The operator introduces the participants of Catalent's First Quarter Fiscal Year 2024 Earnings Call and hands the call over to Paul Surdez, the Vice President of Investor Relations. Paul introduces the other participants and mentions that they will be making forward-looking statements and referring to non-GAAP financial measures. He also reminds listeners to refer to the supplemental presentation and other filings for more information. John Greisch, the Executive Chair of the Board, gives some brief opening remarks before handing it over to Alessandro Maselli, the President and CEO. Their commentary is covered on slide five.

The speaker is giving an update on the company's progress in the past quarter and their goals for the future. They have delivered a solid first quarter and are pleased with their financial performance. They are also working on improving their cash-flow and catching up on their SEC filings. The Board Strategic and Operational Review Committee is also working on maximizing long-term value for shareholders and will provide a more detailed update in the future. The entire Catalent team is dedicated to executing their strategic plans and creating value for the company.

In the third paragraph of the article, Alessandro Maselli expresses his confidence in the company's future opportunities and praises the team's strong start to the fiscal year. He reassures investors by reaffirming the company's fiscal '24 guidance and highlights key factors contributing to their growth, such as high demand for gene therapy services and new drug approvals. The company is also addressing underutilization and implementing operational improvements to improve performance. Maselli emphasizes their commitment to being the best drug development and manufacturing facilities in the world for both investors and customers.

The company has appointed David McErlane as Group President of the Biologics segment to help achieve their goals. McErlane has a successful track record in developing growth strategies. The Biologics segment has seen positive results in the first quarter, with strong year-over-year and sequential growth and margin improvements. The BWI facility serves multiple programs for their largest customer, Sarepta, and their pipeline for gene therapy is healthy. The company is also making progress on their working capital initiatives and expects to see normalized margins in the Biologics segment by fiscal '24. In the pharma and consumer health segment, the company is also seeing progress.

The first quarter results for the company were in line with expectations, with strong organic growth in all segments except the Consumer Health business. The decline in the consumer business is expected to be temporary, as the company has secured a new contract with a leading consumer health company for their gummy pill offering. The company is confident in achieving its goals for the PCH segment in fiscal '24 and beyond. The Biologics business is also seeing significant growth, with a majority of their pre-filled syringe capacity expected to be booked for GLP-1 products in the next few years. The company plans to invest and partner with customers to capitalize on this opportunity, with expected revenues of over $0.5 billion once all lines are completed. GLP-1s are seen as a major growth opportunity for the company in the future.

Catalent will play a major role in bringing an important innovation to market, which is a testament to their unique capabilities and positioning. The company remains confident in its future and is focused on improving operations and margin performance while expanding in the biopharmaceutical industry. The status of the annual and quarterly reports has been delayed due to additional time needed for procedures related to internal controls and a non-cash goodwill impairment. This impairment is expected to be included in the first quarter results.

In the paragraph, the company discusses their current financial situation and the expected filing of their 10-K and 10-Q forms. They also provide a preliminary overview of their first quarter results, including a decline in net revenue and adjusted EBITDA due to a reduction in COVID revenue and a one-time licensing fee in the prior year. The acquisition of Metrics also contributed to their revenue growth. The company plans to provide more detailed information in the segment commentary.

In the first quarter, the company reported an adjusted net loss of $19 million, compared to an adjusted net income of $61 million in the same period last year. This was primarily due to non-cash goodwill impairments of $700 million. The Biologics segment saw a 16% decrease in net revenue, driven by a decline in COVID demand. Excluding COVID revenue, the segment saw 11% year-on-year growth, led by gene therapy, non-COVID drug product and drug substance. The decline in development revenue was due to lower COVID revenue and a change in classification of a gene therapy product.

The Biologics segment of the company saw a decline in EBITDA year-over-year, but a sequential improvement in the first quarter due to improved productivity and schedule adherence. The drop in EBITDA margin was primarily due to COVID-related declines and underutilization at new modality facilities. The company has taken actions to reduce costs and improve performance, and expects to see margin improvement in the second half of fiscal 2024. They also anticipate growth in their non-COVID non-Sarepta Biologics business and have invested in new prefilled syringe lines to meet customer demand. This is expected to drive a high return on capital for the company over the long term.

In the first quarter of fiscal year 2024, Catalent's Pharma and Consumer Health segment saw a 5% increase in net revenue, primarily due to the acquisition of Metrics in the previous year. However, the segment's EBITDA declined by 9%, with a 1% organic decline. The decline in EBITDA was attributed to under-absorbed capacity and a one-time insurance benefit received in the previous year. The company's debt structure remains flexible, with the nearest maturity not until 2027. The primary debt covenant requires the ratio of net first lien debt to adjusted EBITDA to remain below 6.5 times, and as of September 30, it was at 3.4 times. However, Catalent's overall net leverage ratio increased from the previous quarter due to a lower adjusted EBITDA.

The company expects their net debt leverage ratio to peak in the second quarter due to the decline in COVID revenue, but then rapidly improve in the second half of the fiscal year. They are focused on reducing leverage and have taken steps to achieve this, including reducing working capital and aligning CapEx spending with strategic initiatives. They expect free cash flow to exceed $100 million in fiscal year 2024, and their cash balance decreased in the past quarter due to an increase in contract assets. However, they expect the contract asset balance to decrease going forward and have one strategic customer that represents 30% of their net trade receivables and contract assets.

The company is confident in their ability to receive timely payments from a customer who represents 16% of their revenue. They expect this customer to continue to contribute 16% of their total revenue for the fiscal year. The company also expects to spend $400 million on capital expenditures and reiterates their fiscal '24 guidance, with net revenue projected to be $4.3 billion to $4.5 billion and adjusted EBITDA range from $680 million to $760 million. They have increased their expected COVID revenue to $180 million, but unfavorable FX rates in the euro and British pound will offset this increase. The company's non-COVID business is expected to continue to perform well, with mid to high-teens revenue growth driven by their Biologics portfolio and largest customer.

The company expects low to mid-teens growth in their Non-COVID non-Sarepta Biologics segment, driven by tech transfer activities. They also expect margins to recover towards historical levels by fiscal year 2024, with roughly two-thirds of consolidated adjusted EBITDA to be generated in the second half of the year. The company's priorities for fiscal year 2024 include improving margins, delivering incremental free cash flow, and strengthening internal controls and processes. The first question during the Q&A portion was about the potential impact of Sarepta's manufacturing plans for ELEVIDYS on the company's FY '24 forecast.

The speaker is asked about the $700 million that they have included in their projections for Sarepta, and whether it takes into account the potential downside if the FDA does not allow for label expansion. The speaker responds by saying that their relationship with Sarepta is positive and their Q1 performance was strong, thanks to their operational performance at the BWI facility. They have also amended their contract with Sarepta to improve cash flow and have seen a firm demand in recent weeks. The speaker cannot speculate on the FDA's decision on label expansion, but reminds that 50% of their revenues from Sarepta are pass-through revenues with a low margin.

Tejas Savant asks about the sequential growth of ex-COVID, ex-Sarepta revenue, and Alessandro Maselli explains that it is a second-half story with significant new capacity coming online between fiscal years 2024 and 2026. Each year, the capacity for GLP-1 will more than double, with some lines already installed and being qualified. The phasing to the next year will be a full-year story, not just the second half.

The speaker believes that there will be a significant increase in demand for their products and that their visibility to this demand will help understand the ramp. Matti Masanovich explains that their Biologics non-COVID revenue, excluding the previous year's $30 million licensing fee, has increased by 11%. The speaker clarifies that they are talking about sequential trends, not year-over-year. They attribute the increase in revenue to their BWI gene therapy business bouncing back and the Brussels business improving. The speaker also clarifies that their mAbs protein business is not classified under gene therapy and is having a good year.

The company has seen a lot of growth in their seeding business, with many late-stage programs heading towards commercialization and some being acquired by big pharma. They have a balanced portfolio in gene therapy and the private funding environment remains uncertain. The company has reassessed their outlook on cell therapy and plans to rebalance absorption to drive margin improvement. There is elevated pass-through in the Biologics segment, with GLP-1 and pens contributing to the business. The company is unsure if margins will be similar to the past or elevated like during the COVID sourcing period.

The company has a diverse platform with 7,000 products and no single product has a significant impact on revenue. However, with the introduction of two new products, Sarepta and GLP-1s, this may change as they have potential for label expansions and oral delivery data readouts.

The speaker is asked about the concentration of revenue streams in their business, specifically in relation to GLP-1 and gene therapy programs. They express pride in their exposure to GLP-1 and believe it has potential for growth in different therapeutic areas and geographies. They do not see GLP-1 as a significant source of volatility and their focus is on doing a good job for their customers. They also do not believe that oral delivery will be a significant competitor to injectables in the near future. They aim to position themselves in the middle of the market and understand the dynamics of the industry.

The speaker explains that the company is positioning itself prudently in terms of projections and expects some upsides and downsides. They expect GLP-1 to contribute to non-COVID, non-Sarepta growth in biologics, with a ramp up in the second half of the year. The long-term outlook for GLP-1 is expected to be well over $0.5 billion, with capacity being the limiting factor rather than demand.

The speaker discusses the high demand for gene therapy assets and the importance of increasing capacity quickly. They mention a healthy pipeline of programs with their biggest customer and other companies. The capacity for gene therapy production is easier to redeploy compared to other technologies. They also mention ramping up production throughout the year and being fully deployed, staffed, and equipped.

The company has faced challenges in the past but is now experiencing a productive ramp. They are ahead of their projected progress for the fiscal year and have high visibility on customer demand. The strategic review is taking longer than expected due to the committee's focus on operational, cash flow, and capital structure improvements. The company is confident in their ability to deliver on their commitments and get back on track.

The speaker discusses the progress made in fiscal '24 and the evaluation of strategic options to improve the company's capital structure. They mention spending a lot of time getting everyone up to speed and making operational and cash flow improvements. They also mention the addition of prefilled syringe fill/finish capacity, but cannot disclose details about expected returns at this time. Updates will be provided once decisions are made by the Board.

The company expects the new assets to ramp up quickly and contribute to attractive margins. They have a proven track record of ramping up quickly, as seen with their success in meeting the demand for COVID-related products. However, the COVID business is expected to have a negligible impact in the second half of the year and the company does not disclose the margins for this business.

The speaker discusses the impact of COVID on their business, stating that it is becoming less important. They also mention that the margin from COVID is not as attractive as it was during the pandemic. In terms of margins, they note that the gene therapy and drug substance businesses have similar margins when excluding pass-throughs. However, the margin on drug product is more dependent on absorption and can vary depending on the product.

In the paragraph, a question is asked about the revenue and production of ELEVIDYS, a gene therapy program developed by Sarepta. The company's executives confirm that ELEVIDYS accounts for 90% of their revenue and that they are not able to disclose the number of doses produced for patients. They also mention that their gene therapy capacity is flexible and can be reconfigured easily.

The questioner asks for clarification on the ease of reconfiguring the company's facilities for other gene therapy programs and how they would handle the potential impact of macro headwinds on their capacity. The CEO responds that the suites in their facilities are designed to serve a variety of processes and can be easily reconfigured, making it one of the most flexible facilities in their network. He also mentions that they are currently focused on meeting the demand for Sarepta and do not have plans to backfill their capacity. In response to a follow-up question, he clarifies that there was no specific dollar amount embedded in their 2024 guidance for Sarepta and the current increase in demand is not significant enough to require them to reconfigure their facilities.

In the call, Matti Masanovich confirms that the company's original guidance remains unchanged. PCH margins are expected to improve sequentially throughout the year due to natural seasonality and cost structure initiatives, as well as a new gummy contract launching in the third quarter. When asked about the potential for a 500 basis point gain in EBITDA margins for fiscal year '25, Masanovich states that the company's exit run rate for the fourth quarter of fiscal year '24 will be more in line with their historic average, but declines to give a '25 update at this time.

The speaker talks about the exit run rate and how it can be used as a benchmark. They also mention that the margin reduction is not due to a portfolio shift, but rather an operational dislocation. They are making good progress in addressing this issue. The next question is about Sarepta and when the second half of 2024 will be booked. The speaker explains that production is booked on a rolling six-month basis and they have had customer conversations about it. They also mention that Brussels, a drug product facility, is improving.

The speaker discusses the high demand for GLP and the site's ability to fulfill it. They also mention the company's conservative assumptions for COVID revenue, which has exceeded expectations in the first half of the fiscal year. The second half of the fiscal year will depend on how the COVID season plays out, which will also impact the following year.

The speaker asks for more details about the gummy award, such as the nature of the award, the customer involved, and the timing and size of the deal. The speaker also asks about the impact of consumer discretionary spending on the PCH business and how the growth of the consumer segment would look without the gummy award.

Alessandro Maselli, in response to a question about headwinds facing the company, mentions that some macroeconomic factors are still present, such as cautious spending from early-stage customers and a slow consumer environment. However, he also highlights two reasons for optimism: the pipeline of products in PCH, which will drive growth, and the potential for existing relationships with large consumer companies to transfer to Sarepta. In response to a question about tech transfers in Bloomington, Maselli clarifies that he did not mention Bloomington and does not provide further details on the status of the transfers.

The speaker discusses the company's recent financial performance and operational improvements. They also mention the strength of the company's pipeline and new commercial wins, which has increased their confidence in their fiscal '24 guidance. The speaker reaffirms the company's focus on restoring margins, driving growth, and improving the lives of patients. The call concludes.

This summary was generated with AI and may contain some inaccuracies.