Good morning, everyone, and thanks for joining us. I'm Tejas Savant. I cover life science tools and diagnostics here at Morgan Stanley. It's my pleasure today to host Catalent, and on behalf of the company, we have Alessandro Maselli, CEO, and Matti Masanovich, new CFO. So welcome to you both, and thanks for joining me. Before we get started, for important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your sales rep. So, you know, Alessandro, maybe just to set the stage, it's been quite the year for Catalent. You know, while a whole lot has gone, you know, sort of wrong or not according to plan with, you know, the COVID normalization, the 483s, the guidance overshoots, et cetera, you've had some nice wins and bright spots, too, which, you know, sometimes get lost among all of the headlines, right? And as you reflect on the key learnings from the last 18 months or so, you know, both personally for you as you transitioned into your—the CEO role and for the company as a whole, can you just share some perspectives on that? Yeah, sure. First of all, thanks to-- for having us. It's great to be here back, that's a great question. Look, I do believe that it surely was an eventful year for us. We had to manage a lot of transitions, COVID being one. And surely, we have learned a lot. We've learned a lot about some of the markets we're serving, and we learned a lot about some of the dynamics. And as you said, you know, we had some great things happening as well. So when I step back and look at where we are today, I keep seeing a very resilient top-line for the company, something we're very proud of. The fact that even in another... Yet another year where we are seeing, you know, a significant additional COVID cliff, we are able to post a guidance, which is assuming a significant underlying growth from the business, which speaks about not only, you know, the end market, which continues to be healthy, but also about the competitive position of the company continues to be strong. I do believe that what we have learned in this environment is to make sure that in our future prediction, we rely much more on our base business and pipeline- Mm-hmm. As opposed to, to make, a lot of assumptions around how much more business can be won in the short term and can actually materialize in the short- term. When it comes to COVID, we have learned that, you know, we need to... It's a wait-and-see game. Not necessarily the COVID cases correlate necessarily what was gonna be, the uptake of, of the vaccine. So it's, again, a wait-and-see game, relying more on the short-term visibility and, and wait and see what is gonna be the more longer term. Mm-hmm. But at the same time, that, you know, the fundamental success in this business continue to rely on, on reading the pipeline, reading what are those, exciting therapeutic areas, GLP-1 being one. Mm-hmm. Investing ahead enough in those areas, and play a major role into those. So, you know, we did that before the pandemic, and as such, we were able to collect a lot of value from the COVID work, and we did this more recently with, with our fill and finish you know, footprint. So that is positioning us to really get benefit in years to come of these- Mm-hmm. Major trends of the industry. So again, a lot of learning, but, you know, very excited about what is ahead of us. Surely, there is a lot of work we need to do in the next couple of quarters to regain the margins and reestablish, you know, our track record, but we are in control of it. Got it. Before we get into the segment-level questions, I want to start with a couple of, you know, high-level questions, right? So starting with, you know, quality, you've had, you know, a number of inspections over the past 12 months. You know, some of those resulted in, you know, 483 observations. You've consistently maintained that you haven't seen any share loss or RFP headwinds from those 483s. What have you done to sort of contain that reputational fallout? And for a prospective customer who is, you know, worried about some of those recent headlines, how exactly do you go about addressing that customer's concerns? So look, that's a great question. First of all, look, clearly, these situations are a little bit a part of the industry we live in, so we are inspected at all time. Mm-hmm. We receive tens of inspections. We have shared in the recent earnings, we had 14 inspections only in the last few months, and really, you know, only some come to be known. We volunteer and share that we had another inspection also at our facility, resulting in the zero 483s. So it's a more wider story than the one that maybe makes it to the news. I would say, look, this is an area where every time there is an inspection, that in fact, there is a 483, and some 483 has an impact, you need to do work. It's more work to be done to start with answering all these questions from you guys, and surely engagement with the customers. I would say customers have, according to our quality agreements, they have access to all set of information, the outcome, the response, all the other inspections. They have a much larger data set. And surely, you know, at the top, very top of the company, you need to make time to explain what is, what is going on, what is the, the background, what is behind it, and, get themselves comfortable. And, and the fact that we keep seeing, a pretty good win rate- Mm-hmm ... across a number of different modalities is speaking to the fact that this work is paying off. Got it. Switching to biopharma headwinds, you know, last year when you cut the high, the guide, you, you talked about, you know, funding weakness, and you cited sort of a skew towards more clinical stage work as one of the reasons you saw the impact earlier than some of your, you know, other CDMO peers. Just remind us, what, what percent of your biologics and PCH business, is, is clinical versus commercial today? And, would you say that you're still sort of disproportionately impacted by those headwinds? So first of all, look, as you said, almost a year ago, we were the first one coming out with seeing these trends, macro of biotech, which could impact CDMO and services, if you like. And in fact, you know, these turned out to be seen by more than just us. And the reason why we saw it earlier, number one, because, you know, in drug substances, you tend to see these trends before the drug product, really, because you come first into the process. And two, because as you said, in our new modalities, the drug substance and others, we are more exposed to the clinical work than the commercial work. When you look at the portfolio of Catalent, I would say that PCH is disproportionately commercial- Mm-hmm. more relying on established products, or tech transfer of products that are already approved. There is still a piece of the business that is clinical, but should be the exposure is the lowest in the spectrum. When you go on the other side, when you think about the new modality, cell therapy, gene therapies, by the very definition and nature of the business, you are more clinical because the whole space is more immature. So, I wouldn't say, though, that we have seen a disproportional impact on Catalent. You know, because of the phasing of our fiscal year and the world also being the first one to- Right ... provide guidance into the future in 2023, probably the first one to see it and to say it- Right more than be more impacted. Got it. Fair enough. You know, the other question we get is more about sort of a lot of the COVID free cash flow being deployed for capacity expansion- Mm-hmm -by everybody. Where does capacity stand today? I mean, are we sort of in this phase where for the next two to three years, there's gonna be a period of digestion in the industry that's probably gonna pressure pricing, or is it sort of a very different supply-demand dynamic by modality? So look, let me, let me tell you, most of the capacity that is relevant to us that was created during COVID is for drug product, the fill and finish. Mm-hmm. And, let me step back for a moment and tell you a little bit, well, but probably something that also explain a little bit to the story about Bloomington, which is our one of the two biggest facilities of Catalent in drug product. When you think about the underlying business of Bloomington, before and after the pandemic, and you completely eliminated the COVID impact, you see the underlying business, the business, almost doubling at the facility. Mm-hmm. not only doubling, but with a transition from more vials to syringes, more just filling operations and more end-to-end operations, including packaging, auto- injectors. So really a lot that happened at that facility and others, during that time frame, net of COVID. Mm-hmm. And on top of that, you, of course, make COVID, which speaks to not only the underlying strength of the fill and finish market, but the specific health of the pipeline that we have built over time, over many years at Bloomington, specifically. You know, recently came to knowledge that we are supporting one large product for Regeneron. And you know, again, that's another example of how the pipeline is well balanced between tech transfer of approved products, which are seeing expanded, you know, indications like GLP-1, or products coming from our internal pipeline. So I would say that I continue to see very good trends- Mm-hmm where COVID has created the capacity. Probably it's much more exciting in prefilled syringes than vials. But again, I do see that, because of the kind of therapeutic areas that are out there needing capacity, that there will be continued healthy demand for those services going forward. Got it. So that's a great segue into, you know, some of my questions in the biologics business. You know, in terms of the progress you've made towards, you know, the productivity issues you'd highlighted at Brussels, Bloomington, and BWI, sounds like, you know, output at Brussels and BWI is now, you know, essentially where you wanted it to be. Tell us a little bit more about what's going on at Bloomington, your biggest facility, and what's required to get that output back to historical levels? Well, as I just said, I mean, a lot has happened at Bloomington, right? Well beyond what made it to the news, the 483s and so on, and the remediation. I don't want to really paint everything as remediation impact from that. It's really in and around the transformation of the business that has happened in the facility, while also serving the nation with a massive effort for COVID vaccines. Mm-hmm. The base business has almost doubled in revenues, net of COVID, has transformed. We tend to give now more end-to-end services, including the complex packaging and other injector assembly to customers, while before maybe it was just more filling. It's very complex product to make. Probably that's one of the reasons why we get selected. We don't get selected for simple stuff. There is plenty of options out there for simple stuff. While we get selected for the complicated operations, sensitive formulation, and this is what we do at Bloomington. So when you think that in three years, really, you have, you know, doubled the base business, you've added a number of additional technologies, and in the meantime, you serve the nation with almost 2 billion vaccine doses, well, there is a lot to be proud of, a lot to be hopeful for the future, but also a lot to deal with in terms of change that needs to be managed. And in our industry, change never happens as fast as it's happened there in the space of three years. It normally happens in 10 years, so you have more time to handle it. And this is giving us the challenge to have to go through the change, handle the change, which we are doing. But again, you know, it's all a story of serving COVID, and in the meantime, growing the business at a rate which is an amazing rate as well. So again, in the short term, we are having our own challenges. Mm-hmm. We need to work through them. A few more months of work- Mm-hmm. I believe Bloomington will come back to be the jewel in the crown that was before pandemic. That's great to hear. And so on that point, Alessandro, and now that the 483 concerns have been addressed there, you know, it sounds like Regeneron's two drugs, plus Wegovy, are all sort of, you know, in good shape. Is it really a function of time or other sort of, are there more sort of actions you need to take at the site before you get it to where it needs to be? If with time, you say time and work? Yes. It's a matter of time and work. You know, let's put it this way, it's all about stuff that is controlled. Nothing has to happen externally, a lot of control- Okay ... which will lead us to where we need to be. As I said, the pipeline is healthy, tech transfer are progressing, are very exciting because they are in very successful therapeutic areas, and our customers are just waiting for us to ramp up production to get the product. Mm-hmm. So it's just on us to get these technologies out of the ramp-up phase, get them to the steady state, regain productivity, and bring the margin back where it needs to be. Got it. Fair enough. You know, in terms of the Sarepta contribution that's embedded in your guide, you know, one of the questions that we've gotten off of the earnings call is: How much is ELEVIDYS versus other program work? And can you just, you know, shed some light on that? And the other sort of corollary to that that comes up is: Is product concentration within biologics essentially inevitable at this stage of the game, in terms of gene therapy market development? And how does that sort of impact your visibility and then forecasting ability, you know? That's a good question. So first of all, look, we are very pleased with our relationship with Sarepta. It's been an incredible ride to get to this point, a lot of effort on both sides. And, you know, a few weeks ago, when we were able to dose the first patient, was a very emotional moment for all of us, and Doug was in our site a couple of weeks ago, thanking our team for incredible effort. So first of all, from a patient-first standpoint, it was an incredible ride and story over three years, really. I believe that, you know, that led us to gain our own share of the wallets of portfolio of products, you know, which goes beyond the DMD. Of course, DMD being the lion's share of it. It's all hands on deck for us to make sure that we continue to run at required productivity levels, to make sure that patients and all they need for this important treatment. And the rest of the products are exciting because we're also, you know, this a new pipeline, you know, trying to implement the new technologies, which can for the future improve yields and productivity, which is even more exciting. So clearly, Sarepta represents a significant share of our portfolio- Mm-hmm ... in gene therapies. But, I believe the importance of them as a customer goes beyond, because the fact that we were successful again in bringing a new gene therapy, which is the second time, to a full commercialization, really has positioned us as the partner of choice for late-stage gene therapies. Mm-hmm. I'm comfortable to say that in that space, our share will continue to improve in terms of our track record of bringing gene therapies at scale to commercial- Mm-hmm ... is something that we have done more than anybody else in the industry, so that's very exciting. So the concentration question: Look, these are very expensive, you know, drugs, which have a quite elevated cost of goods and somewhat more concentration to what we have seen in the past in our PCH segment, which is legacy gathering, if you like. It's normal. Mm-hmm. It's part of what we need to deal with- Mm-hmm ... and part of what, you know, to be honest with you, you asked me about the learnings, so also what we are learning how to deal with, and to make sure that when we put out their forecast and assumptions, we take into account that there is more volatility possible- Mm-hmm ... coming from these, from this environment because of the concentration, and, and something that we have to factor in our risks and opportunities framework, which we are doing. Got it. You know, we've got the EMBARK trial readout, you know, coming up in November here. You've talked about, you know, the outcome not necessarily being binary for you. Can you just elaborate on what that means? I mean, a lot of the non-therapeutic sort of investors have a hard time sort of figuring out what non-binary would mean in that context. Well, first of all, we don't necessarily, you know, supply against the outcome of a study. We supply about against the forecast and the other partner that the customer give to us. That's our business model as a service provider, first of all. Second, clearly, you know, without entering into the specific of EMBARK, which is more the place of Sarepta to comment on, you know, this is not one where the outcome is necessarily approved or not approved. It could be a variety of different patient populations. It could be, you know, staying as it is, going wider, depending on a number of different outcomes. So in that vein- Mm-hmm ... it's not an all or nothing type of Mm-hmm ... outcome. And so we have made our own assumption based on the visibility we have on the forecast. Mm-hmm ... around what is gonna be the short-term impact. And as we said, at the moment, we are not going for, you know, the most optimistic case in terms of our projections. We are, you know, surely, we don't plan for the doomsday scenario, and we stay where we believe is a balanced place. For what we know at this point in time, and what we have visibility for. Got it. One quick sort of clarification on the doomsday scenario, right? So not embedded in the guide, fair, but if that were to happen, then what happens to the inventory that's still, you know, sort of work in progress? So, as I said, we only start the manufacturing process when we have a customer order. Got it. Okay? We don't produce for stock. That's not our business model. Right. We have never done it. Right. Our business model is, we get an order or a binding forecast, which is like an order- Right. We make against that. Got it. Got it. So it's essentially a take or pay situation for- It's not a take or pay, because take or pay, oh, I mean, you can call it that way. Certainly, you know, in this case, it's a take because we are making. Yeah, yeah, yeah. Okay. So... Yeah, and that is not contingent to the outcome of EMBARK? No. Again, it's a contractual- Right. It's a contractual commitment. Okay. It's been registered. All right. So, you know, you talked about GLP-1s. I mean, that's, that's, that's, you know, an important opportunity. Do you, do you think you have enough capacity there? I think you talked about sort of nearly 40% of your manufacturing capacity in prefill syringes and, and ramping. Where do you want to be sort of exiting, you know, fiscal 2024? And then is it fair to assume that you're not just working with a single partner there, and that you'd, you'd, it's likely that you'll be working with multiple players in that space? So look, all I can tell you is that the concept of having enough capacity for that is quite a tricky one, given how big this thing can be. Mm-hmm. Right? And, you know, everybody has a different opinion about how big it's gonna be. Everybody agrees it's gonna be a large space, a large space that will require a lot of capacity. And, what I can tell you is that Catalent has doubled down in that space, enough to be a significant player. Mm-hmm. And I also tell you that when you look at our prefilled syringe capacity, or in general, our fill and finish capacity in the future, I expect that the majority of that to be consumed by GLP-1. Got it. Would a transition or rather, I guess, an expansion to fill/finish form be, you know, a positive or negative for Catalent in terms of the economics involved? And how confident are you that you will continue to participate in potentially a second dose form as well? So, as I said, we are very excited about that. I believe it's gonna be a significant part of the growth story- Mm-hmm ... into the future. Of course, there are... You know, today, it's all hands on deck in trying to provide enough for the current formulation and current presentations. But there is a lot of work that we are doing also for the future, right? Which is down the road. So it is an exciting space with the clinical trials coming out all the time- Mm-hmm ... with the additional indications. So again, I believe it's gonna be a big deal for the industry, and it's gonna be a big deal for Catalent. Got it. Two-part on biologics margins. I mean, the first one is really a quick sort of clarification. You know, I think on the recent earnings call, you called out a 700 basis points headwind to biologics margins from new modalities. Was that comment sort of specific to cell therapy and plasmids, or was that just, you know, broader biologics capacity under utilization, including, you know, BWI and Brussels? So I do believe that it was fundamentally related to these new modalities. I see. With the caveat that in that time frame, which we're talking about, also gene therapy was being dilutive because of the startup, you know, I would say, transition we had during the spring with ERP's implementation- Mm-hmm ... which are, now, you know, well known. All of that is behind us. So going forward, gene therapy, which is the lion's share of this new modality, you know, gets itself out of the equation, and it's really the story about the cell therapy and plasmid, which, where the top- line is not growing nearly enough, nearly close to what were our assumptions, you know, one year ago, and there are many factors because of that. And drug product is really not part of the comment, but as I said, you know, our path to recovery of the margin, as it stands today, is primarily related to drug product. And again, you know, managing all the work that I described before about Bloomington is gonna be a big part of it. Got it. Is there any structural reason, Alessandro, why biologics margins couldn't get back to the high 20s% or perhaps even sort of 30% over the next couple of years? How do you think about sort of decrementals on COVID work, including, of course, you know, the take or pay benefit you had there in fiscal 2023, versus the incrementals on Sarepta, BWI, and these tech transfers ramping up in Bloomington? I guess the simple answer to your question is no, there is no structural reason. I do believe that, yes, COVID was generating a lot of absorption and a lot of top-line in a very short time frame, so you know, there are good and bads with that. But when you go back, and you look at where what we're doing in biologics before even the pandemic came, and what were the fundamentals of the business in terms of the pricing points, the pricing powers, and margins, and you look at what this is expected to be in the next couple of years- Mm-hmm ... there is not a significant difference there. So I don't see anything that is not in our control to regain those margin levels over time. Got it. Switching to PCH very quickly. Could you remind us of the PCH exposure to prescription drugs versus, you know, OTC/Nutraceuticals? And on a related note, what does product concentration look like in that segment for you? Like, do you have two or three products that essentially account for 15%-20% of PCH revenue? ... So, number one is a disproportionate amount is commercial. Mm-hmm. So, to Mm-hmm. So largest majority of the business is commercial or OTCs or products that are commercially sold. And I do believe that on the top-line, that the concentration is not as acute, but on the bottom-line, there is more concentration, because there are a couple of products that have a matching profile, which is very much an outlier compared to the underlying business. So those products, which one we called out, as one of the driver of the performance of PCH, which we missed last year- Mm-hmm. And is coming back this year. There are a couple of products that have a matching profile, which are significantly higher than the rest, and so they... When, where we miss them or when they're down, they are pretty powerful to the bottom-line more than the top- line. Got it. So a few moving pieces within PCH. I mean, you know, Bettera obviously has been a bit of a challenge. Metrics seems to be going a lot well, and Zydis has done well for years and continues to have a long runway for growth. Help us sort of contextualize the, you know, those moving pieces in the context of your mid- to high-single-digit guide in fiscal 2024. Sure. So I believe that the way you should think about it is that consumer health last year was dilutive to growth, because was really down year on year, and while this year is stabilizing, so it's having more of a neutral impact on growth. Mm-hmm. Zydis surely is on the very high end of that range. In fact, it's beyond that range because of the products we're trying to... I mean, Zydis is all about, you know, freeing up capacity and mobilizing capacity to serve the demand. We have a lot of backlog there. And with regards of the rest, it's primarily launches, right? So last year, we were in PCH, we had a flat year. You know, there was zero growth in the segment, which is not typical. You normally tend to be in the mid-single digits. And this year, all the approvals that we were expecting are spread across 12 months last year, really happened in the second half of the year, and so those launches are happening now. Mm-hmm. There is a little bit of an anomalous, you know, trend here, where you are flat last year, more on the higher side of the range this year. But when you look at these across two years, you are back to mid-single digits, which is where you expect this segment to be. Got it. Matti, you've only been in the CFO role for a couple of months. They've already had you provide a fiscal 2024 guide. So, as you think about sort of the guide there, you know, one of the sort of points of feedback from investors has been that you did better on the top-line, relative to where a lot of street models were. But EBITDA came in a little bit light and then potentially conservative. So is that a fair way to characterize your outlook? I don't think it's conservative. I think it's based, the top-line is based on true, transparent visibility to revenue. Mm-hmm. I think that's one of the key things that we're, you know, it's— we know the revenue's there, and we're gonna be able to go after that revenue. From a bottom-line perspective, it's really about biologics and the turnaround within bioproduct as we kind of come out of this, and as we rightsize and, and address the underlying issues that are driving the, the EBITDA down. That's really the transition here. PCH continues to perform at an excellent level- Mm-hmm. And you're gonna see really good, solid returns and results out of the PCH side, and it's really the biologics story as we go forward. Got it. And in terms of that biologics margin ram- Mm-hmm. You do think it will be sort of particularly back-end loaded, is that fair? Yeah. We definitely... You know, we had put on, like, two-thirds of EBITDA come in the back half. Mm-hmm. As we exit the fourth quarter, as we mentioned on the, at the last call, you know, we kind of see our more normalized margins overall for, for Catalent traditional, our traditional normalized margins coming out of the fourth quarter- Got it. as an exit rate. Got it. Alessandro, back to you in terms of, you know, the strategic and operational review underway. Has that sort of first meeting of the committee happened yet? And as you think about sort of, you know, potential next steps here in terms of, you know, footprint rationalization, you know, splitting up sort of PCH from biologics or, you know, a sale of the company, what, how do you sort of like, think about sort of the spectrum of options? And have you started to have that conversation with the board in terms of narrowing down the possibilities and then next steps? So look, you know, I, I, I believe that, number one, we just announced the committee, so, it's very early stage in that regard. So what I can tell you is that management and, even the previous board, is very clear around where priorities are after a period where we deployed a lot of capital to create, to enter in the therapeutic areas we wanted to be, and to leverage some of the great trends of the industry, like GLP-1. I believe now it's, the time to evaluate our portfolio of assets and, and understand how we're gonna refuel our balance sheet and capital structure with the moves, so maybe some moves that we can think in the other direction. Mm-hmm. I believe management has a good clarity of thoughts about it, and I believe that, having now a reduced committee that will be focusing on that, will only be beneficial to accelerate those evaluations, and be in the position of getting them to work. So I'm very excited about it, to be honest with you. I do believe this will be instrumental to navigate the next phase of the company. Thinking that, again, this is summarizing, this is a business that is in a great market- Mm-hmm. Right? With the great secular trends. We occupy one of the top three positions in almost every offering we do, so our competitive position is enviable. Mm-hmm. And we just need to execute, so... And streamlining the portfolio could be a facilitation to that execution. So I believe that this committee will be instrumental in accelerating that process and making it happen in due course. Got it. We're out of time, so we'll leave it there. But thank you so much for spending the last 30 minutes with me. Thanks for having me.