Sean Dodge: Okay. And just to clarify, you said about half of that annual run rate you expect to capture in the second half of your fiscal ’23. It looks like some of these headcount reductions took place after the beginning of Q2, was there any amount of these savings reflected in this most recent — your fiscal second quarter?
Tom Castellano: No, there was no material impact from these initiatives in the second quarter. They were actioned, I would say, late in the second quarter. Some of the cash costs associated with those exits were contemplated in the second quarter. Some of that may perhaps carry into Q3 as well. You’ll see that as an add back to our adjusted EBITDA through the restructuring line item. But the real impact from a savings standpoint will be realized in the second half of the fiscal year and then again carry into first half of ’24.
Operator: The next question comes from Justin Bowers of Deutsche Bank. Please go ahead.
Justin Bowers: So just based on the comments on PCH us coming in a little lighter, it would imply that Biologics is coming in stronger. Can you just help us bridge the non-COVID growth in the second half of the year and some of the key drivers there?
Tom Castellano: Yes, Justin, we really didn’t highlight any material change to the non-COVID Biologics growth. I would say it’s very similar to what was assumed and what we saw as part of our last guidance. The real change that offsets the call, the pullback on the PCH side is the over performance of the COVID portfolio. As we mentioned, COVID was originally assumed to be approximately $550 million of revenue for us in our prior guidance. And based on the orders that we have now related to our fourth quarter as our customer ramps up for the fall booster season, we now expect COVID revenue to be more than $600 million in the year. So, it’s really the COVID revenue that’s offsetting the pullback on PCH.
Justin Bowers: Okay. Got it. And then just you talked about tech transfers over the last couple of quarters. Have those started or are they contributing yet? And then just with the commentary on the additional suites at Harmans, are they — when are those coming online? Is that a fiscal year event or is that a calendar year event? Just a little more clarity there would be helpful.
Alessandro Maselli: Yes. Look, let me ask this from the latter part of your question. So yes, additional suites are coming online as we speak in the — as we have already shared. The level of utilization is ramping — will be ramping up in the next few quarters, right? So I believe that in Q3, you’re going to see a little bit of a balanced impact because, yes, you’re ramping up, but you also — the utilization, but you’re also ramping up the cost associated with adding and training the people that are required for these new suites. As we said, we remain very optimistic around the gene therapy demand and viral vector manufacturing going forward, not only with Sarepta, but across the spectrum of our clients, it’s a pretty good space for us.
With regards to the tech transfers, these tech transfers continue to progress. Of course, there are several programs at the same time progressing. And I would say that they — we are pleased with the kind of program we’re transferring in. And surely, these programs will continue to contribute to our drug product growth into the future.
Operator: Our next question comes from Derik De Bruin of Bank of America. Please go ahead.
Derik De Bruin: Can we talk a little bit about the Sarepta contract? I’m just sort of curious, is that contemplated and sort of like the ramp-up contemplated in your original fiscal ’23 guide or is what you’re seeing now more incremental to what you had originally expected?
Tom Castellano: So related to Sarepta, Derik, this is playing out as we had anticipated for the fiscal year here. As I mentioned, the PDUFA date in late May, we’re depending on where that lands, that doesn’t have a material change for us regardless of whether that’s an approval or not in the current fiscal year and the outcome of that will have more of an impact for us on fiscal ’24. But I would say nothing materially different from what we had assumed based on the — this has always been a program that obviously our customer that we have been bullish on as well. So, no real change in outlook there in terms of what the ’23 impact is related to the announcement here.
Alessandro Maselli: Yes. I just want to say that the partnership with Sarepta goes — is a little bit wider than these only programs. So, they have some capacity that we dedicate to them into our Harmans facility, and they can allocate different programs, both clinical and preparation for commercial as they see their internal plants developing. So that is more than just DMD here.
Derik De Bruin: Got it. And I want to follow up on Tejas’ question on the PCH business. I mean it does look like that the — when I look at third-party research on the gummies market, it looks like that’s more like a 12%, 13% sort of like growth market from what I’ve been able to dig up. I mean when you look at that 6% to 10% guide you put out for the long term in the PCH, how critical is the gummy segment going back to the 20% range to sort of like get to that number?
Alessandro Maselli: So look, number one, I would tell you that we never assume a business going forward to grow at the top end of any range. So we didn’t assume in our story there, the 20% assumption for sure, right? So we tend to be pretty conservative on these forecast because, as you know, things may change in these markets. So that’s the first consideration. The second consideration I would say in terms of the PCH story, there is much more to PCH just regarding the gummies. When you look at the demand we are seeing that was in my remarks around Zydis dosage form is just exceptional demand. And I used the word exceptional, not by chance or mistake, we are seeing the demand that is far exceeding capacity. So we are building capacity as fast as we can.
We’re going to be opening soon in North America, not very soon, but sometimes in the next few quarters a North America facility for Zydis because we need an additional facility. We have installed recently — last year, we have installed an additional line in Zydis, we are working on a number of operational excellence programs to debottleneck capacity there. But there are some very, very visible products, which are growing very fast in the Zydis format. So that is one area that is surely contributing to the growth story of PCH. And let me remind you that’s one of the most profitable business of the current network should be over and above some other businesses, even considering Biologics. And with regards of the other parts of PCH, look, clearly, PCH, especially in the pharmaceutical supply is very much dependent on the timing of some approvals and the timing of some of — and the launch of some of these approvals.
So, it tends to be a little bit lumpy at times. But when you look at in the three to five years’ horizon, that is a business that is a very exciting pipeline to support growth.
