of that, and when do you expect your free cash flow characteristics to normalize? Yeah, no, good point, John. Look, I would say while we continue to have significant growth opportunities ahead of us here to deploy organic CapEx dollars, but are able to see the accelerated returns that we've been able to, this is going to be a tool that we continue to utilize to help grow the company. In terms of normalization here, I think as we get into fiscal 2022, we'll continue to see elevated levels of capital deployment organic CapEx for organic investments, which will have a negative impact on our free cash flow. I think as we get into our fiscal 2023, we should see that start to trend more down to our normalized levels here, which is in that, as I said earlier, 8%-9% of sales, which would really cause a nice spike in terms of our free cash flow generation ability. We haven't said exactly what those percentages of sales that will deploy in fiscal 2023 look like at this stage, but I will expect them to step down from the 14%-16% levels that we saw in 2021, and we'll likely see something similar in 2022. So this business continues to generate significant levels of cash flow despite organic investments that we're making. It will be a focus of the company to continue to look for ways to improve our free cash flow despite the level of investments that we're making. And I think there's opportunities around working capital that we can utilize here, primarily around AR and inventory that we'll look at as ways to help accelerate free cash flow generation as well. Great. Okay. We've got one more, and I'll make it another kind of capital deployment question. When I think about Catalent compared to your peers, you sort of deliberately stayed out of the oral solid API area. As the industry evolves, has your thinking about that space changed at all? Are you more or less interested in rounding out that part of the portfolio? I'll give a shot with Tom Castellano to integrate the answer. Look, we've been surely looking into the space for the last few years. Clearly, our criteria to make acquisitions and to enter in a space are always the same. Number one, our customers will look into it. Would they find that interesting for them to partner with a company that is now a more integrated offering? Does that make sense from an investor standpoint in terms of accelerating growth and expanding margins? And what is really the value creation story there? Clearly, we've been reflecting on this. Clearly, the space is seeing a new dynamics, I would tell you, John, which has to be a little bit understood in terms of the geopolitical situation, which might provide a new perspective. So again, I can tell you it's an area that we've been looking at in the last few years, and there are a few new dynamics that need to be put into the picture. Great. Tom, anything to add, or are you good? No, well said. All right. We are right at time, so let's cut it off there. Alessandro, Tom, great. Thanks for your time. Great input. And thanks, everyone, for listening. Have a great day. Thank you. Take care.