Catalent, Inc.

Hello, everyone, and welcome to the Catalan Incorporated Second Quarter Fiscal Year 2023 Earnings Conference Call. My name is Emily, and I'll be moderating your call today. After the presentation, you will have the opportunity to ask any questions by pressing Start, followed by the number 1 on your telephone keypad. I'll now turn the call over to our host, Paul Serdes, Vice President of Investor Relations. Please go ahead, Paul.

Good morning, everyone, and thank you all for joining us today to review Catalan's Second Quarter Fiscal 2023 financial results. Joining me on the call today are Alessandro Maselli, President and Chief Executive Officer, and Tom Castellano, Senior Vice President and Chief Financial Officer. Please see our agenda for today's call on slide two of our supplemental presentation, which is available on our investor relations website at investor.catalan.com. During our call today, management will make forward-looking statements and refer to GAAP and non-GAAP financial measures. It is possible that actual results could differ from management's expectations. We refer you to slide three for more detail on forward-looking statements. Slides four and five discuss Catalyst's use of non-GAAP financial measures, and our just-issued press release provides reconciliations to the most directly comparable GAAP measures. Please also refer to Catalan's Form 10-Q that will be filed with the SEC today for additional information on the risks and uncertainties that may bear on our operating results, performance, and financial condition. Now, I would like to turn the call over to Alessandro Buscelli, whose opening remarks will begin on slide six of the presentation. Thank you, Paul, and welcome everyone to the call.

Before turning to our results for the quarter, I want to address the Bloomberg News report that appeared over the weekend. But only to say that, as a matter of policy, we do not comment on market rumors. With that topic out of the way, our second quarter results met our expectations and have strengthened our forward momentum for our strategic plans. highlighted by expanded collaborations with the strategic partners, significant new business wins in our drug product and gene therapy offerings, renewed business development in drug substance, and exceptional demand for our world-leading Ziris fastest-solve technology. As we pass the midway point in fiscal 23, I would like to first look back at the past six months. Our non-COVID business continued to show strength as we grew organic cost and currency net revenue above market at approximately 12%, despite softness in nutritional supplement demand. We brought online a new capacity to support areas of market with anticipated high demand, particularly of pre-filled syringes, viral vector manufacturing, and xylose. We executed our plans to meet the increasing demand for fit-for-scale high-potent drug manufacturing through the acquisition of Magix. We are very pleased with its overall performance out of the gate, including the recent FDA approval of two new high-potent drugs that Magix is manufacturing. Broadening our lens, since the beginning of 2022, Catalent has been a manufacturing partner for a total of seven new FDA approvals across our network. In addition, we touched approximately 50% of all FDA approvals through that time, through our clinical supply, analytical support, and early development service offerings. We have agreed and announced expanded and extended the partnership with the two of our largest customers. All of this validates our strategy of providing to our partners a comprehensive portfolio of services underpinned by our operational excellence track record, which together position Catalan to be the partner of choice to maximize the potential of their pipelines and allows us to continue to increase our share of the most valuable molecules in the CDMO market. Looking forward, I'm very excited to be leading Catherent in the next chapter of our journey. We have a clear mission to help people live better, healthier lives. At an investor conference last month, I discussed several aspects of Catherent that should excite everyone about our premier place in the market and the growing opportunities in front of us. Among other things, I noted the continuing growth of our total addressable market, which you can see on slide 6. Our strategic investments have materially expanded our total addressable market and will provide us with greater future growth opportunities. Since fiscal 2017, we have invested over $7 billion to enable accelerated growth in exciting segments of the CDMO market, and those moves have expanded our opportunities. In fiscal 19, we addressed a $35 billion market. After our thoughtful diversification, including investment in technology, capacity, and new capabilities, today we address a $70 billion market as an active and skilled player in many of the largest, fastest growing segments in our space. Looking ahead to fiscal 26, we anticipate our addressable market growing another 40% to $100 billion across the markets in which we operate. And we are incredibly well positioned to continue to increase our share in these markets over time. Now, moving on to the highlights of the second quarter. As expected, our second quarter results compared to the prior year period were negatively impacted by the lower year-on-year demand for COVID-related products. However, notably, revenue from COVID products grew sequentially as we were the primary U.S. fill-and-finish site for a pediatric booster vaccine that received emergency use authorization during our Q2. Net revenue of 1.15 billion was down 6% on a reported basis or a 2% decrease on a constant currency basis compared to the second quarter of fiscal 22. When we exclude the impact of acquisition and divestitures, our organic revenue declined 4% measured in constant currency. I would like to call out that our organic non-COVID revenue grew approximately 4% in the quarter in constant currency, including double-digit growth in our biologic segment. This is a slower growth than realized in the first quarter because we prioritized the launch of the pediatric booster and COVID-related work at our Bloomington facility. We expect consolidated non-COVID revenue growth for the remainder of the fiscal year to be more in line with the Q1 levels, which was more than 20% on a constant currency organic basis. as we address our large backlog of non-COVID work, particularly in our gene therapy and drug product offerings, and our PCH business returns to growth. Our second quarter adjusted bid of $283 million declined 9% as reported, or 6% on a constant currency basis, compared to the second quarter of fiscal 22. When excluding M&A, the organic adjusted bid I declined was 7% measured in constant currency. Moving to slide eight, I would like to cover some data regarding our COVID-related revenue that we addressed during the recent public webcasts. Our revenue guidance assumed an approximate $750 million decline in COVID-related revenues from approximately $1.3 billion in COVID revenue we recorded in fiscal 22. We are actually tracking slightly better than previously reported, with approximately $450 million in COVID revenue recorded in the first half of the fiscal year, and expected additional demand in the fourth quarter to prepare for a seasonal COVID vaccine in the fall, which is expected to result in fiscal 2023 COVID revenues that is more than $600 million. Having said that, given the expected new seasonality of the product, we expect a minimal revenue contribution from COVID products in Q3, resulting in a decline of COVID-related revenue of nearly $350 million when compared to the third quarter of fiscal 2022, which was our peak COVID quarter. Moving on, we continue to position ourselves as the industry partner of choice across the pharma, biotech and consumer health sectors. Our position has been further validated by two significant strategic partnership expansions. First, we will be extending and expanding our manufacturing partnership with Moderna. which will see Catalan support the manufacture of multiple Moderna products in multiple formats across our North American and European biologics drug product network. Catalan will continue to provide the drug product fill and finish services and production capacity for Moderna's COVID-19 programs. In addition, there are plans to extend the non-COVID-19 programs such as two non-COVID-19 programs such as flu and RSV vaccines from our manufacturing site in Bloomington, Indiana, as well as extending the partnership to support Moderna from our state-of-the-art European facility in Anagni, Italy. We look forward to our steady long-term relationship and helping Moderna advance its robust mRNA pipeline. Second, we recently expanded our existing manufacturing partnership with SREPTA, Catalan will be the Sarepta primary commercial manufacturing partner for its leading gene therapy candidate for the treatment of Duchenne muscular dystrophy, which has a main 29 PDUFA date. The agreement was also created mechanisms for Catalan to support multiple gene therapy candidates in the Sarepta pipeline for limb girdle muscular dystrophy. To meet increasing demand for maturing gene therapy pipelines from Sarepta and other customers, we are ramping up additional suites at our BWI campus later this year. Critical to our business in building strong partnership with our customers is our quality and regulatory track record. Quality and compliance are central to everything we do. and our strong quality management system continues to be a differentiator for Cataract, with several strong recent regulatory inspection results. In addition to enhancing our strong quality performance, our management team and I have a renewed focus on improving efficiency across the organization and free cash flow generation, as demonstrated by our recently executed restructuring activities. Tom will share additional details on these activities in a moment. He will also walk you through our fiscal 23 guidance ranges, which are unchanged from our November call. On slide nine, we cover our recent progress in ESG areas. We have a strong commitment to ESG and corporate responsibility at Caterent. We will soon publish our fiscal 22 corporate responsibility reports which shows our continued progress in this area. We have developed our CR strategy to align it to our patient-first culture, enhancing our inclusive culture, which drives our commitment to operational and quality excellence. Our CR strategy is focused on three main pillars, people, environment, and communities, each of which is informed by our employees, communities, customer, investors and other key stakeholders. We put patients and people first, invest in and show respect for our employees, and promote responsible supply chain. Recent progress includes completion of a third party human rights assessment as part of our responsible supply chain initiative. A sizeable increase in diversity in our global leadership teams and extensive adoption of our employee resource group at our sites. For the environment, we are heavily focused on reducing our greenhouse gas emissions, waste, and water use, as you can see by the targets and initiative on the slide. Finally, we give back to our communities by investing our time, talents, and resources in serving patients. I'm proud of the increasing contribution that Catalan Inter-Employees have made to communities we serve and where we live and work. To close, we are uniquely positioned to leverage our cutting-edge technologies to advance healthcare innovation on behalf of our customers and their patients, while empowering the next generation of medicine. We have also created many opportunities for our business through our investment so that we may achieve long-term attractive growth. With the assets we have in place, we are focused on executing our strategy to optimize our best-in-class CDMO ecosystem. We are maximizing asset utilization and free cash flow generation to enhance value for our customers, patients, and shareholders. With that, I will turn the call over to Tom.