Catalent Inc (CTLT) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Catalent Third Quarter Fiscal Year 2020 Earnings Call and Webcast.

(Operator Instructions)

Please be advised that today's conference is being recorded.

(Operator Instructions)

I would now like to hand the conference over to your speaker today, Paul Surdez, Vice President of Investor Relations.

Thank you, and please go ahead, sir.

Good morning, everyone, and thank you for joining us today in Catalent's Third Quarter Fiscal Year 2020 Financial Results.

Joining me on the call today are John Chiminski, Chair and Chief Executive Officer; and Wetteny Joseph, Senior Vice President and Chief Financial Officer.

Please see our agenda for this call on Slide 2 of our supplemental presentation, which is available on our Investor Relations website at www.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.

Slide 3, 4 and 5 discuss the non-GAAP measures and our just-issued earnings release provides reconciliations to the nearest GAAP measures.

Catalent's Form 10-Q, to be filed with the SEC later today, has 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.

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

We'll start today's comments with an overview of our response to the COVID-19 pandemic and how our early planning to implement responsive measures and quick reactions to emerging and unprecedented developments have enabled us to maintain business continuity.

I'm proud to report that the tireless efforts of employees across our company and our strong financial position have together permitted us to continue to meet our commitments to our internal and external stakeholders.

Please refer to Slides 6 and 7 for our COVID-19 discussion.

First and foremost, our top priorities are ensuring that our employees have a safe and secure working environment, while at the same time, keeping our facilities open so that the vital medicines we develop and produce are available for patients.

Catalent was proactive in February, establishing a COVID-19 response team and creating new processes to support our production workers so that they can safely and confidently come to work.

We continue to follow, and in many cases, even exceed local, state and national guidelines.

Given our GMP culture, which has always included training for employees to stay home if sick and to promptly report illness, we had a strong foundation on which to expand our safety measures.

Some of the measures we added include severely restricting visitor and nonessential employee access to our sites, reorganizing our workflows and adding shifts to maximize social distancing, effectively sourcing PPE and requiring the use of masks, implementing virtual video inspections of our facilities for customers and regulators, eliminating almost all business travel, facilitating safer alternatives for travel to and from work and enhancing our IT infrastructure to comfortably handle the extra load for our employees that are able to work remotely.

Looking toward the future, we have initiated a post lockdown task force, which focuses on operating during the next phase of the COVID-19 pandemic.

Roughly 75% of our 13,500 employees do not have roles that allow for them to work from home.

To recognize our site-based production and support employees for their personal commitment, reliability and resilience in keeping our sites running during this global emergency, we are providing most of our site-based employees with thank-you bonuses, totaling more than $5 million.

Catalent has more than enough cash to pay these bonuses itself, but as a sign of our management's sincere appreciation and our commitment to fiscal responsibility, these bonuses will be partially funded by contributions from the salaries of our executive and senior leadership teams.

I personally volunteered to have my pay reduced by 40% for the next 3 months to support this effort.

Our employees are extremely motivated and driven by our patient-first culture as they know that their work improves the health and well-being of patients around the world.

And now, in addition to the thousands of important products we produce every year, we're all extremely proud to be working with our customers on multiple COVID-related vaccines, treatments and diagnostics to detect, prevent and address symptoms and effects of this disease.

And I will share more with you on these developments in just a few moments.

I'm proud that Catalent's committed employees have kept our facilities open and our quality intact.

However, this situation remains fluid, and I want to be clear that we will not continue to keep a site or a production line up and running if we think it isn't safe for employees or will negatively impact quality.

Managing our supply chain is another critical component of maintaining business continuity.

We continue to stress test and survey deep into our supply chain to mitigate risks.

To-date, we've not identified any significant delay that may have a substantial effect on the delivery of any product or clinical trial supplies or that may impact our development services.

We have adopted specific procedures to minimize and manage future disruption to our ongoing operations, including expanding our safety stock of raw materials and securing personal protective equipment across our network as well as ongoing monitoring of our supplier stock levels to mitigate impact on future deliveries.

Note that our inventory levels will likely rise as a result of our proactive actions to secure safety stock for longer-than-normal periods.

We've successfully navigated supply chain and other COVID-related complexities thus far, and our proactive and continuing efforts position us for continued success.

However, the supply chain for our customers' products is dynamic and fluid, so we will continue to focus on proactively identifying and resolving any global logistical challenge, and there may be unforeseen challenges ahead.

When thinking about demand for our products and services, it should not surprise you, given our business model that we see both potential challenges and potential opportunities as we respond to the COVID-19 pandemic.

However, due to the diversity of the 7,000 products in our portfolio, with our top 20 products representing just 20% of revenue and our single largest at 4%, we're not currently seeing a net shift in overall demand.

We have identified several COVID-related trends with respect to the demand for our services across all 4 business segments, and we would like to share with you some notable observations.

First, due in part to the wide variety of products we produce, we've seen some increases and some decreases in customer forecast and orders, which in both the third quarter and to-date in this quarter have been largely offsetting.

Second, in our Clinical Supply Services segment, we experienced strong year-on-year growth in the third quarter.

Contributing to this growth was a notable surge in storage and distribution services, but that has moderated in the fourth quarter to date.

We continue to monitor a variety of developing trends in this business, including to see whether a widely predicted slowdown in clinical trials is actually occurring.

But we also note that CSS remains Catalent's smallest business segment.

So these trends are likely to have only limited effect on Catalent's overall results.

Finally, about 30% of our revenues are for our development services across multiple segments, representing a wide range of R&D solutions, with most of the revenue tied to products that are in the later stages of development.

It's important to note that we work on more than 1,000 development projects at any one time, and it's one of the strengths of Catalent that a broad range of customers, products and programs mean that no single customer, product or program is material to us.

We've not experienced a notable slowdown in demand for our development services, but we are actively monitoring the situation and continue to take the pulse of our customers.

In the event, there is a short-term decrease in demand for some early-stage development services, it may be offset by an increase for COVID-related services, depending on the size and duration of any potential market shifts and the timing of COVID-related projects.

Due to our significant development experience and capabilities across a broad range of advanced technologies, we are now helping our customers to develop, manufacture and supply COVID-19 vaccines and treatments across all 4 of our business segments, including projects for drug substance, drug product, oral, respiratory, analytical chemistry and Clinical Supply Services.

As of last week, we've been presented with approximately 100 opportunities for COVID-related programs involving roughly 90 molecules, which we estimate to comprise roughly 45% of all COVID-19 products and treatments currently under development.

Some of these projects have already been signed, including the partnership we announced on April 29 with Johnson & Johnson for the establishment of new segregated manufacturing capacity and preparation for large-scale commercial manufacturing in the United States for their lead vaccine candidate for COVID-19.

On March 30, J&J announced the expected timeline for its lead vaccine candidate, including the initiation of human clinical studies by September 2020 and its anticipation that the first commercial batches of a potential COVID-19 vaccine could be available for emergency use authorization in early 2021, a substantially accelerated timeframe compared to the typical vaccine development process.

Under our partnership with J&J, Catalent will accelerate availability of manufacturing capacity for J&J's program and will prepare for large-scale commercial manufacturing in our Bloomington, Indiana facility.

We also plan to hire approximately 300 additional employees beginning in July 2020 to deliver operational readiness and 24/7 manufacturing schedules for our portion of the projected demand of multi-dose units.

We also announced yesterday, our partnership with Arcturus Therapeutics to support the drug substance manufacturer of its COVID-19 mRNA-based vaccine candidate in our Madison, Wisconsin facility.

The partnership will combine Arcturus' vaccine technology with Madison's scalable cGMP manufacturing capabilities to potentially commercialize -- commercially produce millions of doses starting later this year.

In noting these programs we recognize that it's always to predict future demand for unapproved drugs and that historical statistics on the success of development programs suggest that many of the COVID-19 related projects our customers have brought to us, may never achieve commercialization.

But we will do our part to maximize the odds that each and every one is successful.

Before moving on to summarize our third quarter results, I'd like to remind you that a key strength of Catalent is the wide diversity of our business, products, geographies and customers.

This has helped us weather storms in the past, and we see no difference today when we consider what this situation means for the long-term performance of the company.

While the crisis is still unfolding, we do not foresee this terrible pandemic creating a fundamental change to our business.

Due to our comprehensive capabilities, diverse revenue base and well-funded customers as well as the increasing need for complex solutions and our strengthened balance sheet, Catalent is well positioned to weather this crisis.

While our industry will likely continue to experience change, we will quickly adapt and emerge as an even stronger company.

Now I'm pleased to share with you a summary of our financial highlights from the third quarter, which are covered on Slides 8 and 9. Our revenue for the third quarter increased 23% as reported or 25% in constant currency to $761 million, with 7% of the constant currency growth being organic.

Our adjusted EBITDA of $185 million for the quarter was above the third quarter of fiscal year 2019 on a constant currency basis by 22%, with 8% of the 22% being organic.

Our adjusted net income for the third quarter was $83 million or $0.50 per diluted share, up from $0.49 per share ANI in the corresponding prior year period.

All 4 reporting segments reported year-on-year growth with the Biologics, Softgel and Oral Technologies and Clinical Supply Services segments, continuing their solid organic growth in our Oral and Specialty Delivery segment returning to organic growth.

We further strengthened our financial position before the recent market volatility through a series of strategic transactions that funded important growth initiatives, increased cash on our balance sheet, lowered the overall interest rate on our debt and pushed out our nearest maturity dates.

As a result of these transactions, which Wetteny will later detail, combined with our cash generation in the quarter, we funded our entry into cell therapy through the acquisition of MaSTherCell, increased our cash position by more than $400 million and reduced our net debt leverage ratio to 3.8x from 4.2x at December 31.

Our net leverage is currently at one of the lowest points during my entire 11-plus years at Catalent, and our projections for further EBITDA growth mean that we will continue to naturally delever over time.

Over the last 18 months, we have announced several substantial capital projects that will enable us to anticipate demand across our business, including for our biologics and gene and cell therapy products.

Given our strong cash position and long maturities, we can afford to invest now for the future as planned.

However, we are keeping a very tight rein on these projects, and we always have the ability to slow or halt them if conditions warrant.

Though at the moment, we do not see a need to do so.

Enabling the growth of our world-class Biologics business continues to be a key focus at Catalent.

During the quarter, we completed 2 acquisitions that we expect will become future growth drivers for the company.

The January 1 acquisition of the facility in the Anagni, Italy expanded our European capabilities in biologics drug product, solid oral dose manufacturing and packaging.

Given the current high demand for sterile fill/finish product manufacturing capabilities for vaccines, the Anagni facility has the capability, talent and capacity to become a contributor in the global effort against COVID-19.

On February 10, we completed our acquisition of MaSTherCell, which enabled Catalent to broaden its biologic portfolio to include cell therapy service offerings, including the development and manufacture of both autologous and allogeneic cell therapies as well as a variety of related analytical services.

When combined with the gene therapy capabilities we acquired in 2019, we believe MaSTherCell establishes Catalent as a leader in cell and gene therapy, creating deeper and broader relationships with customers and opening up cross-selling opportunities across Catalent's other technology platforms as we've already seen through our gene therapy acquisition.

Effectively integrating the premier assets we have acquired and deploying CapEx to increase and enhance our biologics capacity and capability will underpin our ability to meet the needs of customers and their patients.

We expect strong revenue and adjusted EBITDA growth from our biologics offerings over time and continue to target the Biologics segment to make up approximately 50% of our total revenues in fiscal 2024 versus approximately 1/3 today and to be a primary driver of the margin expansion we expect for our company over the same period.

To help guide this growth, last week, we announced the next-generation of leadership for our cell and Gene Therapy business with the appointment of Dr. Manja Boerman as its President, effective June 1.

As announced earlier this year, Manja joined Catalent in December and has since led our European Biologics business as well as our recently acquired cell therapy business.

Pete Buzy, who's led the Catalent Gene Therapy business since the company's acquisition of Paragon Bioservices in May 2019 will be retiring on June 1, but will remain with the company as Chairman of the Gene Therapy in an advisory capacity for the next 12 months to support Manja as she transitions into her new role.

I would like to personally thank Pete under whose guidance, our Gene Therapy business, has seen significant growth and continuous investment to meet the strong and growing demand for adeno-associated viral vectors, next-generation vaccines and oncolytic viruses.

Before turning today's presentation over to Wetteny, who will take you through our third quarter financial results and the details related to our updated financial guidance, I'd like to point you to Slide 10 to highlight our progress on corporate responsibility.

I'm proud to let you know that we recently published our first corporate responsibility report covering fiscal year 2019.

A copy of this report may be found on our website.

The report measures our progress across a range of important ESG, environmental, social and governance metrics using the standards promulgated by the Sustainability Accounting Standards Board or SASB for the biotechnology and pharmaceuticals industries.

Our report brings a new level of transparency concerning and highlights our ambitions towards our company-wide quality, safety, environmental sustainability and diversity inclusion efforts, all of which have become even more embedded in our culture over the last several years.

The guiding light of our corporate responsibility efforts is our mission to help people live better, healthier lives.

As a global development and manufacturing partner for medicines, clinical trial materials and health products, the impact of our progress in all ESG areas on our company's ability to deliver on our mission has never been more important.

Thanks to our corporate responsibility team and several of our site teams around the world, we have provided emergency relief grants to local charities in the communities where we operate that are supporting COVID-19 relief efforts.

In addition to corporate grants, our contributions include 2 to 1 company match for employees' charitable donations related to COVID-19 pandemic relief efforts.

Our broad efforts to respond to the COVID-19 pandemic for employees, our communities, our customers and ultimately their patients underscore why I continue to look forward to additional progress in our corporate responsibility and sustainability as Catalent grows.

I'd now like to turn the call over to Wetteny.

Thanks, John.

I will begin this morning with a discussion on segment performance where both the fiscal 2019 and fiscal 2020 third quarter results are presented on the basis of their reporting segments we introduced earlier this fiscal year.

Please turn to Slide 11, which presents our Softgel and Oral Technologies business.

As in past earning's calls, my commentary around segment growth will be in constant currency.

Softgel and Oral Technologies revenue of $242.3 million decreased 3% over the third quarter of 2019, with segment EBITDA increasing 9%.

After excluding the impact of the October 2019 divestiture of the segment's VMS manufacturing site in Braeside, Australia, segment revenue and EBITDA grew 4% and 13% respectively.

The growth primarily relates to increased demand and the prescription product business in North America which is partially attributable to recently launched products.

In addition, the consumer health business had stronger demand in both Europe and North America.

The segment's improvement in EBITDA was driven by favorable product mix across the network.

Slide 12 shows that our Biologics segment recorded revenue of $250 million in the quarter, which is up 88% versus the comparable prior year period, with segment EBITDA growing 46%.

Most of the revenue and all of the segment EBITDA growth was inorganic and driven by our gene and cell therapy acquisitions as well as by our acquisition of the Anagni Facility which recognized a portion of its revenue in the Biologics segment this quarter with the remaining portion being included in our Oral and Specialty Delivery segment.

In total, for the Biologics segment, these acquisitions contributed 77 percentage points to revenue and 51 percentage points to EBITDA growth.

EBITDA margin from acquisitions this quarter were below the segment average due to a significant increase in onboarding talent in the fast-growing gene therapy business, mostly in the area of operations and quality.

The lower margin currently being generated in the cell therapy business, which is expected to continue due to the cost of continuing to build out this relatively new business over at least the next 18 months.

And the current underutilization of the Anagni facility, which will begin to change in our fiscal year 2021 as we already have begun to see new customer activity outside of the BMS supplier agreement.

Excluding the acquisitions, the segment recorded organic revenue growth of 11% in the third quarter with the biggest driver of the revenue growth stemming from continued growing demand for the U.S. drug product business.

However, organic segment EBITDA declined 5% which was due to a number of factors, including unfavorable product mix, softness in the European drug product business, increased headcount in U.S. drug products business to staff new production lines, including the recent completion of the $14 million integrated complex packaging suites in Bloomington and the previously discussed completion of a limited duration customer contract which had a particularly high drop-through of EBITDA.

The end of this contract annualized in the third quarter, so we'll no longer provide a comparison headwind beginning in the fourth quarter.

Note that drug substance, after excluding the completion of this non-cell-line clinical manufacturing contract, grew both revenue and EBITDA year-over-year.

As a final note on Biologics, it is important to consider the large amount of development work being done in this business following the gene and cell therapy acquisitions over the last year, with approximately 2/3 of the revenue being generated by development programs, there will more likely be greater quarter-to-quarter fluctuations in financial performance.

However, this increase in development revenue is primarily driven by mid- to late-stage projects and bodes well for the segment's future organic growth as these programs move towards future commercialization.

Slide 13 shows Oral and Specialty Delivery segment recorded revenue of $181.4 million in the quarter, which was up 19% versus the comparable prior year period, with segment EBITDA up 16% quarter-over-quarter.

Most of the growth was driven by the acquisition of the Anagni facility, which recognized more than half of its revenue in the OSD segment this quarter.

In total, the Anagni facility contributed 13 percentage points to revenue and 9 percentage points to EBITDA growth.

As we just discussed with the non-used Biologics component, margins are expected to be low until new customers are brought into the facility over time.

We experienced strong growth in orally delivered commercial products in both the U.S. and in Europe.

The segment's respiratory and ophthalmic specialty delivery platform significantly picked up from last quarter due to new product launches, including one that benefited from our product participation component and a general increase in demand for respiratory products as a result of the COVID-19 pandemic.

The OSD segment continues to have a very strong development pipeline that is expected to drive future long-term growth.

Now to provide additional insight into our long-cycle segments, which includes Softgel and Oral Technologies, Biologics and Oral and Specialty Delivery.

Each quarter, we disclosed our long-cycle development revenue.

As a reminder, these metrics are only the rational indicators of our business, since we do not control the sales or marketing of these products nor can we predict the ultimate commercial success of them.

As you can see from our slide presentation today, in addition to disclosing each of the long cycle segments development revenue in our 10-Q, we are also now presenting this information for you in the supplement we provided at the end of the earnings presentation slides.

For the first 9 months of fiscal year 2020, we recorded development revenue across both small and large molecule of $666.2 million, which is more than 47% above the development revenue recorded in the same period of the prior fiscal year.

In addition to our quarterly disclosures of development revenue, we also provide a total number of new product introductions as well as expected revenue from these NPIs in the current year.

We introduced 120 new products in the first 9 months of fiscal year 2020, which are expected to contribute approximately $47 million of revenue in the fiscal year.

Now as shown on Slide 14, our Clinical Supply Services segment posted revenue of $88.9 million or 16% growth over the third quarter of the prior year, segment EBITDA of $24.6 million or 24% growth.

The strong growth in both revenue and segment EBITDA was primary driven by accelerated backlog burn for our storage and distribution services as well as increased demand for our manufacturing and packaging business.

As of March 31, 2020, our backlog for the CSS was $396 million, up 1.5% from $390 million at December 31.

This segment recorded net new business wins of $96 million during the third quarter, which is a decrease of 15.1% compared to the very high level of net new business wins recorded in the third quarter of the prior year.

With a strong Q3 prior year quarter rolling off and the accelerated revenue in the third quarter of this year, the segment's trailing 12-month book-to-bill is now 1.1x and compared to 1.2x last quarter.

As John mentioned, there are many cross currents in the CSS business, we are beginning to see signs of a slowdown of clinical trials, which will not be entirely offset by incremental demand we are seeing from trials related to COVID-19.

We believe there was a pull forward of clinical trial activity in March as CSS early Q4 overall activity is lower than before the pandemic.

Accordingly, we expect the growth rate of the CSS segment to significantly decelerate in the fourth quarter from the 16% growth in Q3.

However, we expect demand to normalize later in the calendar year, so we are not planning to significantly variablize our cost to match the expected temporary slowdown in revenue.

Moving to adjusted EBITDA on Slide 15.

Third quarter adjusted EBITDA increased 20% to $185 million, or 24.4% of revenue compared to 25% of revenue reported in the third quarter of the prior year.

On a constant currency basis, our third quarter adjusted EBITDA increased 22%, including 8% organic growth.

On Slide 16, you can see that third quarter adjusted net income was $82.9 million or $0.50 per diluted share compared to adjusted net income of $71.2 million or $0.49 per diluted share in the third quarter a year ago.

Slides 17 shows our debt-related ratios and our capital allocation priorities.

As John mentioned earlier, since our last call, we executed several important financial transactions ahead of the recent market volatility that strengthened our balance sheet and reduced our leverage and weighted average interest rate.

First, we raised approximately $500 million through an equity offering, which was used to finance the MaSTherCell cell therapy acquisition and pay down an intra-period revolver borrowing with the remainder of net cash raised going to the balance sheet.

Next, we paid down over $750 million of euro-denominated loans and notes due 2024 and replaced them with roughly $900 million in unsecured euro-denominated notes due 2028 at a much lower rate of 2 3/8% with the difference in cash after expenses going to the balance sheet.

After these moves, our nearest term senior debt maturity now occurs in 2026, roughly 6 years out and all of our senior notes remain covenant-light, and all of our senior debt has been placed at very attractive interest rates.

In an abundance of caution, we put $200 million on our balance sheet through a borrowing under our $550 million revolving facility towards the end of the quarter.

All of that cash remained on our balance sheet at the end of the quarter, and we still have $350 million of unused capacity under the revolver less the aggregate value of our outstanding letters of credit, the details of which are set forth in the Form 10-Q we are filing with this morning.

In another move to strengthen our balance sheet and minimize the impact of any future volatility in market interest rates, we completed an interest rate swap agreement after the end of the quarter for approximately half of our standing U.S. dollar-denominated term loans, swapping some of our LIBOR-based variable rates for fixed rates, making over 70% of our debt fixed rates.

As a result of the structured transactions we executed in the third quarter, as well as the cash we generated in the quarter, our cash and cash equivalents balance at March 31 was $608 million compared to $189 million at December 31.

At the end of April, cash and cash equivalents were roughly the same as at the end of Q3.

Our aggregate net leverage ratio as of March 31, 2020, was 3.8x, which was significantly reduced from the 4.2x ratio at the end of the prior quarter and an improvement of approximately 2/3 of a turn compared to the ratio at the time we announced the Paragon transaction approximately one year ago.

Historically, given the free cash flow generation of the company and its growing adjusted EBITDA, the company naturally delevers between 1/2 and 3/4 of a turn per year.

However, given our elevated CapEx plans over the next 24 months, the reduction of leverage is expected to occur at a lower pace for that period.

We expect our fiscal 2020 capital expenditures to remain at approximately 13% to 14% of net revenue.

CapEx is expected to continue to be at elevated levels for the next 2 to 3 years.

I'd like to make some general comments regarding the composition of our CapEx, which generally falls into 3 parts.

First, roughly 3% to 4% of revenue is spent every year to maintain our facilities and to meet the rigorous regulatory requirements for GMP manufacturing.

Second, based on our insights regarding our basket of development projects on careful consideration of long-term expected demand, we build capacity with high confidence that a substantial portion of the new capacity will be engaged to meet expected customer demands.

Finally, due to the natural attrition inherent in pharmaceutical development programs, it is difficult for Catalent to protect our interest and not invest capital speculatively for potential product launches.

So we generally do not deploy capital to meet the anticipated needs of a single product.

When we do, we require a mix of customer-funded CapEx or take-or-pay arrangements to offset the risks associated with any single product.

Note that our growth CapEx is overwhelmingly discretionary.

And if there is an unforeseen issue related to the pandemic that should impact our cash position, we will be able to act swiftly to control the deployment of uncommitted CapEx as well as a portion of other discretionary operating expenses.

Now we'll turn to our financial outlook for fiscal year 2020, as outlined on Slide 18.

John noted in his opening comments that we have updated our financial guidance and substantial part to take into account is the anticipated near-term impact of the COVID-19 pandemic.

We continue to expect full year revenue in the range of $2.87 billion to $2.95 billion, as some expected lost revenue should be offset by new demand, including demand related to COVID-19.

For full year adjusted EBITDA, we now expect a range of $700 million to $725 million compared to a previous expectation of $711 million to $735 million.

This change is as a result of lower productivity and increased net costs related to the pandemic.

The productivity impact includes a modest increase in absenteeism and adding additional shifts to accommodate social distancing, elevated costs related to incremental PPE expense, incremental overtime, enhanced IT and the thank-you bonuses that John described earlier.

To reflect the change in adjusted EBITDA, we are also updating our full year adjusted net income guidance to a range of $295 million to $320 million compared to the previous guidance of $307 million to $331 million.

As a result of the $500 million equity raise on February 4, we now expect that our fully diluted share count on the weighted average basis for the fiscal year ending June 30 will be in the range of 165 million to 166 million shares compared to the previous range of 160 million to 161 million shares.

This projection continues to count the preferred shares we issued in May of 2019 to fund part of the gene therapy acquisition as if all were converted to common shares in accordance with their terms.

We continue to expect our consolidated effective tax rate to be between 24% and 26% for the fiscal year.

Our guidance ranges assume that there is no major external change to the current situation, including no major personnel issue and that our supply chain will remain intact so that production may continue.

Operator, we now would like to open the call for questions.

(Operator Instructions)

Our first question comes from the line of Tycho Peterson with JPMorgan.

John, congrats on announcing the vaccine deals.

Just curious if you could help us think a little bit more about the potential tailwind here for J&J it's a billion doses.

Is $0.60 per dose kind of the right math, so maybe $130 million, $150 million per year?

And because this is -- production's at risk, can you maybe just talk to that component of the deal?

It sounds like there'll be a manufacturing at risk for emergency use initially before Phase I, September?

Yes.

So first of all, I'd just like to say that Catalent has given our capabilities within the industry, we've really become a go-to company for COVID-related vaccines and therapies.

And I mentioned in my prepared comments that we've had nearly 100 touch points with about 90 molecules of which we've really secured somewhere around 30 signed deals.

So I'm just incredibly proud that Catalent's been able to be, I would say, front and center partnering with our pharmaceutical and biotech customers to be able to really participate in being part of the solution.

With regards to J&J or any other customers that we have, we generally don't outline any specific terms with regards to those deals.

I would just say that in constructing these deals, we make sure that we understand the fact that some of these -- or many of these may not actually be commercialized.

So we need to make sure that we get a return for our investments in the J&J deal, and they're assisting in funding of the CapEx.

And we have, I would just say, put in place terms that ensure that Catalent will get a return for this investment.

It's kind of interesting in the J&J deal because of our -- the proactive nature of our business, we were putting online some additional capacity in Bloomington.

As you well know, we had somewhere around $110 million investment going in there, and we're actually going to be repurposing, a line and dedicating it for J&J in this particular situation.

I'll ask if Wetteny wants to add any additional commentary with regards to the financials.

Yes.

I think, Tycho, the only thing -- a couple of things I would add is given the -- even with the accelerated development path that J&J is on, we likely won't see any significant -- provided successful volumes here until well into the back half of our fiscal '21.

So that's the first thing I would say.

And in terms of volumes, we won't give any precision other than to say this is structured so that we will provide a substantial portion of J&J's U.S. targets in terms of units and volume.

And the last point I'll make, Tycho, is as you know, Catalent is highly diversified company with 7,000 products across the world, delivering to 80 countries, and that level of diversification means that the top 20 products only account for 20% of our revenues.

And I think even then with the work we're doing with J&J and others, we don't foresee that changing substantially in terms of the level of diversification in the company where several parts is going to really define how we perform overall.

So then one follow-up.

We're seeing a number of the drug companies scale up monoclonal antibody production as well as the way to bridge the gap until vaccines come on the market.

Obviously, they're proven safe.

So just curious something Lilly is going to start dosing first patients next month.

Can you talk to that opportunity for you as well?

I would just say, Tycho, that we're seeing opportunities across every technology and capability that we have within the company.

Again, we'll not opine specifically with regards to one customer.

But I would just say, there's almost not a single business unit and technology that we have that isn't being asked to participate in some way, everything from, again, antibodies, the mRNA, adenovirus vaccines, our analytical capability, our clinical supply services, even our Softgel and Oral Technologies and our OSD business segment, every single business segment is somehow being drawn into a potential vaccine and a potential therapy.

And I would just say, again, with Catalent's proactive nature of making sure we are building out capacity in our highest growth areas, the fact that we had acquired the Anagni BMS facility has proven to be really prescient.

It has critical capacity that I think is very much wanted and needed in this COVID crisis, the build-outs that we've done in Madison, the expansion that we did and are doing in our Bloomington facility is almost as if Catalent is, again, the right company at the right time, with the right capabilities and the right capacity.

So again, we're just humbled and thrilled that we can be participating in such a substantial way in the COVID vaccines and therapies.

And our next question comes from the line of John Kreger with William Blair.

John, if you -- I know one program is probably not going to be material, but have you had a opportunity to -- if you aggregated those 30 signed programs that you mentioned for COVID-19, give us a rough sense about what that would mean as, let's say, a percent of revenue in 2020?

Well, so first of all, I think we've been very clear here that we have headwinds and tailwinds that are largely offsetting.

I think we made that very clear in the prepared comments.

And certainly, we're not looking forward to fiscal year '21.

But I would tell you that as we look to our performance in the third quarter and have the visibility with continuing uncertainties in this fluid environment to the fourth quarter, we've taken that all into account in our revised guidance.

And obviously, we've given ourself a little bit wider berth for potentially some of those unknowns than we normally would have -- we've got a kind of a wider range than we would normally have sitting here in the fourth quarter.

But again, I would say that certainly, we've got some strong tailwinds that will modestly be offset by potential declines in CSS and other actions that we're taking that will kind of increase costs and reduce productivity.

So again, we feel confident in the revised guidance, and the range that we've given.

And then obviously, we'll have a view towards fiscal year '21 with the significant number of projects we have when we provide that guidance late in August.

Great.

And then a follow-up.

I think you've got 5 different facilities in your Biologics business now.

Can you just run through the current utilization rates and to the degree that you've got capacity to unload some of these newer programs?

Yes.

I mean, the way I would go through this, and again, we're working very closely with our customers.

Starting with our Biologics facility, I would just say we're in -- Biologics drug substance facility in Madison, I would say that we are in good shape.

We haven't yet secured a commercial customer yet in that facility.

So that leaves us with some spare capacity plus new capacity that's going to be coming online with the fourth and fifth trains that puts us, I would say, in a very good position from an overall drug substance standpoint.

On drug product, this is a facility that, quite frankly, we're already faced with very heavy demand and in fact, the new demand was going to be coming on dovetailing in line with when we were going to be operating at a capacity level that was, I would say, uncomfortable.

But in the current situation, I would just say that we have creatively and aggressively repositioned some of that CapEx to pull it in, including looking at additional CapEx for more capacity, given the significant demand that we have in drug product, but I, again, feel that we're in a good position to take on not only J&J but other significant customers from a drug product standpoint.

The real -- another jewel here is Anagni.

Anagni, we brought on board, and fundamentally, right now, we have just BMS as the customer there with the plan over the next 2 years to build up that book of business with Catalent -- other customers for Catalent beyond BMS.

And it turns out that the capabilities that they have from a drug product standpoint, again, can be aimed towards in positions for COVID drug product, and we're already in conversations with multiple customers there.

So then, again, Catalent is becoming a go-to where we happen to have the right capability and capacity at the right time.

And then certainly, if there's anything that ends up going into a prefilled syringe format, we have capability and capacity in our Brussels facility, but as you know, John, most of the stuff, given its highly accelerated state will likely be in multi-dose vials, including the J&J product that will be vialed that will probably have somewhere between 3 and 5 doses, not yet determined.

So again, I would just say that Catalent is in a very strong position to address a lot of our customers, but things are -- the capacity I had last Friday has changed on Monday just based on the conversations and things going on with customers.

So it's an exciting time.

And again, I'm just humbled and thankful that Catalent is going to be able to play a substantial role in being part of the solution for the COVID-19.

And our next question comes from the line of Dave Windley with Jefferies.

John, I want to make sure I come away with the right understanding on a couple of things.

The -- in the Biologics segment, you talked -- the acquisition certainly made a bigger contribution than we expected.

That seems encouraging.

Excluding those, you talk about EBITDA down 5% year-over-year.

I suspect the noncore products coming out of Madison was part of that.

Were there other factors that influenced that year-over-year EBITDA comparison?

Or was that one thing primarily the issue?

Well, look, I think, Dave, I'll answer briefly and turn it over to Wetteny, but I think you can see from our prepared remarks that there were multiple reasons with regards to Biologics, EBITDA being down.

First of all, we're onboarding a significant amount of talent, both within our Bloomington as well as our Baltimore Gene Therapy business.

And then also our cell therapy business, which when we did the acquisition, we told you that we wouldn't have meaningful contributions from that business, including Anagni, those both had impacts both with regards to the EBITDA margin.

And then specifically with regards to the EBITDA, I would say, again, it was the softness of the European drug product.

And what we mean by that is fundamentally the flu demand that we had there.

Again, increased headcount.

And then there was also this one limited duration, non-cell-line comparable that we have.

And again, I'll turn it over to Wetteny, if he wants to get into any more precise details there.

Yes.

Thanks, John.

Dave, just a reminder, I mean, as we said in the prepared commentary, we're very pleased with the strengthening of our financial position that we did ahead of the market volatility.

And frankly, from where we are right now on a year-to-date basis, having delivered company-wide, 8% organic growth year-to-date.

And again, this is from our base businesses, excluding Gene Therapy from an organic perspective, 8% year-to-date.

We certainly are well positioned to deliver a solid year despite the impact of the pandemic, as we've already described, are factored into what we can see is the puts and takes in terms of demand for the remainder of the year.

Now to answer your question more directly in terms of adding to what John already said, our Biologics segment, as we've said, and I'll remind you, has a number of development-stage programs.

While we're very pleased with the commercial approvals that we've seen, they're also relatively young in that they're continuing to grow.

So we are continuing to add capacity in terms of people to access existing installed capacity and then adding new capacity as well.

So we expect more I would say, variation from quarter-to-quarter in the business.

But when you look at the performance of Biologics on a year-to-date basis, again, on an organic standpoint, so excluding the acquisitions, you'll see that the business has delivered, including Q3, 13% top line growth, excluding the onetime this customer that we talked about this predetermined in fixed-term contracts, we exclude that 13% top line, 11% EBITDA growth across the -- on an organic front, including Q3.

So I think looking at the performance on a single quarter, given what I've already said, we believe it isn't the right way to look at the business, you like to look it over a period of time, and we're continuing to add capacity, which will have impacts on the EBITDA performance in addition to what John already highlighted.

If I could just pivot to a different topic.

On Softgel, you call out strength in prescription in North America, prescription, obviously, driving positive mix, I would think.

Could you talk about the ebb and flow that sometimes the call out is more consumer oriented, sometimes it's Europe versus North America, do you think kind of North American prescription can be a persistent driver, positive driver and call out for a few quarters, given that you're talking about new product launches being a contributor there?

Yes.

So Dave, we've -- as we try to highlight, no 2 quarters are exactly alike in Catalent.

I think that's something that's -- our investors are well recognized in terms of quarter-to-quarter.

So when you look at the full year, you've seen the performance across a number of years.

So to look at prescription, for example, on a quarter-to-quarter basis, depending on what happened in the previous year and the current year, the timing of when product launches happen or when some of the more mature products start to naturally decline, that's going to have an impact on which part of the business is actually driving the growth.

Now when you look at the SOT segment and what is delivered so far on a year-to-date basis, in the third quarter, you saw organic growth in that business of 4%.

We've said this is a segment that should deliver between 3% and 5% after adding the facilities to it previously, it was at 2% to 4%.

So this is right in the middle of that, and the first half of the year was well above what we expect the business to grow in the long term.

So from a quarter-to-quarter, if we've launched recent products on prescription end, which we saw that as we exited the prior fiscal year and as we entered this one, that's going to have several quarters of tailwind as those products continue to grow.

And of course, consumer will have a similar-type facet as there are new launches or different factors in terms of the demand for those particular products.

So I think we're very pleased.

And certainly, the mix is favorable when prescription drugs are behind the growth or supporting that growth, I should say, which we're seeing right now.

But that really, quite frankly, begun in the fourth quarter of last year, and we've seen that continue through the third quarter.

Our next question comes from the line of Jacob Johnson with Stephens.

Vaccine margins broadly, how do margins on vaccine work compared with the Biologics in your portfolio?

So I would say as your product in general, have margins that are sort of above our company average.

I'm not going to go into specific margin levels for vaccines as a subsegment of a certain product type in the business.

But all I would say is we would expect margins that are slightly above our company average in these endeavors.

And our next question comes from the line of Dan Brennan with UBS.

Congrats on the quarter.

I was hoping to take a big-picture view, if you don't mind, just on COVID-19, I know you spent some time already discussing some of the segments and the impact thus far.

But could you just kind of give us a vantage point as we think about your fourth quarter?

And then I know you're not going to discuss '21 right now but as you think about possibly as we go through likely a difficult quarter now, but then come out of it.

Could you characterize some of the headwinds and tailwinds for COVID-19 on your different segments?

So kind of how much -- is there a drag kind of being incorporated in?

And kind of what could be the possibility kind of coming out of it?

And then kind of related to that, does the 4% to 7% organic guidance for the full year, is that still intact or did that change?

Sure.

So Dan, I'll just speak at a high level.

So first of all, Catalent was extremely proactive in our COVID response really having our teams up and running full starting in February.

And so I would say the company has already been operating over the last 2.5 to 3 months in, I would say, this new way with about 25% of our employees working from home.

And about 75% of our employees going in, all of our sites are operational.

Our number one priority is keeping our employees safe and that's why we've been able to have the confidence and the resilience of our employees to be able to come in to work and continue to do the important work for Catalent.

I would say that in our prepared remarks, we discussed the fact that if we look at some of the headwinds that we face, it's really around the area of slightly decreased productivity that comes from modestly higher absenteeism levels, some increased costs that we're incurring due to COVID, including many things that we're doing from a company benefit standpoint to help out our employees in this unprecedented time.

We're also, as I mentioned in my remarks, we'll be seeing -- likely seeing higher inventory levels as we go out and increase our overall safety stocks.

With regards to just talking about the overall business segments, certainly, we discussed the fact that CSS business had a very strong Q3.

We expect that not to be repeating in Q4.

And actually, that's where we would expect to see some.

So overall headwinds until we get some clarity around when there will be a snapback, if you will, on clinical trials.

Again, modest -- we already have that taken into account for our fourth quarter, and we'll have a much stronger view of that again as we go into fiscal year '21 and set our guidance there.

I would expect our Biologics and drug product to be in balance, if you will, with whatever potential headwinds that we may have for earlier clinical development, offset by a lot of the COVID-related work that we have.

And then with regards to our Softgel, I would say, OSD business segments, again, this is where -- in Softgel, we have our largest number of commercialized products.

So it just tends to continue to roll and obviously seeing increased demand, I would say, from our consumer health products in that business segment.

And then in OSD, where we have a little bit of -- watch out is just on the earlier development projects, but I think that will be offset by other opportunities in that business segment.

So again, I think Catalent's highly diversified nature across products, in geographies, in product type really positions us extremely well in this current crisis.

And again, I'm happy that we're also in a position to be able to potentially be a significant contributor in a lot of the vaccines and therapies.

And then I'll ask Wetteny if he wants to, again, at a higher level, add any additional details to what I've provided.

Yes.

So part of your question was related to our guidance and what would organic growth be for the year.

With this fluid situation related to the pandemic, we've decided to do 2 things with the guidance.

One, maintain a fairly wide range, even with one quarter remaining, we would typically have narrowed our range with only one quarter but we decided to keep it the same.

So that's one thing.

And the other thing we did was we didn't split organic versus inorganic here with, again, the last quarter.

But I will remind you that with the Paragon gene therapy acquisition, be an anniversary, we only have really one month of inorganic in that.

So inorganic becomes a -- relative to the first 3 quarters of the year, inorganic becomes a smaller element.

Again, in relative terms, we still have the BMS acquisition and the MaSTherCell acquisition, obviously, but those 2 are much smaller than Paragon.

So the contributions from inorganic in the first 3 quarters would be far greater than contribution in the last -- in the fourth quarter.

So that's one reminder.

The second one I would give you is we've delivered 8% organic growth so far through the first 3 quarters, as I mentioned, which positions us well to deliver on the year, again, with the backdrop of everything we described in terms of the fluid situation to COVID-19.

So having delivered 8% year-to-date, and we gave guidance of 4% to 7% for the year.

Clearly, we're well positioned, even though we're not splitting that for you with this remaining guidance.

One final point I would make is, really, without giving specifics on segment-by-segment, I would give you directional indicators.

We've already discussed what's going on in CSS.

But as we look at delivering the rest of this year and the guidance we've just provided, I would expect our Biologics and our OSD segments to sort of, in relative terms, be leading the way here for the quarter with sort of SOT behind that.

And then lastly, CSS with some headwinds we already described there in order to deliver the guidance, and these are all factored in terms of what we've provided already.

Our next question comes from the line of Ricky Goldwasser with Morgan Stanley.

Great.

So clearly, you're seeing strong demand.

I wanted to drill a little bit deeper into the supply commentary that you provided in the prepared remarks.

So if you can give us some color on where you might see shortage disruptions, API price environment change.

And when you talk about kind of like the buildup in inventory, maybe you can give us some more color on how much inventory or how many a month of inventories do you have at hand?

And is that enough to manage through a second-surge scenario?

And then the final part of the question is, if we think longer term, beyond the current epidemic, there have been some discussion on whether we're going to see a shift of API back into the U.S. So any thoughts that you have on potential kind of structural changes as a result of the environment we're in.

I'll actually answer the first, Ricky, I'll answer the last question first and just say that I do think that there will be some longer-term structural shifts that are going to happen.

I think that everybody is rethinking what it means to be a sovereign nation and have the ability to have a safe and secure supply chain.

So I think that there will be some longer-term structural changes.

But again, those are going to take time.

I do think that on a go-forward basis, there's certainly going to be a preference for domestic assets.

And when I say domestic, I mean, U.S. and Western European.

So this is certainly not something that's going to be a switch, that's going to be flipped with regards to changing the structure.

But I do think that the preference towards domestic assets and a consideration of what is high-risk supply chain is going to change over time.

Now backing up with regards to Catalent, I think with regards to specific pressure, first of all, we've noted that 80% -- I would say that 80% of what Catalent sources directly is non-China, non-India, and that if we are to see any potential disruptions, those would probably be the first couple of places.

And for us that is in the area of some consumer health products, if you will, and that's where a lot of those APIs are sourced from.

But again, we have a very strong bead in signals on that, and are proactively going out to increase our overall safety stocks.

A lot of -- also a lot of the -- I would say, the APIs that are again sourced from those areas of the world are for generics, of which that's a very small portion of the overall Catalent business at about 7%.

So again, I think we're just kind of well positioned overall from that standpoint.

That being said, we're trying to be incredibly proactive across the board.

And we are increasing our safety stocks.

Normally, we're in a mode of somewhere between 3 and 6 months, and we are expanding those across our top products.

And that's also why I'd mentioned that you will likely see a rise in our overall inventory levels, which we believe is the right trade-off right now to make sure that we continue to have the overall continuity of supply.

So there may be some additional bumps in the road.

But what we've experienced so far and what we have current visibility to believe, we believe that any impacts will be modest and likely offset by a lot of the increasing demand that we're seeing from a lot of these COVID-related projects.

And hopefully, that answered most of your questions, Ricky, and if it didn't rewind and let me know what else you'd like me to answer.

And our next question comes from the line of Juan Avendano with Bank of America.

Given the margin dilutive impact of recent acquisitions and the investments required to ramp up your cell and Gene Therapy business, do you still think that you can achieve your fiscal year 2024 target of adjusted EBITDA margin of 28% plus, which now implies about 300 to 400 basis points of margin expansion from fiscal year 2020?

So Juan, this is Wetteny here.

Clearly, as we delivered last year roughly 140 basis points of margin expansion last year, again, largely driven by our shift towards more biologics.

We continue to see line of sight to continue to expand our margins, particularly in our Gene Therapy and Biologics businesses.

As John mentioned in his prepared commentary, we knew once we made those acquisitions, namely in Anagni and MaSTherCell that they would be margin dilutive initially.

These are absolutely the right strategic assets for Catalent that bring on additional capabilities.

But these are also assets that have either existing capacity Anagni that is very well suited, particularly in the reaction for addressing the current pandemic, potential solutions for that pandemic.

This is a great asset for them that would potentially accelerate the ramp-up of the utilization of that facility, which would have significant impact on margins there.

And then with MaSTherCell, we continue to invest in that business as we prepare to open up and have already seen activity, customer activity in our Houston facility for that business.

So these are all, I would say, according to plan.

And as we add capacity, we will see that has an ebbs-and-flow impact on margin rates in parts of the business.

And as we get significantly higher on the utilization and the capacity, you'll see margins that are well above what we stated as the long term positive.

So we expect that to continue and absolutely be in line with our expectations to get to the -- to our margin targets by 2024.

Absolutely.

Our next question comes from the line of George Hill with Deutsche Bank.

A lot's been covered.

I guess, Wetteny, I don't know if you would be willing to provide any more commentary on kind of what you've seen quarter-to-date as it relates to the CSS segment, particularly in supplies?

And I wanted to make sure I understood something correctly, is that if we see a slowdown in drug R&D spending, does it only hit CSS?

Or does it also hit the drug substance part of the Biologics business as well?

And given the outperformance of Biologics in the quarter, I guess, can you talk about the outperformance of like the drug product stuff or the non R&D-related substance stuff versus what we're seeing kind of quarter-to-date?

Sure.

So with respect to our CSS business, as I've said, we're really pleased with the performance of the overall company on a year-to-date basis, having delivered 8% organic growth -- 7% in the third quarter, including CSS, which has been a big part of that.

We saw substantial growth in our CSS business in Q3.

Part of that was, we believe, essentially burning backlog faster in the third quarter in advance of potential disruption in the ability to deliver products to claim.

So we saw a higher storage and -- distribution activities in that segment.

We've seen good packaging, I would say, activity in the business through Q3, and we'll continue to see that in Q4, I would say, good packaging activity.

But the slowdown we're seeing is in the distribution side, again, having seen that accelerate in Q3.

So hopefully, that gives you the color you're looking for with respect to CSS.

But in terms of our new business wins, we see those continue at a relatively healthy state even as we are at this point in the quarter, which bodes well in terms of what we're seeing, what we're hearing from customers as well in terms of the temporary slowdown in certain activities that would then pick up at a later date.

And one thing I would add is, with respect to our clinical trials run, unless the trial is completely, I would say, canceled if it takes longer, it actually results in more revenue for us because we would end up storing those materials for longer periods of time.

Those that are biologics that require cold temperature, et cetera, would be nicely additive to what we'd expect on an individual program that we are working with the customer on.

So long term, slowing a clinical trial, but still running it tends to result in more revenue for us for that program.

And it's only if it's, again, completely canceled, that will be an issue.

The second part of your question, with respect to R&D spend slowdown and what that would imply, as I mentioned, on a year-to-date basis, we've seen the Biologics business really delivering 13% top line growth.

And that's across our development programs as well as those that are commercial.

Keep in mind, 2/3 of the business are in development with most of those being in mid- to late phases.

You've seen our drug product business over the last couple of years going from an acquisition of Bloomington that was doing 12 commercial programs now sitting at, I believe, 22.

And so that, I would say, is an indicator of the, I would say, maturity of the development pipeline, where we have late-phase programs, which we believe, even in cases where there may be a slowdown in spending mid- to late-phase programs that show significant promise would continue to be funded and continue to drive revenue for us in our business and potential commercial launches as well.

So we think that if there is a slowdown, that may impact the very early phase preclinical to Phase I types programs, we still have a significant portion of our programs that are more mid- to late phase versus early phase across the company, and we think that would continue to bode well for us from a development perspective and overall revenue perspective.

(inaudible)

And our last question comes from the line of Evan Stover with William (sic) [Robert] W. Baird.

I've got just one so we can get off the call here.

On J&J, you already addressed that you've structured the deal for a return on investment, even if this vaccine is not approved.

But can you just talk to the level of potential drag in the second half of calendar '20 as you ramp?

And I'm just wondering if the tremendous national urgency here and things like the recently announced Operation Warp Speed, they're maybe going to change how this project would roll through your P&L versus a normal vaccine fill/finish?

Yes.

So what I would say, Evan, is, first of all, we are highly diversified, right, with 7,000 products plus a number of development programs, as I just described, that are mid-, late-phase programs that continue to drive volume across our businesses.

So I want to just put that out there first in terms of any single program, not really significantly moving the needle for us overall.

And we've factored into our guidance that we've just given, and we'll continue to factor into, I would say, guidance next fiscal year when we get to that point.

With respect to the balance of this fiscal year, there's very -- there's not very much that's going to be impacted by these programs, even with the accelerated development.

As we said, we anticipate adding significant headcount starting in July, which is effectively after our fiscal year.

And I would say between now and through that time, we'll be working with J&J and others around tech-transfer activities and other things that will also drive revenue into our facilities as we put our scientists and others to work and quality professionals to work to help develop the program to the point that it would potentially be commercially launched.

So between that time, I would say, generally speaking, this is not specific to this one program.

Generally speaking, we are working with customers on development programs, up to and including batches that are used for clinical trials.

Tech transfers if it's something that's been developed elsewhere, that all will drive revenue for our businesses.

So even with those investments without giving specificity with investments in headcount, we would have some offsetting revenues to go along with those.

And as I said, we don't expect any or any significant impact on the balance of this year, and to the extent we expect anything, we factored that already in our guidance that we just gave.

And this does conclude today's question-and-answer session.

I would now like to turn the call back 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 reminding you of a few important points.

First, a key strength of Catalent that is even more evident today is the wide diversity of our business across products, geographies and customers.

Due to our comprehensive capabilities, diverse revenue base, well-funded customers, the increasing need for complex solutions in our strengthened balance sheet, Catalent is not only very well positioned to weather this crisis, but also play an important role in the development of treatments and vaccines that will allow us to win the battle against COVID-19.

Second, we're committed to delivering results consistent with our updated financial guidance for this year, and we're focused on continuing to drive organic revenue and EBITDA growth across all of our segments over the long term.

Third, it's a top priority to grow our world-class Biologics business and effectively integrate the premier assets we've acquired and deploy CapEx to further build out our capacity and capability to help improve the lives of patients and meet our customers' demand.

We expect strong revenue and adjusted EBITDA growth from our biologics offerings over time and target the Biologics segment to make up approximately 50% of our total revenues in fiscal 2024 versus approximately 1/3 today.

Finally, operations, quality and regulatory excellence are at the heart of how we run our business and remain a constant focus and priority.

Our employees' commitment to these areas have enabled us to keep sites open and production running, even during the worst pandemic of our lifetimes.

We support every customer project with deep scientific expertise and a commitment to putting the patient first in all we do.

Thank you.

Ladies and gentlemen, this concludes today's conference call.

Thank you for participating.

You may now disconnect.