Catalent Inc (CTLT) 2022 Q2 法說會逐字稿

Hello and welcome to today's Catalent, Inc. Second Quarter Financial Year 2021 Earnings Call. My name is Daley, and I will be your moderator for today's call. (Operator Instructions)

I would now like to pass the conference over to Paul Surdez, Vice President of Investor Relations. Paul, please go ahead.

Good morning, everyone, and thank you for joining us today to review Catalent's second quarter fiscal 2022 financial results. Joining me on the call today are John Chiminski, Chair and Chief Executive Officer; Alessandro Maselli, President and Chief Operating Officer; and Tom Castellano, Senior Vice President and Chief Financial Officer. Please see our agenda for today's call on Slide 2 of our supplemental presentation, which is available on our Investor Relations website at investor.catalent.com.

During our call today, management will make forward-looking statements and refer to non-GAAP financial measures. It is possible that actual results could differ from management's expectations. We refer you to Slide 3 for more detail on forward-looking statements. Slides 4 and 5 discuss Catalent's use of non-GAAP financial measures, and our just issued earnings release provides reconciliation to the most directly comparable GAAP measures.

Please also refer to Catalent's Form 10-Q that was filed with the SEC today for additional information on the risks and uncertainties that may bear on our operating results, performance and financial condition, including those related to the COVID-19 pandemic.

Now I would like to turn the call over to John Chiminski, whose remarks will cover slides 6 and 7 of the presentation.

Thanks, Paul, and welcome, everyone, to the call.

Catalent's strong start to fiscal 2022 continued in the second quarter. Our financial results were driven by continuing strong growth in our Biologics business, with additional support from our other business segments, as we work with our customers to deliver thousands of different products that help people lead better, healthier lives. The recent addition to our offerings of consumer-preferred gummy dosage forms for nutritional supplements through the acquisition of Bettera added another growth engine on top of our robust organic performance. The strong second quarter, along with continued momentum in the business, has led us to again increase our fiscal 2022 guidance, which Tom will review later in the call.

Our net revenue for the second quarter was just over $1.2 billion, increasing 34% as reported or 35% in constant currency compared to the second quarter of fiscal 2021. When excluding acquisitions and divestitures, organic growth was 32% measured in constant currency.

Our adjusted EBITDA of $310 million for the second quarter increased 39%, both on an as-reported and constant currency basis, compared to the second quarter of fiscal 2021. When excluding acquisitions and divestitures, organic growth was also 39% measured in constant currency.

Our adjusted net income for the second quarter was $163 million or $0.90 per diluted share, up from $0.63 per diluted share in the corresponding prior year period.

The Biologics segment, driven by continued high utilization of our drug product assets, was again the top contributor to Catalent's financial performance. The segment experienced organic net revenue growth of 59%, driving an EBITDA increase of more than $60 million over the second quarter of last year.

Our legacy offerings in our Softgel and Oral Technologies segment continued to experience a recovery from pandemic-related headwinds that we had anticipated, and the segment results were further enhanced by the acquisition of Bettera. Organic growth was very strong as year-over-year demand for both prescription and consumer health products recovered nicely over the same period last fiscal year, a quarter that included pandemic lockdowns.

Though net revenue is now higher than compared to the prepandemic second quarter of fiscal 2020, there are still a few headwinds and challenges driven by the ongoing pandemic, with pockets of demand still not at historic levels. However, we're pleased that our base business, strong growth in product development and robust prescription drug pipeline are more than overcoming some of the headwinds that still exist.

In addition to our positive organic performance, we received a strong boost from the first quarterly contribution from Bettera, which added more than 20 percentage points of net revenue growth to the segment. The Bettera acquisition was an important factor in leading us to raise this segment's long-term net revenue growth rate to 6% to 8% and improving its margin profile. The acquisition is off to a better-than-expected start, and we're seeing high interest in gummy formats from our consumer health customers.

Our Oral and Specialty Delivery segment also saw continued organic net revenue growth after facing headwinds in fiscal 2021. As with Softgel and Oral Technologies segment, there are improving market dynamics across our Oral and Specialty Delivery segment. These dynamics are most notable this quarter in our early-phase development offerings and rising demand for orally delivered Zydis commercial products.

Finally, our Clinical Supply Services segment posted high single-digit net revenue and EBITDA growth compared to the second quarter of fiscal 2021. As highlighted last quarter, we opened new CSS facilities in San Diego, California and Shiga, Japan in the first half of this fiscal year and expect them to be long-term growth drivers for the segment.

On our last several calls, I detailed our capital expenditure projects across the company, most notably in support of our biotherapeutics and cell and gene therapy offerings. I'm very proud of our team's ability to navigate the challenges presented by the pandemic, including those presented by the global increase in cases related to the Omicron variant to keep these critical growth projects on track. With no change to the time line or scope of these projects, we thought it would be helpful to give you an update on the progress of our OneBio service offering, which we first announced in June of 2019.

OneBio combines our drug substance and cell line development with our drug product and clinical supply services to help reduce development time lines, risk and complexity for our customers to get their therapies to patients all uniquely with one CDMO partner. Since we introduced this initiative, we've signed more than 20 development programs, creating an additional feeder channel for our commercial pipeline.

Since originally launching as an early-stage offering specifically for preclinical or Phase I programs, we've now expanded the offerings to support late-stage programs based on customers' needs. We now have several Phase II and Phase III programs in progress or signed. We also recently completed the first OneBio customer cGMP batch using our new small-scale filling line that we acquired in Bloomington in September of 2020.

We continue to see interest from existing and potential customers who are looking for a single proven partner to help them reduce development time lines, risk and complexity in getting their therapies into the clinic and to patients faster. And this is, of course, not limited to our biotherapeutics customers. We have a long-standing history of optimizing the successful development of small molecules as well and recently launched a new service in our Oral and Specialty Delivery segment called Xpress Pharmaceutics that is designed to accelerate the development of oral drugs through Phase I clinical trials. Our team will integrate formulation development and provide on-demand clinical manufacturing, regulatory support and clinical testing guided by real-time clinical data to reduce the time potentially by half to complete first-in-human clinical trials.

I'd now like to make a few comments regarding our CEO transition plan announced last month.

Catalent is in a strong position given its growth history and trajectory, its increased profitability and its proven success with strategic execution, including the transformation of the company over the last few years as we've grown our Biologics segment and further diversified our portfolio. Catalent's offerings are not only balanced, they closely match the industry's R&D pipeline.

After my 12 years at the helm, it makes sense to refresh Catalent's leadership, particularly when the Board agrees that we have a top industry leader in Alessandro to advance Catalent seamlessly. I'm very proud of and impressed with our Board for overseeing such a thoughtful and thorough succession planning process.

Alessandro is uniquely positioned to lead a complex CDMO like Catalent. He started off at the site level over a decade ago, worked his way up to larger sites, then in multiple sites, rose up to become our Senior VP of Operations and eventually became an integral part of our leadership team in his role as our President and COO.

Over the last 3 years, Alessandro has been running Catalent to a significant degree, having ownership for all of our business units, go-to-market strategies and technical operations. He has worked hand in hand with me on developing and executing our strategy and has been pivotal in all our decisions regarding acquisitions and post-acquisition integrations.

With that said, I'd now like to turn the call over to Alessandro, who will walk you through our recently announced long-term financial targets. Alessandro?

Thank you, John. And I'm very honored to be given the opportunity to lead Catalent. You and I have worked closely together for a decade and side by side over the last 3 years. I look forward to continuing to partner with you through the transition over the next several months and then again in your new role as Executive Chair, where you will be delivering the important values to the company in areas critical to our success. I'm confident that we have everything we need to continue to win as we embark on this transition.

We continue to expand our global network, invest in growth, driving the capabilities, attracting new talent and accelerate our progress in operational excellence. These will all be critical drivers for Catalent to deliver our long-term targets.

As you know, in January 2020, we provided investors for the first time with our fiscal '24 -- 2024 targets. Our 2024 net revenue target of $4.5 billion represented more than a 50% increase from our LTM revenue at the time. We have already achieved the -- this net revenue target in the last 12 months, and our fiscal '22 guidance, as updated today, is already $300 million higher at the midpoint than our prior 2024 guidance.

In addition, back in 2020, we also projected our adjusted EBITDA margin to expand several hundred basis points to 28% in fiscal '24, driven by increased EBITDA margin in the faster-growing Biologics offering. We are right on track to meet that target, including an estimated 100 basis point increase in fiscal '22 over last year.

Our business may have changed significantly since January 2020, when our Biologics segment accounted for just 1/4 of our net revenue. Now it's already up to 50%. This transformation of our business in the last few years is a result of our strategic investments in assets supporting newer therapeutic modalities in high demand, including viral vectors, plasmid DNA, iPSCs, other gene and cell therapy manufacturing technologies, messenger RNA, monoclonal antibodies and therapeutic proteins.

Given this progress, last month at the JPMorgan healthcare conference, we announced we are moving past our fiscal '24 targets, and we introduced instead the targets for fiscal '26, which are illustrated in Slide 8. As you can see, each of our segment has an attractive long-term organic growth rate target, including our largest segment, Biologics, which has the faster rate at 10% to 15%. Our second biggest segment, Softgel and Oral Technologies, is now up to 6% to 8% with improved margins following the acquisition of Bettera. And our Oral and Specialty Delivery and Clinical Supply Services segment are also slated to grow in the mid- to high single digits at attractive margin profiles.

Key drivers to our underlying growth across the company are: first, the dynamic and growing spend for R&D in both large and small molecules; and second, increased utilization of our premium assets, manufacturing approved products.

When we look at over our various segments' growth rate, we are very comfortable with our overall long-term consolidated organic revenue growth of 8% to 10%. Based on a combination of our long-term organic growth rate and anticipated M&A activity, we are projecting more than $7.5 billion in revenue in fiscal '26 or roughly a 12% CAGR from our fiscal '22 guidance as updated today. We believe margins will continue to improve over the next several years with an adjusted EBITDA margin of approximately 30% in fiscal '26.

It is important to note that our long-term strategic plan does not assume that the pandemic-related demand for vaccines will continue in the outer years. In other words, for these outer years, our overall revenue is forecasted to continue to grow even as we expect our revenue from COVID-19-related programs to significantly decline both in terms of absolute dollars and as a percentage of overall revenue. We believe our accelerated progress towards our former fiscal '24 targets, which was strengthened by our highly successful products, exemplifies our capability to deliver for all our stakeholders, and we look forward to now delivering on our fiscal '26 targets.

Before turning the call over to Tom, I want to briefly address our Brussels facility and related 483 letter from FDA.

We take all regulatory observations very seriously and work speedily to address all of them. While some remediation efforts are relatively quick, others like in Brussels will take more time and resources. We are a patient-first company and with a (inaudible) external manufacturing operations while meeting the highest regulatory standards as soon as possible. So we have assembled a team of internal and external experts to deliver on this expectation.

We are proud of our focus on operational excellence and quality. And now that leads us to deliver more than 70 billion doses of medicines for nearly 7,000 products on behalf of more than 1,000 clients across more than 50 facilities each year. The broad diversity of our product offerings and resilience of our business will create a key strategic advantage over our competitors.

I would like to turn the call over to Tom, who will review our financial results for the second quarter and our updated fiscal 2022 guidance.

Thanks, Alessandro. I'll begin this morning with a discussion on segment performance, where commentary around segment growth will be in constant currency. I will start on Slide 9 with Biologics segment.

To highlight the company's transformation over the last 2 years, you'll see that the company (sic) [segment] represented 52% of our net revenue in Q2 of the fiscal year compared to 44% in Q2 of fiscal 2021 and 31% in Q2 of 2020. Biologics net revenue in Q2 of $638 million increased 60% compared to the second quarter of 2021, with cell therapy acquisitions adding 1 percentage point of growth. This robust net revenue growth was driven organically by broad-based demand across the segment, most notably for COVID-19-related programs.

The segment EBITDA margin of 30.9% was up 60 basis points sequentially over the first quarter of this fiscal year but was down year-over-year from the record level of 33.5% recorded in the second quarter of fiscal 2021, which is primarily attributable to mix, most notably an increase in component sourcing, as well as costs associated with our continued investment in cell therapy business.

As we discussed in the past, component sourcing is where we source materials, components and other supplies for our customers. And it comes with 2 opposing dynamics: increased revenue but with margins well below the company average. In Q2 of last year, as we readied the additional capacity we were building, we were not yet manufacturing at large scale and therefore had a much lower contribution from component sourcing versus today's levels.

Looking to the back half of the year, as we discussed last quarter, we expect the Biologics segment revenue growth rate to decelerate in the second half of fiscal 2022 as we begin to compare against the higher levels of COVID-19-related production that started back in the back half of fiscal 2021. Also in the back half of the year, we expect the EBITDA margin for Biologics to be impacted by costs associated with corrective and preventative actions we are taking in response to the regulatory observations out of our Brussels site. These remediation efforts will include a voluntary temporary shutdown as we replace equipment and revalidate the facility have been factored into our updated fiscal 2022 guidance, which I will review in a few moments.

Please turn to Slide 10, which presents the results from our Softgel and Oral Technologies segment.

Softgel and Oral Technologies net revenue of $329 million increased 36% compared to the second quarter of fiscal 2021, with segment EBITDA increasing 73% over the same period last fiscal year. The October 1st acquisition of Bettera contributed 22 percentage points to net revenue growth and 30 percentage points to EBITDA growth in the segment during the quarter. The organic net revenue increase was driven by growth in both prescription products and consumer health products, particularly in cough, cold and over-the-counter pain relief products.

Segment EBITDA increased 507 basis points from the second quarter a year ago with organic volume growth and the addition of the margin-accretive Bettera business each contributing to the margin expansion.

Slide 11 shows the results of the Oral and Specialty Delivery segment.

After factoring out the net impact from divestiture of our blow-fill-seal business and the acquisition of Acorda's spray-drying assets, organic net revenue grew 5% and segment EBITDA was up 24% over the second quarter of last year. The top line growth was primarily driven by elevated demand for early-phase development programs. You may recall that a year ago, we called out lower demand for early-phase development programs as a result of pandemic-related lockdowns. So this bounce back is another strong indicator of a return to prepandemic activity levels.

Organic net revenue growth was driven by demand for early-phase development programs and orally delivered Zydis commercial products. EBITDA margin improvement was driven by organic net revenue growth as well as favorable comparison to our second quarter of fiscal 2021 when we booked charges related to a customer's September 2020 voluntary recall of a respiratory product.

As shown on Slide 12, our Clinical Supply Services segment posted net revenue of $99 million, representing 7% growth over the second quarter of fiscal 2021, and segment EBITDA growth of 9% over the same period. These increases were driven by growth in our manufacturing and packaging and storage and distribution offerings in North America. As of December 31, 2021, backlog for this segment was $529 million compared to $515 million at the end of last quarter and up 18% from December 31, 2020. The segment recorded net new business wins of $114 million during the second quarter compared to $118 million in the second quarter of the prior year. The segment's trailing 12-month book-to-bill ratio is 1.2x.

Moving to our consolidated adjusted EBITDA on Slide 13. Our second quarter adjusted EBITDA increased 39% to $310 million or 25.4% of net revenue compared to 24.5% of net revenue in the second quarter of fiscal 2021. On a constant currency basis, our second quarter adjusted EBITDA also increased 39% compared to the second quarter of fiscal 2021.

As shown on Slide 14, first quarter adjusted net income was $163 million or $0.90 per diluted share compared to adjusted net income of $114 million or $0.63 per diluted share in the second quarter a year ago.

Slide 15 shows our debt-related ratios and our capital allocation priorities.

Catalent's net leverage ratio as of December 31, 2021, was 2.8x, below our long-term target of 3.0x. This compares to a pro forma calculation of 3.0x at September 30, which reflects both the Bettera acquisition we completed on October 1 and the debt we issued on September 29 in connection with the acquisition, and the reported 2.6x at December 31, 2020. From here, we will naturally delever, absent any further M&A activity, as our adjusted EBITDA continues to grow, providing us with significant flexibility to continue to pursue organic and inorganic growth opportunities.

Our combined balance of cash, cash equivalents and marketable securities as of December 31 was $950 million compared to approximately $1 billion also on a pro forma basis for the Bettera acquisition we reported as of September 30, 2021.

Moving on to capital expenditures. We continue to expect CapEx to be approximately 15% to 16% of our fiscal 2022 net revenue expectations driven primarily by growth investments in our Biologics segment.

Now we turn to our financial outlook for fiscal '22 as outlined on Slide 16.

Following the strong second quarter and solid outlook for the remainder of the fiscal year, we are raising both the low and high end of our financial guidance ranges. We are also tightening the range since there are just 5 months remaining in the fiscal year.

We now expect full fiscal year net revenue in the range of $4.74 billion to $4.86 billion, representing growth of 19% to 22% versus our previous estimate $4.62 billion to $4.82 billion. We project that net revenue growth from M&A will continue to be 2 to 3 percentage points, principally driven by the acquisition of the Bettera. We continue to project organic net revenue growth in each of our segments for the fiscal year to be within or above the long-term growth range we have previously disclosed for each segment.

For full year adjusted EBITDA, we expect a range of $1.25 billion to $1.30 billion, representing growth of 23% to 27% over fiscal 2021 compared to our previous estimate of $1.225 billion to $1.295 billion. Note that the continued strengthening of the U.S. dollar against both the euro and the British pound is expected to negatively impact our adjusted EBITDA by approximately $10 million in the second half of the fiscal year, the effect of which has been absorbed into our new guidance.

We expect full year adjusted net income of $650 million to $700 million, representing growth of 18% to 28% over the last fiscal year compared to our previous estimate of $630 million to $695 million.

We continue to expect our fully diluted share count on a weighted average basis for fiscal 2022 to be in the range of 181 to 183 million shares. This projection counts our formerly outstanding Series A convertible preferred shares as if all were converted to common shares in accordance with their terms.

Finally, we also continue to expect our consolidated effective tax rate to be between 23% and 25% for fiscal 2022.

Operator, this concludes our prepared remarks, and we would now like to open the call for questions.

(Operator Instructions) Okay, we have our first question. Our first question comes from David Windley from Jefferies.

I wanted to -- I was hoping to ask two. My first one is around Biologics revenue. Tom, you called out that COVID-19 programs were a big driver there. In a conversation we had in December, you talked about COVID -- management considers COVID to be base, and then the base you expect to be able to grow 10% to 15% over the long term. Could you talk a little bit about -- could you give us a little more color about how much COVID contributed to the quarter? Anything you can tell us there and how you believe that will kind of pace out over coming years that will allow you to continue to grow that segment 10% to 15%?

Yes. So Dave, we're going to fall short of giving any specificity -- further specificity around what the contribution was for COVID-related revenue. I'll go back to comments we made at the start of the fiscal year with not only this being part of our base, but what -- but that it was a revenue contribution that was expected to be higher than the contribution that we saw in fiscal '21. I'll remind everyone we saw about $550 million on a net basis COVID-related revenue in the prior year and I did say that in fiscal '22, we expect that revenue to be higher than those levels.

We have said that we do expect our COVID revenue to continue to contribute into our fiscal '23 year. In fact, we have public disclosures that have been made around relationships with several key customers that extend through the fiscal '23 time frame.

In terms of what the revenue profile of COVID looks like after 2024, we haven't -- sorry, after 2023, we haven't talked about that specifically, but we did clarify on today's call, Dave, that it's expected to be a significantly lower contributor in the outer years of our long-term target, especially with regards to fiscal '26.

I will say that the pipeline of drug product programs that we have built through the role that we played in the pandemic is certainly giving us the confidence to continue to see this be part of the base as well as the additional capacity that we continue to invest in and bring online across several key facilities here within the network, primarily within Bloomington with our Anagni facilities in Europe. Anything else to add?

No, no. Look, covering the second part of your question a little bit more in details, across all the offerings in Biologics, we still have a number of assets which are not used for COVID response which are in high demand...

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in capacity over the next 3 years. It is in drug substance, in gene therapy, cell therapy and our products specifically with regard to our prefilled syringes. And so we feel comfortable that we have enough assets which will come online and with pretty good -- very good demand profile, so -- which will continue to help growing the business at projected rates.

My follow-up question, maybe a good seque, Alessandro, you touched on the 483. I guess kind of two aspects of this question as well, one being the time frame that you expect this facility to be impacted as you remediate the issues. I believe, from other contexts, we're to believe that maybe that's a 6- or 7-month time frame. If you could confirm that.

And then more broadly, the Brussels facility is one that has had 483s at every FDA inspection since 2013. This particular 483 highlights some issues that were -- appear to be kind of neglected for several years. If you could add some context to the investments in quality and the priorities around quality in this facility.

We're not providing here any specific update about the time line to this. I can only share that we have deployed a significant amount of resources, internal and external experts, in my comment to this. I can confirm that we're only going to restart this facility where we are satisfied meeting with the highest standards of quality and compliance.

The investment is ongoing there. It did require some engineering a high-filtration system, which are ongoing. And so -- but I will fall short from providing the specifics about this one.

With regards to your second question around the 483 in this specific facility, we take all these observations very, very seriously. Some of them are more related to the procedures or

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some practices that can be corrected with the ongoing production. Some others like in this case

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stop production for a period of time to implement some changes

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for facilities that had been running for a while. So I believe that we've always been very, very thorough in collaboration with all the regulatory agencies. For each of...

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responded, and

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to a conclusion with the satisfaction of regulators.

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from Morgan Stanley.

Just a follow up on Dave's line of questioning there, Tom. It sounds like the financial impact from the shutdown is clearly fairly manageable. But have you seen any -- or can you just walk us through your ability to absorb the impact by moving customer projects to elsewhere in the network from Brussels?

So with the first part of the question, look, we, of course, plan, work very, very hard and strive not to have these situations, and we expect from us surely the highest level of excellence. However, we all need to appreciate the tough customers. Specifically, they have way more data point than just one 483. They experience and observe the performance of Catalent and add values

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in action every day

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So I believe that our customers have way more information and data points to make that evaluation. And as such, we have not experienced any slowdown in our commercial activity or any impact there. And in fact, I can confirm that the demand and the requests for Catalent's services is as high as ever been.

And in terms of your question, Tejas, related to the financial impact, this goes back to the -- one of the core strengths of the company, which is the diversification of the portfolio. We operate over 50 sites across the globe, manufacturing over 7,000 products across 1,000 different customers. So the size of Catalent's battleship, if you will, gives us just the ability to absorb these types of normal course challenges that come up from time to time when you operate in a highly regulated space. So to answer your question, we have been able to absorb this. We said from the start that this was not a material financial contributor or impact for the company, and I think that's seen by the robust guidance we've put forth here for the remainder of the fiscal year.

Got it. And then one quick follow-up there, Tom. You mentioned remediation costs in your prepared remarks. Would you be able to sort of quantify that for us in terms of what the EBITDA impact look like here in terms of the revised fiscal '22 guidance?

Yes, that's a level of granularity, Tejas, that we don't disclose. We don't talk about contributions from individual plants across the network. We did want to just highlight the fact that we will see these -- some additional costs here as a result of the remediation efforts that will have an adverse impact in the margin profile of the business in the second half of the year, primarily in the third quarter. However, as I said, that's all already contemplated in the robust guidance that we've put forth.

Our next question comes from Jacob Johnson from Stephens.

Maybe a question on the drug products side. Obviously, there's been a good amount of benefit from COVID there. I think as Tom mentioned, you have contracts that run into next calendar year. But if and when those dedicated lines free up potentially for other customers, are you already in discussions with, let's call them, non-COVID customers about that capacity?

Yes, sure. Absolutely. Look, I wouldn't call them not -- necessarily non-COVID customers. I will call them non-COVID products. So they might be with the same COVID customers. And in fact, I do believe that's the most likely scenario where those partnerships, which, again, have been set in a way that will create partnership and collaboration across the spectrum of the pipeline and not necessarily on these specific products, I believe that we're going to continue to give customers the priority to access these lines.

I'm going to continue to underline and underscore that these type of assets, specifically fill and finish lines and the regulators, are in very high demand. There is not enough capacity still in the world that would support the current volumes and the future pipeline, more importantly to prefilled syringes. And so there is demand, there is a ling of customer who wanted to access, and I do believe we will continue to give a priority to our partners which we have developed such a strategic relationship through the COVID pandemic responses. So I hope this addresses your question.

Yes, super helpful. Maybe just one follow-up. In your updated investor presentation, you have the slide on where the biopharma industry could go in the next five years. I think you highlighted some things like gene editing, oncolytic viruses, red blood cell therapeutics. Are those capabilities you can serve today? Or are those areas that maybe we should consider for inorganic growth at Catalent?

It's both. We have already -- as I shared a few weeks ago, maybe these went a little bit under the radar, but we have secured a number of facilities from the operating arm of one of our clients in the Baltimore facility, which were not necessarily using therefore the current platforms. And we have dedicated these facilities to the development of some of the platforms that you are referring to, mainly oncolytic viruses, which, again, is one of the therapeutic modalities for some significant patient populations which we see as attractive in the future.

We -- our move in -- the other one that we are really working hard on is the plasmid DNA. We continue to see huge interest and demand from customers. The reality is that this is, at the moment, a capacity-constrained environment. And the new platforms that have been validated through the pandemic, primarily messenger RNA, make large use of those products. So some of that are -- we got the infrastructure. They're not material, full disclosure, at this point in time in the overall map of the company. But I believe they will become, at some point, material, and I expect that in the years to come, we're going to talk more about the contribution of plasmid DNA and some of these platforms you're referring to.

Super helpful. And congrats on the new role.

Our next question comes from Luke Sergott from Barclays.

Just kind of want to dig into the margin for '22. You guys have a ton of moving parts here to get to that 100 basis points expansion. That's including Bettera. You have FX headwind. You have the mix dynamics. Can you just kind of walk us through what those puts and takes are and bucket those out?

Yes. So first, I would say the FX headwinds are not having an impact on the margin profile of the business. We're seeing the strengthening dollar impact, both the top and the bottom line at similar levels here. So no impact related to that.

We are assuming, as you mentioned, Luke, over 100 basis points of margin expansion at the midpoint of the range. We're certainly seeing the Bettera contribution helped pull up the margin profile within the SOT business. We mentioned that's a business that our EBITDA margins that are operating closer to that of Biologics than that of the SOT business, where it is today. But also, the recovery efforts that we're seeing in terms of moving closer to prepandemic levels within SOT and OSD and the corresponding increase in utilization levels we're seeing in those facilities as a result of those volume upticks are contributing to the margin expansion profile that we're seeing in that business.

Biologics is the only segment where we saw some margin pressure, and that's really primarily attributable to the mix issue and the component sourcing dynamic which I talked about in detail through my prepared remarks. And I would expect that the margin profile of Biologics continues to be a modest drag for us in the second half of the year, especially now with the inclusion of the remediation-related costs associated with the 483 out of the Brussels facility.

And the CSS business, I would say, is a margin-accretive business. We continue to see EBITDA levels that are growing faster than the top line in that business, and I would expect that dynamic to contribute in the second half of the fiscal year as well.

So now it really comes down to the inclusion of Bettera and the recovery within SOT and OSD that are going to help drive the margin profile higher here for us and offset some of the headwinds we're seeing within Biologics.

Great. And then secondly, as you talked -- you talked about some pockets of demand being less than historic levels. Can you talk about where particularly you're seeing those and then just the overall order book as you guys see it stacking up and how that's really kind of meeting or exceeding your expectations?

Luke, Alessandro here. So, I mean, some of the areas would be obvious to you. All the areas of biomanufacturing clearly is in high demand. Just let me remind you that in that area, we serve both commercial products but also the R&D pipeline.

In all the new modalities, the pipeline is not only increasing that we show in our presentation but is also maturing, meaning that more and more assets are moving to the later stage. And when it comes to CDMO services specifically, there is more opportunity for us to generate revenues in the later stage of the pipeline as opposed to the early stage of the pipeline. So that for sure is creating some interesting dynamic to us.

I would tell you the clinical service business has been an interesting one because yes, there were a couple of dynamics during the pandemic where some studies were post door slowed down because of the inability to recruit patients and patients going to clinics. But on the other hand, you have the large studies for vaccine which offsetted for us the effect. And now this is a little bit going backward. But the studies are picking up steam again, and so we are seeing very, very good commercial wins in that area, which are a good proxy for the future revenues to -- in that business.

There is still a little bit of a lingering effect, I would say, of the pandemic around the consumer health business. I mean this is primarily with the Q2 commentary, although I have to tell you that in the last few weeks, we've seen some good movement there with some historical products, the large products, and the brands that we serve in consumer health which are going back to historical demand and in fact, in some cases, regaining a little bit of stock, will create a temporary effect of increased demand.

So with regards of our pharmaceutical services in filling more the small molecules, look, we are very, very mindful and the portfolio is serving the small molecules, not making the volume play but the technology play, looking after those diseases and unmet needs, which are still being targeted by small molecules. And that is an area that not only today is giving us, especially for our early-stage assets, a good demand, but we see that trend continuing into the next few years.

The next question comes from Sean Dodge of RBC Capital Markets.

Yes. Now on Bettera, that was an area you all previously talked about as being a likely continued investment focus in terms of adding new capacity at some point. John mentioned the strong client interest in gummies kind of right out of the chute here. Any updated thoughts you can share around when you might begin investing and expanding across Bettera's footprint, guys?

Yes, thanks for the question. First of all, we couldn't be more excited about our acquisition of Bettera. It's really come out of the gate incredibly strong. As you know, we have relationships with our -- all the large consumer health companies, and honestly I would tell you the phone is a little bit ringing off the hook. They have really some great technology, great case profile, great overall slate of products that they're developing. And you plug that now into Catalent, and we have the ability to really turbocharge that overall effort.

Specifically on the capacity expansion piece, I will tell you that we came out of the gate with our business plan on Bettera, already planning to spend significant CapEx there to expand capacity. The current demand-supply imbalance is for us to quickly expand capacity. Literally, if we could double our footprint right now with regards to our manufacturing capacity, we could sell it all.

So we have some very aggressive plans in terms of CapEx expansions with our new Bettera team. We're hiring a significant amount of individuals. We're taking the Catalent playbook of operations and processes, already expanding where we can from an operational standpoint in terms of increasing the 24/7 operations where we can in certain facilities. We have CapEx expansions already deployed.

And I can share with you, at our Board meeting that we had just last week, we had a specific section around Bettera and how we are going to significantly multiply the EBITDA of that business over the next few years.

So we're very excited about the space, the strong interest and demand and really how Catalent can turbocharge the effort given our strong position and franchises that we have in consumer health area.

Great. And then on -- maybe on capacity utilization more broadly. You had said before there were a number of facilities that were operating 24 hours a day 7 days a week to meet commitments. Is this still the case? And is that happening across a lot of your footprint? Is it more prevalent in any one particular segment? And then in those situations, how does that affect margins? I guess you'd have fixed cost you're leveraging, but I'd imagine you have to do things like offer ship premium, so your variable costs are probably higher, too.

Yes. Look, it's a little bit variable across the network. What I can tell you, surely you can expect our product assets, primarily vial, to run at very high capacity utilization rates, surely at 24/7 rates. I believe that it's a moving pattern because as we shared, that we have a significant capacity coming online during this calendar year. So as you think about it, that capacity will continue to come online. And the capacity utilization, the one that you calculate at some -- real deep when this capacity comes online.

So I would tell you that in the drug substance, that we have fairly high utilization, but there is still ability for us to continue to sell more. We have very recently coming online two additional training in our Madison facility, and we are doubling down in our biomanufacturing footprint in Baltimore, which now will go from 10 to 18 fleets, which are going to be very flexible and very helpful to continue to serve biomanufacturing in the space.

Clearly, there are some early moves that we do routinely in some areas which we see attractive in the mid to long term like cell therapies, like plasmid DNA, like oncolytic viruses, lentiviruses, the other areas in inhalation where we decide, because it makes sense, to enter into this space, in these platforms organically as opposed to pay a high premium on an acquisition. And those can -- for a period of time, could be a little bit dilutive, but we are okay with that because in the overall scheme of things, the capital deployment is still way more efficient to then just trade on acquisition with M&A to go. So I -- this is the best way I can describe across the board the dynamic of capacity utilization and the impact to margin.

The next question comes from John Kreger of William Blair.

I had a couple of questions about the longer-term growth goals that you guys referred to again in the presentation. Tom, maybe for you, what are the planned CapEx spending levels that we should assume kind of correspond to the longer-term revenue growth goals that you guys have provided?

Yes. Good question, John. So we've talked about an elevated level of CapEx. Obviously, in fiscal '22, we'll be spending about 15% to 16% of sales, as we mentioned in the prepared remarks. That's closely aligned to what we spent in the prior year as well.

To remind folks, I would say the more normal levels of capital spend for us is somewhere in the 8% to 10% of sales basis annually. I don't know that we get back to that level in the fiscal '23 year, but I would expect us to start to gravitate more closely to that. So I think we remain elevated above the 8% to 10% levels within the next 1 to 2 years but probably not quite at the 15% to 16% level. So we're not assuming in our plan that 15% to 16% of sales, John, is the new normal level of CapEx spend that we will be spending annually. However, it will likely stay above the 8% to 10% for the next several years.

Yes. And John, let me just add a little bit of color here. First of all, I would say that Catalent has done an excellent job staying ahead of capacity that's needed in the industry. So we've been very astute at understanding where we can get a really quick and excellent payback on capacity investments and certainly what we've been doing in biologics, which is a cross on biotherapeutics, which is a drug product, drug substance, but also in our gene and cell therapy business.

Again, we see terrific ability to be #1 in those spaces, specifically for cell and gene therapy from a CDMO standpoint, as well as to have the capacity that our customers need, which, by the way, is what kind of really made us the go-to player, if you will, during COVID with regards to vaccines and therapies, because we have much coveted capacity that our customers wanted and needed, specifically the high technology of under -- isolator drug product, filling assets that Catalent was putting online and was able to secure even through the pandemic.

The next thing that I'll tell you is that although, as Tom says, we would expect an 8% to 10% more normal run rate for the business, the cycle of the business is as follows. We find a great adjacency from an inorganic standpoint or an area where maybe geographically we want to improve our position. And then when we buy that asset, get our hands on that asset, we then deploy significant CapEx or -- against it to drive it organically, as, I was just mentioning, that we'll be doing with Bettera.

So assuming that we don't have any significant M&A, I would expect us to get to that 8% to 10% and continue to drive significant organic growth through our CapEx platform, I would say, which is the businesses that we've acquired or put in place. But if we do continue to get into some other adjacencies or new assets, let's say, in Europe specifically for drug product and drug substance, you'd expect us to then quickly follow on with some additional CapEx.

So it really depends on the M&A profile, the assets that we get that'll determine how quickly we kind of get to that, I would say, normal spend level of 8% to 10%. But hopefully, that provides you a little bit of a color. And John, having followed us for a long time, you probably see that play out in the financials.

Yes. That's helpful. And maybe just one last thing to clarify along the same lines. I think in the past you've told us you weren't really interested in investing in large-capacity biologic drug substance production. Is that still your thinking?

Look, we've always stated that our strategy is really in that sub-5,000-liter category for drug substance. 70% of the molecules that are in the pipeline, if they go commercial, are going to require 5,000 liters or less of drug substance capacity. So we really feel that we've carved out a really nice area here, and we'll continue to invest in the sub-5,000 single use.

I will tell you that we'd like to have more assets in Europe for a drug substance, drug product. We announced that we're going to be doing a $100 million expansion in drug substance in our Anagni facility in Italy. So we'll continue to go after that. But we really feel that our place in the drug substance area is really in that sub-5,000 liter. There's a tremendous amount of biotechs in the small and medium size that are going after, I would say, indications that have smaller populations. And then we combine that with that one bio offering that I talked about in our prepared comments, and now we can take them basically from our cell line expression technology, drug substance, all the way through drug product and clinical supply. So I think we've really carved out a great area here where Catalent is building a terrific brand reputation.

Yes. The only thing I would add there, John, is look, our job is to try to figure out not only where there is demand but where, over time, there could be -- where over time the balance of supply versus demand is growing. And we do believe that in the sub-5,000 liters, there is more opportunity that the supply-versus-demand profile will stay healthy for a longer time for CDMOs.

The next question comes from Derik De Bruin from Bank of America.

So yes, a couple of questions. So first of all, just to close the loop on the 483, is that -- did you -- is the plant shut down? Are there still lines operating, just to get a sense of the impact?

So the intervention that is mostly requiring protein production, as we said, is on the air filtration system. That does require a very comprehensive approach around the filling operation of the site. So cleaning a site like that one. There are many other activities when it comes to commercial operations and other [creative] activities and ancillary activities. And so there is still quite an intense level of activities, including the remediation activities. And so it's not like completely paused. It's just that the -- in order to address the HEPA remediation. And to the extent we're doing that, that requires the filling operation to be closed for a period of time.

And can you talk a little bit about your cell and gene therapy expansion in that market? I mean it's -- where is the industry in capacity today, number of projects? We get a lot of questions from investors trying to dig into this a little bit more, and it's not there. It doesn't seem to be there. And I think any sort of like general comments on profitability versus some of the other biologics. Could you just sort of talk a little bit broader about what -- where you are in that market, where you are in expansion, where the overall market is?

Yes. So first of all, we remain extremely enthusiastic about the cell and gene therapy space not just from an overall enthusiastic about its ability to literally solve diseases or cure cancers, but the fact that there is significant demand out there. And when you take a look at gene therapy and pipeline expansion, you can see that it's going to grow about 3.5x over the next 5 years, going from about 850 programs to about 2,900 from our data. And then if you take a look at cell therapy, which, again, is an area that we've gotten into much earlier than we normally do, I would say in an innovation technology investment cycle, that's growing -- it has more assets today with about 1,500 pipeline programs. We see that growing also at about 3x to 4,700.

Both of these areas lend themselves extremely well to CDMOs. If you take a look at gene therapy, a lot of the assets are coming from small and midsized companies that really do not have the firepower to deploy $150 million, $200 million or even more to put in place the manufacturing assets necessary for the gene therapy. That assumes that their asset is successful. And if their asset is successful, they will cure patients and then have much lower demand and ultimately idling those assets. So from a gene therapy standpoint, right now, our estimate is about 70% of that whole category is outsourced, and we only see that increasing over time.

We've made significant investments into this area when we acquired Paragon. We had two commercial manufacturing suites. We immediately invested, which is basically Catalent's modus operandi, which is we invested to take that up to 10 suites. And since then, we now have 10 suites up and running. We announced another 5 suites and have now appended onto that an additional 3 for total of 18 suites that we'll have from a commercial manufacturer once they're all up and running. And again, very robust pipelines there.

On a cell therapy standpoint, I'm as enthusiastic, if not even more enthusiastic, about the cell therapy space. I think over the next 10 years, this could move from a third or second line of treatment to a first line of treatment, especially if we have some successes in the autologous area. And Catalent has put together quite a significant campus in Gosselies, Belgium. We initially started off with the MaSTherCell acquisition that had assets in -- it had an asset in Gosselies and also in Houston. And in the Gosselies area, we've made multiple acquisitions or -- whether they be business or asset related, plus significant CapEx that's going to be putting in place a facility that will be able to be used for both autologous and allogeneic. So I would say we remain very bullish both on the gene and cell therapy area. I will proffer that Catalent will be the #1 CDMO by far, if they're not already from a gene and cell therapy standpoint, and we're going to continue to invest in that area.

Yes. And one point I will add is a little bit clarifying the profiles of customers, right? So while in the early-stage services that we provide we tend to have in the mix much more biotech customers, which, as John clarified, don't have internal capacity and the desire on CDMOs to progress assets through the clinics, and the support we provide goes well beyond just the manufacturing, cleaning and material within our legal services and everything that is required by the CMC, but when it comes to more late-stage assets, we have a very good mix also of large clients which are interested in our capacity, which are less depending, so to speak, of external funding because they have already commercial products out there. So it's -- we feel good about the overall dynamics, but we also feel good about the mix of the customers that we serve.

Our next question comes from John Sourbeer from UBS.

I guess I just have a question here on the guidance. And given the strong top line performance in the quarter, can you talk about any conservatism you have baked in, in the second half of the fiscal year on the base biologics or vaccines? And anything else to highlight there outside of the Belgium facility on any changes in assumptions in the second half?

No, I would just say that we were very prescriptive in our prepared remarks, John, related to a more normalized growth rate expected for our Biologics business in the second half of the year. As we think about the timing over the last 6 quarters or so in terms of when COVID vaccine production really started to run up close to peak volumes, it was in the second half of our fiscal '21. The third quarter was when we brought online one of the dedicated bio lines in the prior year. So the fact that we saw very high levels of COVID-related contributions in Q3 and Q4 of fiscal '21, we're now expected to see more normalized growth within the Biologics segment in Q3 and Q4 in fiscal '22 in comparison to those -- the prior year quarters.

We did highlight the Brussels remediation effort. I would say that's more of an impact given the costs related to remediation on the margin than it is on the top line. And I think that's pretty much the story here as we think about it.

And we did also note the comparative sourcing dynamics we saw in the first and second quarter of this year when compared to prior year. And given we had very high levels of COVID volumes in the second half of last year, the comparative sourcing shouldn't a material how the sourcing shouldn't be a material contributor to the top line from a growth standpoint in Q3 and Q4 given, again, that, that was already part of the story in the second half of the prior year.

So that's really what I can provide here in terms of the dynamics we're seeing within Biologics as we enter the second half of the fiscal year and seeing growth return to that more normalized level that we would expect.

And I guess just maybe to follow up on Derik's question on the cell and gene therapy, I think you recently provided some color that '21, these were growing around 25% year-over-year. Any directional guidance or color you can give us on how these look for 2022 in growth rates?

Yes, so I don't know that we talked about the growth rate of that business in particular, maybe talking about the overall market dynamics being very robust there from a cell and gene therapy perspective on the heels of John's comments here. But John, we don't provide growth rate specificity down to the individual subsegment lines like cell and gene therapy or drug substance or drug product. I will say this is a business that has been growing nicely and will continue to grow, but we've certainly not disclosed anything in terms of what that growth rate looks like on a percentage or absolute dollar basis.

The next question comes from Evan Stover from Baird.

A couple of quick ones from me. On Bettera, it looks like the implied EBITDA margin there was about 25% in the quarter. Is that a fair near- to intermediate-term kind of approximation for that business? I know you discussed Biologics like EBITDA margins, which I think of as being 30%-plus. So I'm just wondering if some of the investments maybe shape that margin curve a little bit out into the future on that business.

Yes. So Evan, good question. Your back-of-the-envelope math is correct. I will say longer term, we view the margins of this business as being closer to Biologics, as I mentioned. This was the first quarter in which we operated the asset that closed for us on October 1. There were several, I would say, integration-related costs that we needed to deploy into the business. This was a business that was not operated at the levels of a public company. A lot of back office-related, I would say, investments we needed to make here to align it to Catalent. But as we sit here and think about the business and the potential that we see here, not only do we see very robust levels of growth in the 20-plus percent range, but there's improvement that we can make, given our expertise in terms of running manufacturing facilities, to these assets that will help drive further margin expansion down the road here.

So I would say that the mid-20% range that we saw here, give or take a couple of hundred basis points in either direction, is probably the near-term view there. But like we said, we do have line of sight to this business contributing EBITDA margins very close to that of the Biologics segment.

Look, I would just stress what Tom said around the opportunity from an operational excellence standpoint that basically is running 24/7, which we are very rapidly implementing given the high demand, very high demand that we're experiencing. And the only way to respond in the short term is to increase the utilization rates of the asset. That's one element of it. But we do see also incredible opportunities from an operational excellence standpoint applying the Catalent playbook to these assets. And so more to come on this point.

That's great color. On free cash flow, always dangerous to look at a quarter or even a half of a year, but you were negative for the first half of the year. Is there any change to your guidance for, just broadly speaking, some positive free cash flow in fiscal '22? Has that changed at all with Brussels and maybe some other items that you'd like to address?

Yes. Now I would say we were expecting to be close to the levels through the first half of the year. I mean we see a step-up in our EBITDA contributions in the back half. We do expect, if you look at us historically, seeing the bulk of our free cash flow generation coming from our third and fourth fiscal quarters.

I will say maybe we were perhaps a little bit behind here, and it's mainly related to just inventory. If you look at working capital inventory as an area that we've, I would say, intentionally have used to make sure we're -- we hedge against some of the supply chain-related challenges that we see across the industry, I would have hoped that we would have started to see some of those challenges alleviate here in the second quarter. We have it. We've been able to be a little bit, I would say, more cautious around inventory, but we haven't made the improvements that we expect to see in the fiscal year yet.

Look, as we enter the back half of the year, this is going to be something we continue to look at here. I will not expect inventory to be -- continue to be something that increases for us. And so it's going to come down to how quickly can we get through some of the inventory we have and have the comfort that we can run at lower levels of safety stock around some of our key materials.

So that's really the big dynamic of the free cash flow, Evan, as you look at this. I will say we will continue to drive the business towards what we believe will be a positive free cash flow year, which will be a nice improvement from what we saw in fiscal '21. But we're not out of the woods just yet around these inventory-related challenges, and it continues to be a little bit of a free cash flow headwind. But I wouldn't expect any material change as a result of the Brussels remediation 483 to have a meaningful impact on free cash flow.

The next question comes from Jack Meehan from Nephron Research.

I had a few questions back on COVID. Can you talk about the diversity of your sales now between the vaccines and the therapeutics? As we've seen some prioritization of some vaccines over others, I was just curious to hear what proportion of your COVID sales are now coming from your largest customer.

So look, I believe that if we -- we got to make sure that we factor into the picture of the vaccines the global demand and not only the Western world. Some of your comments around preferred

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are relying more on the likes of the ability to supply enough quantities. And so I would tell you we haven't seen a significant softening of demand across the board on any of the vaccines that we serve.

With regards of therapeutics, we have a number of them. We continue to serve them. And those are the ones that are more -- depending on the variant of interest and the different mutations, will continue to be updated as the times go by. We do expect that on the therapeutic front, there will continue to be ongoing demand to try to protect the ongoing population which will just not get vaccinated.

Great. And one more on the vaccine side. I think earlier this year, you called out 2 billion doses kind of as a target for 2022. Can you talk about what trends you're seeing in terms of dose per vial? Has that started to come down at all?

Yes. Now look, it's going to come down. There is no doubt about it. The settings there for the vaccine are going more towards physicians and GPs. In the -- and again, I need to caveat my response with the Western world, meaning the countries which have the higher vaccination rates during the pandemic should be -- now have different settings for administration of vaccines. And we are already doing several projects to either grow...

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go to lower counts per vial but also to previous ranges, which will be, by definition, a single dose presentations. So the move is going directly in that direction.

I just want to add one quick point of clarification here, Jack. I know you probably know this, but the 2022 dose number that we talked about at JPMorgan is the calendar year 2022 at [present]. And it really was not meant for modeling purposes here, it was to speak to the role that Catalent has played and continues to play in the pandemic. But again, not for financial modeling purposes.

Maybe one last comment. And I think we -- whether it's a vial, whether it's 14 doses, 5 doses per vial, we pay for that vial. So -- in some sense, when you move down to fewer doses per vial, the economics for us can be flat to improving depending on where it's going. So it's just something I continue to mention.

Our last question comes from Paul Knight from KeyBanc.

Congrats on all the questions. The -- I know the fill and finish is one of your more significant

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are in that position in the market today

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faster than other parts of the Biologics business.

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remains in extremely high demand across the board. Certainly, the pandemic and the use of those assets for vaccines

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I think Catalent was

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for product assets. And then even during the pandemic, we were able to get our hands on and secure some additional drug product, overall assets.

The pipeline outside of vaccines remains very robust again for drug product, and you're going to see a lot more demand specifically in the prefilled syringe, especially with some high-profile blockbuster drugs that are going to these prefilled syringe formats. So it's a really an area that has seen robust growth. I think Catalent has positioned herself very well. Our early acquisition of Cook Pharmica and the follow-on investments that we've made there have been absolutely fantastic, making it one of the most strategic parts of our American assets for the COVID vaccine solution but also for future drug product filling. And then also, our acquiring the asset from DMF, the Anagni facility, which we're continuing on with follow-on investments there, is significant.

So our -- I would see Catalent continuing to make both organic investments from a CapEx standpoint as well as identifying additional inorganic assets that we can use to serve this very, very robust pipeline.

I would now like to turn the call back over to John Chiminski for closing remarks.

Thanks, operator, and thanks, everyone, for your questions and for taking the time to join our call. I'd like to close by highlighting a few key points.

The trajectory of Catalent is strong, as shown by our ability to confidently provide robust projected growth targets for fiscal 2026. We're able to do this because of the strategy we have in place, the skilled team of dedicated employees to execute this strategy and the patient-first culture that is foundational to our long-term success. We're also encouraged by the many drivers of growth for the CDMO industry, allowing Catalent to expand into new therapeutic area or modalities and to enable new opportunities for partnerships.

Our response to the pandemic has revealed the importance of a culture that is purpose-built to tackle hard problems, and we'll continue to be flexible in how we meet the needs of our customers. Catalent is well positioned to work on and find solutions to the largest, most complex challenges in the industry, as illustrated by our ability to quickly stand up production efforts to produce billions of COVID-19 vaccine doses.

We're extremely proud of our focus on operational excellence and quality and how that has led us to deliver more than 70 billion doses of medicines for more than 7,000 products for nearly 1,000 clients each year. The broad diversity of our products and resilience of our businesses have allowed Catalent to endure widespread issues like the pandemic and challenges more specific to our industry. Indeed, Catalent has consistently found ways to improve its performance and thrive in a variety of conditions.

We have the right people, leadership, processes, technologies and capacity to help our customers, and we're proud to see how our work helps improve the lives of millions of patients around the world.

Thank you.

That concludes the Catalent, Inc. Second Quarter Fiscal Year 2021 Earnings Conference Call. Thank you for your participation. You may now disconnect your lines.