Stephan Tanda: Yes. We could spend hours on that question. Look, fundamentally, just to back up, you have basic SKUs, you have plungers, you have stoppers, you have needle shields and they can be coated or uncoated. Now there are many more, depending on the level of quality assurance, the level of data that you provide as we said, the dynamic has really helped us to demonstrate to the industry that our capabilities are equivalent to the market leader. That allows that we participate in every new project in a new molecule, long-term biologic project, people don’t start having dual sourcing. They pick the horse, they’re going to ride. If you have a massive big product like we were with the COVID vaccines, people did want to have a second source just for security of supply.
You don’t want to run out of a covet vaccine. That’s all behind us. In general, I can say our product pipeline for biologics is very strong and keeps building. And whether people choose us or other providers has a lot of factors. Technical capability, obviously, is an important 1 that’s almost a qualifier but then it has to do with geographic footprint, ability to provide the support for a particular biologic molecule or vaccine in a particular geography. And then what is not talked about that much but also a very important business model. We fundamentally have a business model with some other people. We are not getting into the auto-injector business. We are not competing with our customers. And sometimes, customers prefer to deal with somebody who’s not competing with them.
So those all play a factor and absolutely, having the ability to supply in region for region is critical.
Matt Larew: Okay. As a follow-up, just wanted to check on emergency medicine and if you’ve seen any sort of change in demand for the Narcan product would be one. And then obviously, there’s maybe an opportunity on the nasal delivery of epinephrine which could start to develop in the back half of the year. So just curious for your assessment of what that opportunity might look like.
Stephan Tanda: Sure. Let’s talk Narcan first. We’ve spoken before about the importance of the over-the-counter approval. Now it’s not — it turns out it’s not so important for people walking into a CVS or Walgreens or Rite Date and picking up an organ that business is not so meaningful. But what it has allowed is for states to make bulk purchases of Narcan and then to distribute that in the states to harm reduction agencies to schools, police stations and so on, and disburse the settlement money each state has received and will be receiving for the next 10 to 20 years. So it has greatly facilitated much broader distribution into schools, into community centers into prime responders. And who knows maybe 1 day, we all have a set of Narcan our homes.
So that’s really helping the Narcan distribution. On epinephrine, we’re all very excited about it but I would caution in the end product launches day 1 and no single product changes the game for us. But of course, in totality, they start to build. A lot will depend on what is the reimbursement philosophy of the health insurers and the payers. But certainly, we think this product makes a ton of sense. And if patients are really excited about it, eventually it should receive good reception.
Operator: The next question comes from the line of George Staphos with Bank of America.
George Staphos: Bob, just looking at net cash from operations, it was down a touch from first quarter ’23. There probably was just some timing effects here but could you remind us what was going on in terms of CFO being a little bit lower this first quarter versus last quarter? And then if you could talk more broadly about your goals for SG&A as a percentage of sales, this year, if you care to update us. Obviously, you have progress in the first quarter. What should we expect for this year?
Bob Kuhn: Thanks, George. The slight decrease in the cash flow from operations, I think it was primarily due to more working capital, in particular, in some of the inventory areas and also in receivables. Remember, the first quarter was a little bit strange because you had the holiday weekend right at the quarter end. So our receivable balance was a bit higher than what we’d normally expect but then all those were collected once we got into April. So I wouldn’t look too much into that. And then when we look at the SG&A as a percentage of sales, we haven’t really changed our target. We expect to be at a run rate of 15.1% by the fourth quarter. That’s not for the full year, of course, that’s kind of run rate going out and we haven’t really modified where we stand on that.
Operator: The next question comes from the line of Gabe Hajde with Wells Fargo.
Gabe Hajde: Two quick ones. Remind me, again, you guys are carrying $0.01 to $0.02 of commercialization start-up costs and pharma associated with the injectables ramp. Is that true? And then would we see that flip next year or go away, I guess, maybe how to think about that?
Stephan Tanda: Yes, you go right.
Bob Kuhn: $0.01 to $0.02 is kind of where we’re looking at for this year. And yes, in theory, then you’ll have that go away and then we’ll have to see where we are from a fixed cost absorption in a new plant as business comes in for next year.
Gabe Hajde: Okay. And then one we spent there’s been a lot of ground covered on the CapEx side but maybe bigger picture looking out over the next few years. Can you remind us what maintenance CapEx kind of looks like? I have a note here in our model, 125 to 150. You mentioned adding some pharma capacity, I think, in 3 key regions. And so I guess as a portion of the targeted spend this year, can you break out what’s still the injectables investment carryover versus maybe what’s new in pharma.
Bob Kuhn: Okay. I don’t know if I have in front of me what the runout is on the injectables rollout but on your maintenance number, $125 million to $150 million. I think as we talked before, it’s sometimes difficult for us to really categorize between a maintenance of investment and, call it, a productivity improvement or cost savings, right? Very rarely will we invest like-for-like, meaning that if we’re replacing an old mold or replacing an old assembly line. We’re typically doing it with a more efficient, higher output type of thing. So we would say that between true maintenance of business and some of those in-betweeners that cover also productivity cost savings, 45% to 50% is of total CapEx would be in the ballpark. So I think you’re $125 to $150 million is in the right range.
