Welcome to the 2022 Jefferies Healthcare Conference. My name's Steven Couche. I'm filling in for Dave Windley, who described himself as being in COVID quarantine prison. Hopefully, he can get a couple of negative tests and join us either tomorrow or Friday. I'm joined by Tom Castellano, Senior Vice President and Chief Financial Officer, and Alessandro Maselli, President, current COO and incoming CEO as of July 1st. Is that right? Yeah, in three weeks. Three weeks. Okay. And do you get to keep the President title? Yeah. Yeah. That's good. Okay. Well, thank you so much for being here. So the first question would be, it seems like Catalent has elevated its brand during the pandemic period. Was that something, was that an initiative internally, or did that just sort of happen as a result of where the business was positioned? And then how has that accelerated your business development? Yeah, sure. So number one, I believe it's always a combination of many things when something like that happened. For sure, in the period between 2016, 2017, and 2018, we were very mindful in making some targeted investment in areas which we believed would have been in high demand. Look, of course, everybody believes that what happened to the pandemic was a complete surprise, that in many ways was. But clearly, the fact that some of these modalities in infectious disease space would have required vials was something that was already there since a few years. So we decided back then to make significant investment in vials capacity. We did see the combination of requirement from the biologics pipeline combined with some of these therapeutic areas with the new modalities with requiring a high level of freezing capacity should be something that would have been a high demand area. In fact, that happened. At the same time, as at the time we were seeing that, in the meantime, we saw that there would have been a shift of demand towards prefilled syringes, all of these under isolator capabilities. There were trends. We saw them coming. We made early investment into that. And what the pandemic really did is that the utilization of those assets got to the point of where it is our sweet spot, so to speak, which is fairly high for us CDMO, much quicker than we planned. Not only this created an acceleration of the capacity utilization, but also an acceleration of the return, accelerated the cash flows generation, which allowed us to put additional cash at work, which we deployed primarily in other areas where we were seeing the same kind of trends in terms of high demand, namely, again, prefilled syringes, lyophilization when it comes to drug product, when it comes to drug substance, surely multi-modalities suites in our Baltimore campus. So there were a number of things. The brand clearly is at the highest level ever. Surely the pandemic made the Catalent brand known in a much wider space. Now, even my mom in Italy knows what Catalent is. She never knew about it because of the vaccine work. So that's a good indicator of how spread now the brand is. Great. And has that been able or has that reshaped or changed the way you go to market because the brand is open? Well, I do believe that the market itself is a little bit changed. And I do believe that there was something happening already in terms of the role of CDMOs in the ecosystem of the industry. But when you look at where only 10 years ago CDMO was, was primarily an opportunistic move from large organizations where either they didn't have the technology, which we did, like soft gels, for instance, or they offloaded assets which were at the end of the life cycle. And I do believe that just already before the pandemic and look, clearly the pipeline has changed, has moved much more towards emerging biopharmas, small companies, virtual companies with less infrastructure, which of course rely much more naturally towards CDMOs. So there is a change in the pipeline. But also, I believe that the pandemic validated the fact that there is value in establishing partnerships, strategic partnerships with CDMOs also for large organizations. The thing is that even for them, new modalities are bringing a lot of opportunities from a differentiation standpoint, but also challenges from a capacity capital planning standpoint. Though these patient populations are fairly small, some of these modalities are designed to run out of patients. Like gene therapy is a cure, right? So after a period of time, the patient population naturally is successful, decreases. So all in all, this has created a little bit of structure of the space. And the pandemic has validated the value of the partnership with even for large organizations with the larger CDMOs. So in that regard, the market has changed a little bit. And so our focus in account management and in working with our customers across the portfolio as opposed by each individual deal has surely been enhanced in this period. Great. And we have a couple of questions on CGT in a little bit. But first, I'd like to hit on growth. Between acquisitions and organic CapEx, you've added significant capacity across many capabilities. Can you talk about the commitments and the demand visibility you have that's underpinning those investments? Yeah. Look, I believe that the planning capacity in CDMOs is a little bit more sophisticated than that. It's not only based on big trends. The reality is that this is an industry where the value is not evenly distributed on assets, right? So when you look at the landscape of the space, currently there are 4,500 approved prescription products out there. But when you look at how the value is concentrated across these products, it's very concentrated in very, very few assets. So our ability needs to be, number one, to understand the pipeline, know the pipeline in depth across the different phases of the clinical development, phase I, phase II, phase III, but primarily phase II, phase III when it comes to manufacturing services, and try to anticipate what are the capabilities that are going to be needed by this pipeline, right? So when you look at the pipeline, clearly it's suggesting that prefilled syringes under isolator is an area that is going to be in high demand. And so that's an area where we will invest in, that we continue to invest. So I believe that there is a lot of work and a lot of science, data analysis we apply to the pipeline, trying to anticipate what are going to be those needs. At the end of the day, our job is to have the right asset at the right time available to the assets that come to market. And so far, we have been fairly successful in that, so. Okay. And then when we think about or we try to sum up all the investments you're making, is there a rule of thumb? It's probably going to be an overgeneralization, but where maybe $1 of CapEx could lead to X dollars of revenue at some point in the future full capacity, or maybe just give us a framework to think about the conversion of CapEx to revenue? So look, it's hard to answer this question across the board because there is such a variability. There are assets that get to revenues a little bit faster, like a drug product. By the very nature of the investment, it tends to be faster in implementation, and the pickup of revenues can be faster. When you go to drug substance, that period can be a little bit longer, especially now with some of the challenges in procuring some of the equipment and the single-use components. But overall, I believe that when you look at those investments, you're looking at returns in the period between three and five years. So you can reverse the math on that one with, again, drug substance more on the longer end of the spectrum. It's not possible really to establish a strict relationship with $1 spent in CapEx and $1 spent, and this should be different across the board. I got to tell you that that's true for the new modalities and biologics. When you look at other assets that we've been recently investing in, like gummies, that's an area in consumer health where you really see faster returns in terms of not only the amount of CapEx that is required, but also the speed to revenues in that space is surely more attractive. Okay. So now we'd like to transition into biologics. So gene therapy, you have 10 active suites, eight more on the way. I guess the first question would be, are the current 10 fully utilized? And then sort of the same question as the last one, but how can we think about the ramp and the eight suites that are coming online? Will they be fully or mostly utilized in what timeframe? Right. Right. Number one, when we think about those suites, we refer to them primarily as biomanufacturing suites, meaning that they are designed to be fungible across a number of different uses. Now, we all love to refer to them as gene therapies, but the reality is that we should be more thinking about AAV, adenoviruses, mammalian cells, fermentation, and whatever. So there are a number of things that you can do with a bio suite in which you can house bioreactors. That's one part of the answer. I believe that we have a mix of different models in the way we think about these suites. There are some of them that, in fact, are dedicated to customers, so meaning that the customer is dedicating, and that's a model of business that you can refer to as reservations with fees and whatever. There are others that are more provided to customers on a batch-to-batch basis. I tend to believe that for commercial products, it's better for us to be a small level of batch-to-batch, right? Because at that point in time, there is more visibility on the volumes, and so you trade less for the, so to speak, visibility because it's there. It's written in the patient populations, and the way the pickup, the treatment is getting on the market. When you are more early stage, you want to leverage more on the other type of model, so there is not one size fits all in these suites. I would say that we are pretty happy with the utilization of the first 10, and we can't wait for the additional eight to come because there are a lot of things we can do with these biosuites. Can you give us some sense of if you're starting to see clients commercialize products across those suites, or maybe what mixes commercial versus developmental at this point? Surely there is no doubt that the pipeline is maturing, right? So when you think about our history there, first Paragon and then us, the pipeline takes probably five to seven years to really get to a level of maturity, and we are about that time. So when it comes to us, not necessarily high utilization corresponds to commercial. Already in phase III, the amount of material that is produced to support clinical trials is fairly sizable. So I believe that we are fairly happy with the maturity of the pipeline in gene therapies. What I'm going to add, though, is that in cell therapies, for sure, there is. It is. It appears to be, and we are seeing more and more trends where there are some commercially approved treatments that are trying to find a place because they are seeing a significant pickup in the market. And so maybe the initial thought capacity needs to be supplemented with additional ones. So if you like, that's a little bit what is behind our moves in securing some additional facilities in the cell therapy space. Great. Which was the transition into cell therapy. So MaSTherCell was your early stage entry into the space. You just sort of touched on maybe some of the commercial opportunities in cell therapy. Can you maybe just zoom out a little bit and give us a broader picture of the pipeline in cell therapy? Look, the pipeline overall is as big, if not bigger, than gene therapies, right? So the thing is that the biggest difference is that the therapeutic areas are so very different. So when you are thinking about liquid tumors, the patient population is just much bigger. Now, what limits at the moment the patient population is that at which stage of the therapeutic protocol you are. You are the first line, the second line, third line, fourth line, right? So there are a number of things that put these approved products on the third line of treatment. But if they step in the second line of treatment because of the very good efficacy data that they have, then the patient population just becomes much bigger. So there is somewhat in the commercial phase, more need for volume intrinsically because of the patient populations. I just want to remind that MaSTherCell was an initial move. But in the Gosselies campus, following MaSTherCell, we did two additional acquisitions, three actually additional acquisitions. Some of them were just assets, brownfield type of investments where we bought some already built manufacturing space from some other innovators, and we feed them for cell therapies. And then we also acquired Delphi for plasmid DNA. So again, that MaSTherCell was just a move. Probably was not as visible in the news that in the Gosselies campus, we kept doing acquisition to accelerate creating manufacturing footprint because, again, this is an area where volumes tend to grow pretty fast depending on how the protocol of the treatment is approved. Okay. Great. Maybe a couple more specific questions. So for COVID, are you seeing clients transfer to or transition to smaller vials for primary packaging? Is that happening yet? We've sort of all been anticipating this move for some time, but it hasn't happened in full force. So look, the fact that it is happening in our world, that doesn't mean that it's happening necessarily right away on the market, meaning that you always develop in the background new presentations, new formulations, and so on. And there is a lot of work that's been done, engineering batches, validation work, getting ready for. I will not comment on the pickup of the market of these new presentations, but I can tell that there is work being done at our shops to try to validate these different presentations. I'll just add to that that we made a point to de-risk our COVID revenue contributions when we talked about our fiscal 2023 year for next year having line of sight to revenue growth in line with our 8%-10% range. And there's been no assumptions made in fiscal 2022 or around fiscal 2023 that there will be a change in format across the market. So I just wanted to make sure we clarified that point. Okay. Great. And then are you able to add any color on the size of the recently announced tech transfer deals in the fill-finish space? So look, it's always our position that we never comment in the specifics of customers or products. Catalent is a global organization with a pretty sizable footprint. There is a lot of customers, a lot of products, and so on. What I can tell you is that we were very, very intentional in creating capacity for some therapeutic areas which require a sizable amount of capacity. And some of these are lending themselves there. So we are working to make sure that we have enough capacity for these assets. Some of those tech transfers are not necessarily new products, but there is an overall movement of the market where products, even historical products, get transferred somewhere else, not necessarily because more capacity is needed, but because there is a desire to increase the level of compliance or the level of the technology that is being used. So maybe these are products that were made with former technologies like RABS or less sophisticated assets, and they get moved into the isolator technology, which is the state of the art today for drug product filling. So there are a number of movements behind these tech transfers. We're pretty pleased with our commercial successes in that area. Okay. Thank you. On monoclonal antibodies, you have the Oxford, Bloomington, Madison facilities. I guess, how should we think about the overall strategy in drug substance? Yeah, sure. So I believe that the way you should think about it is that we don't necessarily want to be a technology player. We want to be a player that provides faster, better development of products to the market, meaning the timeline from start to having a stable, very productive high-diverse cell line. We want to be the company that has the best or one of the best technologies out there. So that's the value proposition. That's very much the reason why we decided not to play strategically into large-scale bioreactor, but we're very much concentrated in sub-5,000 L bioreactor. That doesn't mean that we have only sub-5,000 L. There are designs where you can have a ballroom in which, in the same room, you have many bioreactors, and in fact, you can run in that room even up to 8,000 L and so forth. But the two things are synergistic to each other because the better the titers of the development, the less you need large bioreactors. And the thing is that especially in the oncology space and how targeted are these treatments, the patient populations will never be gigantic. And so all of these single products have, I would say, not huge volumes, but if you combine that with the high titers and with the very high productive cell lines, then the single-use bioreactor sub-5,000 L, it is the right capacity for most of the pipelines. So that's how we think about it, and that's why we kept investing in Madison. We have the two lines, two additional trains coming online during this year. We are de facto doubling the capacity in Bloomington, and we are very pleased with the investment done in Oxford. That facility is progressing very, very well. We're going to start, hopefully, soon doing some PD work there, which will then lead to larger biomanufacturing. I would just mention that the reason of the investment in Oxford is long-term. It's not only for mAbs, but it's to serve a number of different modalities, including messenger RNA. Okay. Maybe we can get Tom involved here. So 2022 guidance, revenue has increased $450 million, EBITDA $120 million. There were some EBITDA absorbs, FX, Brussels, Princeton, and Oxford. Can we quantify those headwinds in aggregate for 2022? And then should we expect those headwinds to be gone for most or all of 2023? Yeah, sure. So look, our guidance currently assumes about 150 basis points of margin expansion versus where we were in our fiscal 2021 year. That's a very strong result given the headwinds that you had just mentioned. I would say we're not in a position to really quantify the impact related to Brussels. However, I will say if you look at what the third-quarter margin was in our biologics business and the deterioration we saw versus the prior year period, that was really the main driver was Brussels. So safe to assume that the bulk of what we saw there within our biologics was driven by the remediation efforts and the fact that the facility was offline for essentially the entire third quarter. In terms of FX, I'll look at this one on more of a from where we guided at the start of the year to where we are now, and we've absorbed somewhere between a $12 million-$15 million EBITDA headwind as a result of the strengthening of the U.S. dollar against both the euro and the GBP over the first nine or 10 months of the fiscal year. Look, I think related to that, this is strictly translational. It's not economic for us. We obviously have to, for consolidations and financial reporting purposes, convert revenue and costs that are generated in local currency to U.S. dollar. But those are generated in those local currencies in euro and GBP. So again, really just translational impact versus anything that's truly economic. Lastly, related to Oxford, this is a facility for us that will have a negative EBITDA carry as we get into fiscal 2023. We have not quantified what that looks like at this stage. We're in the process of our fiscal 2023 internal budgeting exercise, and we'll give more specificity around the contributions of that next year when we release our Q4 earnings and give more specific guidance again around fiscal 2023 in the late August timeframe. But we did say that between the Princeton facility on the cell therapy side, which we acquired in the third quarter, as well as the Oxford facility, that those two together are a substantial EBITDA headwind for us here in the fourth quarter that we were also able to absorb to the tune of about $10 million. Significant challenges we've had around some of between FX, between Brussels, between these items, but again, still in a position to see 150 basis points of margin expansion in the fiscal 2022 year versus prior year. We'll give much more specificity again around fiscal 2023 as we get into it. Great. Thank you. And I'm showing that's all we have for time. So Alessandro, Tom, thank you for being here, and thank you for joining us. Thank you. Thanks.