Unidentified Analyst: That’s helpful. And then on a follow-up. So the top line guide implies a bit of a step down. What got materially worse? And is that kind of split between PCH and Biologics? And that also implies a 4Q step-up outside of historical norms, is that just from COVID? Any color around that would be helpful.
Tom Castellano: Sure. So we did highlight in our prepared remarks that where we do see a change in outlook is primarily driven on the PCH side of the business. And I would say the consumer health part of that business, really the area where we have derisked. I would say, from a COVID standpoint, there certainly is a step up here in our fourth quarter. As we mentioned, we have orders and visibility to a booster season in the fall with demand ramping up across multiple formats for a major strategic customer in that fourth quarter. So given the fact that we do expect to see minimum COVID revenue in our third quarter, based on what we have visibility to, but significant demand in our fourth quarter, we wanted to ensure that, that point was communicated to you all. So again, I would say, PCH continues to be the area where we have seen the most pullback and again, on the consumer health side of that business.
Operator: Our next question comes from Dave Windley with Jefferies. Please go ahead, Dave.
Dave Windley: So Tom, I wanted to try to focus a little bit on gene therapy and some of your commentary around the contract asset and the conversion of that. So if we presume that Sarepta gets good news and gets approved and you continue there, you say like you’ll move the contract asset into build receivable. And then I guess from a commercial product standpoint, it would then become a batch delivery revenue recognition model. I guess I’m trying to understand at the point at which that gets approved and you’ve been recognizing revenue in the contract asset, do you then have a period where there’s not revenue recognition until you get the next batch done and deliver that because it’s now an approved product? Can you walk us through that a little bit?
Tom Castellano: Yes, Dave, it’s a great question and one that we continue to wrestle with and work through internally here. I would say there’s various different ways that we can address in the event that we do see the Sarepta product essentially moving to commercial, though the scenario that you laid out, which would be a movement from percent completion as it’s done on the development cycle to batch release upon commercialization is certainly one of those alternatives. There are other alternatives as well that would align to U.S. GAAP and ASC 606 guidance around revenue recognition. And we are pursuing those and looking at those with our auditor — in conjunction with our auditor EY to ensure that we have the best possible scenario as outlined.
In the situation in which you highlighted, if we were to move to batch release being driving the recognition and the cycle time remains as long as it is from that production cycle, it wouldn’t relate — it would create a period of an air pocket, as you mentioned, from a revenue standpoint. And I think that’s the piece that we essentially need to continue to look at. So as we know more around this and come to determination, one, whether or not that commercial approval is granted in that late May time period, again, being outside of our control, obviously, we’ll communicate more to The Street around this. I would say, regardless of what happens on May 29, the impact to us in fiscal ’23 is minimal, if at all, right? Because what we will have at that point in time is the majority of revenue that we would be recognizing in that June time period being batches that are essentially already in flight that have essentially kicked off while the product was still considered a development product.
So, many moving pieces around this, Dave, I think you’re asking the right questions. These are the types of things we’re looking at internally. And when we come to a determination on exactly what that revenue recognition profile is going to look like for this particular product, given the binary event associated with the approval where we will ensure that that’s properly communicated so that you all understand how to model it.
Dave Windley: I appreciate that. My follow-up question, Alessandro is for you. You mentioned in your prepared remarks some recent successful regulatory reviews. I was going to ask or give you the opportunity to maybe elaborate on that. Going back a little bit further, you’ve obviously had some fairly high-profile 483s that probably caused some angst with management and trying to address those and energy and so forth. And so in the context of those things, I guess, I wanted to understand what — you emphasize Catalent’s quality, I wanted to understand are your aspirations to eliminate these 483s or deal with them best you can when they happen? I’m just wanting to understand where the aspirations are on the track record relative to regulatory review?
Alessandro Maselli: Sure. Look, this is a great question, and thanks for asking it. So look, first of all, I would say, as you said, 483s are not uncommon in our industry, especially in some type of manufacturing operations, surely sterile operations are the one that the CDs to happen more frequently. Just to be clear, we don’t plan for 483s. So we work very hard across our quality management system, with our leadership, with our people, with our operational excellence expectations to avoid this 483 to the extent as possible. However, it’s — these are public information. You see that there is a share of those inspections, which will result in 483s. This is true for all the players into the industry. And it’s as important as try to prevent them, but even more important, how you respond to those observations in a thorough, extensive and holistic way committing to corrective actions.
And some of those corrective actions, actually, most of them yields to an improved operation on the other end of them. So that’s one part of the answer. The other part of the answer, which I want to stress, is that as we signaled many times, Catalent receives regular inspections all the time. Now in this couple of cases happen to be, as you said, more visible, but there are inspections all the time. And we are pretty pleased with our track record of inspections, both from share and ratio of the ones resulting in 483s, but also looking at the number of observations that are normal in those 483s. So look, I know it’s been an element of noise in the last few months, but given that the outcome of those inspections you’re referring to, plus the ongoing track record on the further inspections we received, we feel pretty confident about our quality management system and our operational excellence.
Operator: The next question comes from Max Smock of William Blair. Please go ahead, Max.
Max Smock: I just wanted to touch on funding dynamics. I know last quarter, you pointed to some cash conscious decision- making from customers on the biologics side. Just curious if your conversations really have changed here at all given some of the positive developments in the market, and what are customers telling you about their conviction and their ability to go out and raise funds? And how does that compare to when we spoke this time — or at the end of last year?
Alessandro Maselli: Yes. Sure. Look, thanks for the question. I believe, look, we need to separate it out in our consideration — relative considerations and absolute consideration. I will tell you that in absolute terms, our market could continue to be a very exciting market. Our share in this market continues to be one of the leading shares into the market. We continue to see very nice wins across the board of our offerings. So some of the considerations sometimes are in relative terms in terms of what was and what could have been. But in general terms, we are very, very happy about the market that we’re operating in. The funding has been surely reducing. But when you look at the growth in our core business, our non-COVID business, you’re still seeing the business growing above market and to be honest, in the mid-teens.
And when you look at Biologics specifically even more exciting than that. So I would tell you, the market that did correct a little bit, but still supporting a very exciting growth perspective for the future.
Max Smock: That’s good to hear. And then just a quick follow-up for me around the Brussels facility. I know last — in fiscal year 2022, it was closed down obviously for six months. Just wondering if there’s any way or any detail you can provide that helps us think about the margin tailwind in fiscal 2022 from that factory being online for the full year?
Alessandro Maselli: Yes. This is — Brussels is a relatively small facility for us overall, but it’s certainly, as I mentioned in my prepared remarks, Matt — Max, provides a little bit of a tailwind for us here, both from a revenue and a margin standpoint, as you mentioned, the site was taken offline in the second half of the fiscal year. So it is up against a relatively easy comp. But again, Brussels not a significant site in terms of size from a revenue and profitability contribution for the Company.
Operator: Our next question comes from Paul Knight with KeyBanc. Please go ahead, Paul.
