Catalent Q3 2023 Earnings Call Transcript


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Presentation

Operator

Ladies and gentlemen, good morning. My name is Abbie, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Catalent Incorporated Third Quarter 2023 Business Update Conference Call. [Operator Instructions]

Thank you. And I will now turn the conference over to Paul Surdez, Vice President of Investor Relations. You may begin.

Paul Surdez
Vice President of Investor Relations at Catalent

Good morning, everyone, and thank you for joining us today. Instead of our normal review of Catalent's third quarter 2023 financial results, Alessandro Maselli, Catalent's President and Chief Executive Officer will provide you with a status update; and then Ricky Hopson, Senior Vice President and Interim Chief Financial Officer will discuss our capital position and our revised outlook for fiscal '23. Mr. Maselli will provide some final remarks and then we will take your questions.

During our call today, management will make forward-looking statements and refer to non-GAAP financial measures. It is possible that future results could differ from management's expectations. Please refer to slide 2 of the supplemental presentation available on our Investor Relations website at investor.catalent.com for a discussion of risks and uncertainties that could cause actual performance or results to differ from what is suggested by those forward-looking statements, and slides 3 and 4 for a discussion of Catalent's use of non-GAAP financial measures.

Now, I will turn the call over to Alessandro whose opening remarks will begin with slide 5 of the presentation. Please go ahead.

Alessandro Maselli
President and Chief Executive Officer at Catalent

Thank you, Paul, and thank you to everyone who has joined the call today. I'll cut to the chase. This is not at all the call that we expected to have. And we are not at all where we expected to be. Our financial performance and operational execution have all fallen significantly short of our expectations and our February forecast and we accept responsibility for disappointing you. We should also not be taking this long to finalize our financial reports, even though we and our third-party advisors had been using this time to engage in a deep and thorough review of our accounts and our financial reporting processes.

Because that work is ongoing, there are few specific details I can provide today regarding our financial performance, but I will share what news I can to give you a sense of how we got to where we are and explain our path forward. As we indicated in our April 14 and May 8 business updates, a combination of operational and productivity issues, as well as forecasting challenges have led us to significantly reduce both our fiscal '23 net revenue and adjusted EBITDA guidance. We are now reducing our fiscal '23 net revenue guidance to a range from $4.25 billion to $4.35 billion. And we are reducing our adjusted EBITDA guidance to a range from $725 million to $775 million.

It is important to note that these ranges reflect that a significant gene therapy product began to be treated in the third quarter as a commercial product for accounting purposes and while our evaluation remains ongoing, we anticipate continuing to record revenue for this product entirely on a percentage of completion basis. I understand how disappointing our further revised guidance is for all of you. I share your disappointment. Catalent has established itself as a global leader in drug manufacturing and delivery and produce exceptional results to investors and patients over the last -- past several years. But as your CEO, I'm responsible not only for the successes, but also for our poor performance this quarter and this year. I'm committed to putting Catalent back on track to assure a stronger fiscal '24 and that we return to building long-term shareholder value.

To that end, on this call, I will explain to you the operational challenges and other issues that contributed to our expected Q3 results and revised guidance. This will include walking you through the reasons why we believe that the operational challenges behind this quarter's disappointing performance and revised outlook are temporary and addressable. I'll then outline the actions we have taken to increase the rigor and discipline in our forecasting.

I will also briefly discuss the factors including our accounting adjustments at Bloomington that are expected to lead to the filing of an amended 10-K for fiscal '22 and that delayed the filing of our third quarter fiscal '23 10-Q. Finally and most importantly, I'll remind you of our positive long-term vision, a vision that while fully reflective of our short-term challenges, continues to look Catalent's long-term opportunities, performance and growth with the confidence and optimism. Catalent remains a great company and we are committed to remaining our customers' #1 CDMO partner in helping pharmaceutical, biotech and drug innovators develop, deliver and supply products that improve people's lives.

Before I do that, let me reassure you regarding some concerns we've had from investors over the last few weeks. The disappointing third quarter results, we expect to report, were not EU GMP compliance issues or the loss of any customer or canceled order. Our customer supply situation remain healthy and we believe we can sufficiently service their demand. We continue to be an essential part on individual drug manufacturing and delivery solutions that positively impact patients. We continue to win significant new business. Recent notable examples of these include new expansion of our long-term supply agreements with both Novo Nordisk and Samsung Bioepis.

With that, let's review the operational challenges that materially and directly impacted the EBITDA in the third quarter and our full year guidance. As we first communicated on April 14, during the third quarter, we began to identify productivity challenges and higher than expected cost at our drug product manufacturing facilities located in Bloomington and Brussels. These issues drove our EBITDA reduction in our revised guidance to be greater than our revenue reduction due to the following dynamics.

First, even when revenues were delayed or missed, the majority of the labor and overhead cost remained. Second, our plans to reduce our cost base were delayed in order to implement corrective and preventative actions following regulatory inspections earlier in the fiscal year in our Biologics segment. Finally, balance adjustment and inventory reserves for soon to expire biomanufacturing components and raw materials procured during the height of the pandemic are having a larger-than-normal one-time impact on our profitability.

Our gene therapy manufacturing operations in Maryland also faced unforeseen challenges, as we scale-up commercial volumes requiring a new ERP system and successfully completed three regulatory inspections. Stepping back, I believe a root cause of these challenges and increased costs are two different [Indecipherable] cliffs we experienced; a revenue cliff and an unprecedented operational cliff. Allow me to explain. In the last year while we have spoken of the COVID cliff, we usually meant the significant decline in revenue as the world emerged from the worst of the pandemic, which occurred much faster-than-expected or forecasted.

For Catalent that is expected to translate into slightly more than 50% decline in our fiscal '23 COVID-related revenues compared to fiscal '22 when COVID-related revenue was approximately $1.3 billion, with well over half of these have been tied to take or pay or related component sourcing agreements. While we expect some combination of COVID and other mRNA respiratory vaccines to remain a meaningful part of our revenue stream in the years to come, we don't have enough information at this point to forecast the expected full year impact in fiscal '24, although we are planning for a significant year-on-year reduction.

But this significant drop in COVID-related revenues doesn't tell the whole story. As you know, our people did an extraordinary job expanding our operations to meet the demands placed on us by the global pandemic response. Between meeting the unprecedented COVID vaccine demand and implementing growth initiatives to capitalize on the stronger long-term growth potential in biologics, we extended very quickly since the end of fiscal '19, including by adding approximately 7,000 more worker, roughly doubling our workforce and investing over $3.5 billion across our network, some of which was intended to help offset the revenue gap that will inevitably emerge once the COVID crisis faded.

We know now that we enter fiscal '23 overly optimistic about our current year growth. Our personnel and key processes simply did not keep pace with the dramatic up-and-down swing caused by COVID. And not only that some of the anticipated revenue offsets not materialized as quick as expected, but it ha proven much more complicated to exit the pandemic operationally at these impacted sites. Most importantly, we have not been able to reduce the cost that we added to the company, including personnel, material and inventory as rapidly as needed.

This is the operational COVID crisis I mentioned, driven by the extraordinary unprecedented complexity involved in implementing the operational changes required to execute the COVID programs and then we wanted to produce the non-COVID programs that would offset those revenues and fuel our future growth. I believe we have made solid progress replacing those revenues with the new sources that will ultimately produce sustainable long-term growth. However, it is now clear that we underestimated the related operational challenges and that forecasting suffered as a result. Now, that we fully recognize the depth of the challenges we're addressing them in a rapid focused manner.

Let me transition to forecasting. Whenever actual results varied materially form our expectations and projections, our underlying assumptions prove substantially inaccurate, it is time to reassess our forecasting rigor and discipline. This includes moderating our short-term optimism by more thoroughly assessing and integrating the negative impact of the recent macro events that have and continue to have a material impact on our business. This included the significant contraction in biotech funding, which is especially impactful for newer modalities.

At the same time, we are building the foundations of our demand planning process in our Biologics segment. We have also conducted a root cause analysis of our forecasting to improve our understanding of the internal operational drivers that led us to such inaccuracies. In Bloomington and Brussels, we are more effectively waiting the temporary impact of productivity challenges and higher than expected cost, including those associated with the regulatory remediation that generated adverse manufacturing variances.

In Bloomington, we expected some large product tech transfers to help offset the lower COVID demand at the site. Those tech transfers turn out to be more complex and are taking longer than anticipated, resulting in overly ambitious forecasts. Most of these have now been overcome. And we expect that these transfers to complete in the second half of this calendar year. On the positive side, some of these tech transfer customers are now adding an eye to Bloomington for their feel and finish work.

Gene therapy has been our brightest spot this year, including rapid growth in the first half of the year as we scaled the business. But we experienced significant unforeseen operational challenges in the business in the third quarter. These challenges have continued into the beginning of the fourth quarter as we increase the capacity to serve growing demand. As we first communicated on April 14, one of the key issues here involved replacing the BWI's prior ERP system, which was better suited for smaller clinical and development operations. While the implementation of the new ERP was critical to support the fundamentally bigger commercial operations at BWI. The challenges we experienced in the implementation delayed the ramp-up of this additional capacity until early May. Again, these challenges were temporary and will not affect any customer. As we have previously built a sufficient bright stock to support their immediate needs and we are now producing in normal fashion.

Our focus in our Pharma and Consumer Health segment have also been too optimistic. This is a segment where we expected strong growth as we started the year, modified our expectations to much more modest growth in November and February and now tracking to flat organic revenue growth for the full year. The main headwinds here are more pronounced declines in some existing commercial high value pharmaceutical products, delayed the launches of some promising new prescription products and lower consumer demand, particularly for gummies and other high-end nutritional supplements.

We are confident that the segments we return to organic growth in the coming quarters, given the growth we see in our core development revenue. The expected rebound of our top product for the segment that experienced supply-chain challenges in fiscal '23, the continuing strong demand that we see for our Zydis platform and the expected launches of 10 products recently approved by the FDA.

To recap, we have reviewed the procedure that with which we execute our processes to determine how macro events impacted our ability to meet our forecast, after delivering three years of exemplary performance. We are bringing back more rigor and skepticism that is known and previously unforeseen in macro and internal operational drivers. At the same time, we now recognize the need to reflect better the increased level of complexity involved in this new phase of our business. While it is difficult to assign the precise figures to the impact of this operation on forecasting challenges, we attribute about the same magnitude of those two items in our overall net revenue and EBITDA guidance adjustments.

Concurrently and in conjunction with the changes in our finance leadership, we have conducted an independent third-party balance sheet review at the two largest sites in our Biologics segment; Bloomington and BWI. Most importantly, these balance sheet review reaffirmed its overall soundness including our contract asset balances. In all, we expect to record a few accounting adjustments at Bloomington. One example, we expect to increase our inventory reserve by roughly $55 million related to certain raw materials and component to achieve the safety stock to minimize pandemic-related supply-chain shortages. We also expect it to correct $26 million recognition error related to the fourth quarter of fiscal '22. Separately, given our lower-growth expectations for our consumer health business, we also expect to report a goodwill impairment in that business in excess of $200 million.

Properly assessing and addressing the effect of these adjustments on our previously issued financial statements, including those in our most recent 10-K and our 10-Qs for the current fiscal year as well as their effects on our internal control over financial reporting and disclosure control and procedures are contributing to our delay in finalizing our third quarter 10-Q. When our assessment is complete, we will fully explain to our investors these prior-period changes and their effects, including their effects on our internal controls. We very much appreciate the patience of our shareholders as we work to resolve these issues in a timely fashion.

Moving on to a review of our manufacturing operations, we have taken several corrective actions at the BWI and Bloomington, including both management and operational changes to address the root causes of the issues identified at each site. The operational changes include the more rigorous demand planning, deployment of additional Six Sigma Black Belt resources to recover previously experienced productivity levels and a holistic cost review to adapt the future organizational structure to the new outlook on our demand. We expect these actions to bring us back progressively to typical profitability levels at these locations.

We have also made a number of important leadership changes. We announced on April 14 that we appointed Ricky Hopson to serve as our Interim Chief Financial Officer. Ricky is an experienced finance executive and operational finance expert who deeply understands Catalent and can successfully lead our financial function through this interim period as we search for a permanent CFO. We also made the changes in the finance organization in the last month, including changing the finance directors and to the sides with the greatest challenges.

On the operations side, we made several executive leadership changes in our Biologic segment. As just one example, we are pleased that Ricardo Zayas, a proven biologics operations leader with a vast industry experience, who joined Catalent in January, will now lead our operations worldwide across the Biologic segment. In addition, in early March, we announced that Sridhar Krishnan, a 20-year industry expert in Lean Six Sigma, had returned to Catalent to reignite the Catalent Way. The Catalent Way is a company-wide system of continuous improvement in lean manufacturing with clear standards to enable more predictable and efficient processes.

When I speak about rigor, it also means effectively managing costs and cash to ensure we drive the company's expected profitability. We have developed another cost reduction plan intended to drive margins more aligned to our historical levels, with a goal to double our previous committed $75 million to $85 million of analyzed run rate savings from restructuring activities. In addition, we are limiting our capex to all the essential investments. And we are also actively evaluating our current portfolio to ensure we have a suite of business that achieve the sustainable, profitable and capital-efficient growth that delivers superior shareholder values.

I want to reiterate my disappointment in having to deliver this news. My team and I accept the responsibility for falling short of your expectations and ours. We, nonetheless, remain committed to Catalent's long-term vision. The secular trends in our overall business and operating environment remain fundamentally strong. We operate generally in excellent markets with industry-leading services and capabilities to meet customer needs. We are proud of our regulatory record including this year where in the last six months we underwent nine successful FDA inspections, only a few of which included observations and all of those can be readily addressed. Among the successful inspections were two PAIs inspections at our gene therapy site in support of our significant product.

We also see strong current and future demand for our broad platform of services. And while lower biotech funding has impacted some near-term demand for some of our offerings in the newer modalities further away from commercialization, those assets that are closer to commercial approval or those that they have already been approved, which is well over half of our revenue when combined, has continued their ordering process as expected. We have also invested hundreds of millions of dollars in assets that target are getting ready to be deployed as dictated by the market demand. This included the additional new suites in BWI that now expected to be completed in fiscal '24. Two state-of-the art sterile syringe line, one in Anaheim and one in Bloomington and a high capacity expansion of our Zydis offering.

We estimate that when we reach planned level of utilization of these large footprint we will be able to generate $6.5 billion in annual revenue without the need for substantial new growth capital investments. We will let you know as soon as we're ready to announce our full quarterly results and provide any necessary further detail regarding revision to our prior financial statements.

I will now turn the call over to Ricky for a discussion of our capital position and expected fiscal '23 results.

Ricky Hopson
Interim Chief Financial Officer at Catalent

Thank you, Alessandro. Turning first to our capital position and our debt load, as discussed on slide 6, which we now intend to reduce more aggressively, remains well-structured and permits good flexibility. Our nearest maturity is not until 2027. Our most rigorous debt covenant is the ratio of first lien debt over the last 12 months of adjusted EBITDA at 6.5 times. This ratio at December 31, 2022 was roughly 1.6 times and is expected to increase for the next several quarters for diminishing again in the back half of fiscal '24. This covenant ratio is expected to remain well below the permitted level throughout this period.

Our top priorities for positive cash generation and allocation of capital, which will support our efforts back towards our net leverage target of 3.0 times, include greater utilization of our asset base, completion of essential in-flight capex projects that we believe will generate positive returns in the short term, activities that will reduce our cost base and contract negotiations to reduce our cash conversion cycle. We expect to report that our contract assets as of March 31, 2023 to be roughly flat with that of December 31, 2022 balance.

I understand the level of contract assets has been a top investor concern, so in one of my first actions as interim CFO, I initiated an independent review of the balance sheet, including contract assets at two of our largest sites in our Biologic segment, Bloomington and BWI. The review reaffirmed the overall soundness of our balance sheet, including our biologics contract asset balances, some of which are related to nearly completed products, including the bright stock Alessandro mentioned earlier.

Also related to contract assets, the revenue accounting treatment for complex products with long production cycles will continue to be recognized on a percentage of completion basis when contract terminology determines our work related to commercial activity. Note, in the third quarter there was a change in contract terms to a large gene therapy program that drove a change in characterization from development to commercial activity, so the percentage of completion method we have been using all along will not change. We are looking at other contract terms that may partially modify our accounting for this product. This is one reason for the delay in finalizing our third quarter results. Finally, we now expect our fiscal '23 capex to be approximately $550 million versus our previous estimate of approximately $500 million. When taking into account the billions of dollars of capital investments we have already made in the business, in fiscal 2024, we expect to be able to reduce our capex to only the most critical projects, leading to a notably lower spend.

Now, we turn to our revised financial outlook for fiscal 2023 as outlined on slide 7. We now expect fiscal '23 net revenue in a range of $4.25 billion up to $4.35 billion. We now expect adjusted EBITDA in a range from $725 million up to $775 million. We now expect adjusted net income in a range from $187 million up to $228 million. One driver of this change is that we now expect an increased tax rate of 27% to 29% for the full year compared to our previous expectation in the 24% to 25% range. This increase is a result of the lower outlook for earnings before taxes and certain tax detriment items unaffected by reduced pre-tax income. The rate is also affected by changes in our anticipated full year geographic mix versus prior forecasts as a larger portion of our earnings or losses are projected to arise in jurisdictions that do not provide immediate benefit for such losses and related deductions, resulting in a rate detriment. We now expect -- we continue to expect our share count to be in the range of 181 million to 183 million shares.

Now, I will provide some color on the temporary nature of the challenges impacting our margin in the second half of fiscal '23. First, in BWI as we initially shared on April 14, we continue to expect to recover in the first half of fiscal '24 the revenue we failed to achieve this year due to our operational challenges related to the recent ERP implementation. Second, also as noted in the April 14 announcement, the lost productivity in our drug product business, particularly in Bloomington and Brussels, was very significant but we now expect those sites to ramp up towards previously forecasted productivity levels in the next few months as we execute on our backlog, including multiple tech transfer programs. Third, we have started another enterprise-wide restructuring program with a goal to double our previous commitment of $75 million to $85 million annualized cost savings. This includes costs eliminated through the completion of remediation activities in both Bloomington and Brussels. We expect the annualized impact of these activities to be roughly $100 million.

Alessandro Maselli
President and Chief Executive Officer at Catalent

Let me reiterate again my personal regrets regarding these updates. However, I would like to close our prepared remarks by reaffirming the three key strengths underlying to Catalent's future. First, all our issues are temporary and fixes to our operations and leadership are already underway. Second, we have learned many lessons that will increase our discipline and rigor going forward. Third, we have a strong pipeline aligned with our high-quality asset base, matching the most exciting trends in our end markets, capable of delivering up to $6.5 billion in revenue with substantially lower future capital investments.

Finally, over the last several months, we have continued to see a strong support from our customers, as illustrated by some of the expanded partnerships mentioned earlier in our prior calls. As a result, Catalent will continue to play a critical role in delivering some of the most consequential therapies being developed and needing commercialization. This is a reset moment for Catalant, but what is unchanged is how important Catalant is to delivery of global healthcare, not just for vaccines but also for the 8,000 other products we make. Patients around the world need Catalent and we are not going to let them down.

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

Questions and Answers

Operator

Thank you. [Operator Instructions] And we will take our first question from Tejas Savant with Morgan Stanley. Your line is open.

Tejas Savant
Analyst at Morgan Stanley

Hey, guys. Good morning, and thanks for the time here. Alessandro, Ricky, maybe just to kick things-off, you trimmed the revenue guide by about $450 million, the EBITDA by about $510 million at the midpoint, can you just provide some of the quantitative -- the bridge essentially there in terms of perhaps the Moderna take-or-pay contract or the quality remediation cost overruns or any sort of rev rec issues related to Sarepta's drug?

Ricky Hopson
Interim Chief Financial Officer at Catalent

Hey, Tejas. This is Ricky. I'll take that question. It's a fair question. So, look the way that we think about this dynamic of the EBITDA decline being more than the revenue decline is into a couple of categories. So, first and foremost, delayed and missed revenues predominantly drop through to the bottom line. The cost of the labor remains. The cost of the overhead remains. The only cost that is really eliminated is the material. So, it's a high-margin drop through on those aforementioned revenues that were delayed and missed to a future period.

Our forecast was overly optimistic. We had aggressive timing of new business coming in, high-margin business coming in and our plans to reduce our cost base were delayed by the necessary corrective actions that we were taking to address the regulatory actions and with the balance sheet adjustments that we mentioned in our prepared remarks, the inventory reserves, no impact on revenue of course, but impact in EBITDA. So, with the combination of those factors, you get to the dynamic where the EBITDA reduction is more than that of the revenue reduction. So, hopefully that provides some color for you.

Tejas Savant
Analyst at Morgan Stanley

Got it. That's helpful. And one quick follow-up on the debt covenant piece, Ricky. So, is it fair to assume from your prepared remarks that you feel very confident that you won't trip up that 6.5 times debt covenant? And one for you, Alessandro, big picture. I know you've talked about the new sort of expansions of the contracts with Bioepis and Novo here, you've also obviously, work with Moderna with J&J and Sarepta and the new contract as well. But there is a fair question to be had here in terms of customers worrying about management being distracted as you look to fix all of these issues across the portfolio. How are those conversations going and give us a flavor for how you're sort of assuring those customers that Catalent will be there for them despite all of the other noise?

Ricky Hopson
Interim Chief Financial Officer at Catalent

Tejas, I'll just address the first point of your question which was around the debt covenant. And the answer to that is yes, we feel very confident.

Alessandro Maselli
President and Chief Executive Officer at Catalent

Hey, Tejas, hi, Alessandro here. Thanks for the question. A very good one. Look, overall, as I said in my remarks, the customers remain very, very supportive of the covenant story. Our supply situation remain very healthy. Clearly, when we enter some periods in which we are preparing for some change, we have a number of contingency plans for those changes and so we are prepared to face potential challenges without the risk of impacting our customers.

So, I personally spent a significant amount of my time speaking with those customers providing them the color of those challenges, some of them have been very, very close to what happened during the pandemic are not surprised or shocked by what these -- what is happening in terms of how difficult sometimes these -- to term some of these operations from period of high growth back to normal work. So, I would characterize those conversations as very supportive, but very understanding and the proof is expanded relationship that we continue to sign.

Tejas Savant
Analyst at Morgan Stanley

Got it, thanks guys. I appreciate the time.

Operator

And we will take our next question from Jacob Johnson with Stephens. Your line is open.

Jacob Johnson
Analyst at Stephens

Hey, thanks, good morning. I know, it's probably too early to comment on FY '24, but obviously it's a focus for investors and you guys talked a little bit about the outlook from leveraging in the deck. But as you think about the $725-plus million of EBITDA in FY '23, the comments you made about leverage peaking in FY '24, the middle of the year. And then also the potential for a significant improvement. There is a few puts and takes here. So, can you just talk about what the key swing factors are of whether, not FY '24 EBITDA could be higher or lower next year? Like is this a trough number in FY '23?

Alessandro Maselli
President and Chief Executive Officer at Catalent

Yeah, sure. Look, thanks. Thanks for the question. Look, I believe that we -- it's clearly early to speak about the fiscal '24 in May, but I understand the nature and the relevance of the question you're asking. Look, when you look at some of the prepared remarks we have provided today, we have tried to give some color around the temporary nature of of the cost of challenges. When I look at the overall picture and notwithstanding the fact we entered into this fiscal year with more ambitious expectations for our top line growth but our non-COVID revenues this year even with the current revised guidance will still be in the mid-single-digit growth given that the overall situation of the market is somewhat aligned.

I believe that we don't have a necessary demand problem here. We have a our cost problem related also to execution challenges. We have provided enough -- I believe enough color to pass out both of these costs are temporary nature right now to think about them going forward into the next fiscal year. And so being able to count them out from the current outlook.

Jacob Johnson
Analyst at Stephens

Okay, that's helpful, thanks. Alessandro. And then maybe bigger picture question. I appreciate the $6.5 billion kind of revenue potential at Catalent. And you just talked about some of the kind of near-term cost dynamics and I think guidance implies depressed EBITDA margin in the back-half of this year. But as we think about the long-term, I think once upon a time, you guys were targeting 30% EBITDA margins, but say you get to $6.5 billion of revenue, what do you think is a reasonable EBITDA margin profile on that level of revenue?

Alessandro Maselli
President and Chief Executive Officer at Catalent

So look, I believe the answer is a pretty much connecting the dots, all united you you mentioned that. So, what we are sharing is that we already have an asset-base that's the potential of $6.5 billion, which means that in many ways, our operating leverage at the moment is pretty low. So, there is a lot of potential by driving higher level of utilization into the assets that we have created and we have built. Clearly, when we made decisions of these investments, the biotech funding environment was different than it is today.

Some of the the environment we were living in were a little bit different, but we believe that those trends when you look more in the long-term are still valid. So, that operating leverage that we were expecting we continue to expect that to come back and so we do see a significant potential of expanding our margin going forward. And surely getting more aligned to the flight plan that we were discussing only a few months ago.

Jacob Johnson
Analyst at Stephens

Okay, got it, thanks for taking the questions.

Operator

We will take our next question from Julia Qin with JPMorgan. Your line is open.

Julia Qin
Analyst at JP Morgan Cazenove

Hi, good morning. Thanks for taking the question here. So first of all, regarding your ongoing customer conversations, Alessandro, I heard you reiterate these customer relationships remaining relatively stable here. But just curious, have there been any changes in terms of pricing or contracting terms as you work to kind of stabilize or maintain these customer relationships and are those any potential changes reflected in your updated guidance?

Alessandro Maselli
President and Chief Executive Officer at Catalent

So, look, clearly, the price in environment is a very difficult task to keep. The pricing environment given the diverse portfolio that we are running in Chile in the last year, has been a key point of negotiation with customers in terms of, when you live in such a high inflationary environment you need to keep the customers some prices to offset the inflationary environment. In general, I would say that there has been no substantial changes to our contract terms. The reality is, as we look into the future and across the different modalities, the pricing power that we have continues to be very different.

In general, I believe that in the segments where we were seeing unhealthy level of demand, we have mentioned multiple times prefilled syringes and in general, fill and finish premium services. We continue to see some healthy level of pricing there. So, I would say that in general I don't see the environment changing dramatically from a pricing standpoint.

Julia Qin
Analyst at JP Morgan Cazenove

Got it, very helpful. And then regarding the organizational changes that you mentioned earlier. Could you give us more color on kind of the extent of any additional personnel departure? And whether or not they're in functions that could impact -- further impact your production capacity and if you could give us a sense of where your current production capacity is compared to normal levels and how quickly do you think you can refill those positions and get back to normal productivity?

Alessandro Maselli
President and Chief Executive Officer at Catalent

Yeah, sure, sure. So, first part of the question look, I probably it's fastest for you to consult our website, which shows that some of the, you know, the changes that happen at the executive level, but clearly, there were several bills. All I can tell you is that in these periods where the job is to regain the past performances it's very helpful to be able to tap in known leaders that have been with the company or already has been in these positions already and can be redeployed to restart what was what was there before. So, I was very pleased to have the opportunity to have those leaders available to make the changes in a very fast fashion going for solutions that I would define known entities with a proven track record.

So, I am very confident that the changes we've done together with the addition of Ricardo Zayas and Sridhar, which I mentioned in my remarks, we have now the team that is needed to, to really correct the course and establish the performance of the company. I would also mention that I have a lot of trust in Ricky. He knows the operational finance of the company like nobody else and our segmented markets very well. So, he is he is going to be very helpful in this interim period in rebuilding some of the forecasting processes that especially in the newer parts of our business are not as strong as they are in our legacy assets.

With regards of your your question around productivity levels. The work as I said, is already underway. We are addressing these with the speed and pace. The way I would characterize this it will take a lot of work in some time, but we are already making progress and I can already see notwithstanding that, we're not in the position to give necessarily quarterly phasing, but I can share that I already seeing Q4 progress versus Q3.

Julia Qin
Analyst at JP Morgan Cazenove

Got it, that's helpful. And then last one from me, you mentioned opportunities for portfolio adjustment in your prepared remarks. Are there any preliminary thoughts you can share with us at this point and we'll be pursuing those portfolio strategy efforts simultaneously as you work on the other issues. That's all from me. Thank you.

Alessandro Maselli
President and Chief Executive Officer at Catalent

So, the first part of the answer is that this is not surprising. I've already signaled that I do believe that any point in time we need to contact assessment to our portfolio to understand what are the right assets for Catalent and if at any point in time, we have the right order for other assets. I do believe that as we have appealed to the company in the last few years and right now to more than 50 sites, we have some significant opportunities, probably in getting for some of the assets are thinking about the better ownership, but given that the phase those assets are in. So, it's an ongoing evaluation that we do continuously clearly, I cannot deny that the current updates that we had on the outlook. Surely, have accelerated some of those evaluations. So we are -- the simple answer to the second part of your question is that, yes, we are doing these as we also look at improving the productivity levels at our more critical sites.

Operator

We will take our next question from Dave Windley with Jefferies. Your line is open.

Dave Windley
Analyst at Jefferies Financial Group

Hi, thanks. A couple. I heard Ricky talk about $100 million annualized number that I think was targeted at costs and the additional restructuring. So, my first question is, how much of the original $75 million to $85 million has already been harvested and is reflected in the new EBITDA guidance that you're giving today versus how much of what I guess would now be like $160 million target would still be targeted to take-out beyond that guidance -- above and beyond that guidance?

Ricky Hopson
Interim Chief Financial Officer at Catalent

Yeah, and great question, Dave. So I would say when we announced and made the cost-reduction changes in November 2022, we remain on track to deliver approximately half of that in the second half of our fiscal. The second cost-reduction exercise that we are embarking on now we would expect to see the majority of that come through in our fiscal 2024.

Dave Windley
Analyst at Jefferies Financial Group

Okay, helpful. Thank you. And then secondly, a little broader question. So, kind of invoking the contract asset review, appreciate the comments there. And the guidance and the magnitude of change, so correct me if I'm wrong, but it seems like in your saying that you've reviewed contract assets and it seems like you're particularly pointing at Baltimore and Bloomington, the big sites. But that would say that revenue recognition related to percentage of completion accounting through the December balance sheet date, you're saying that you're comfortable with. That certainly give us some assurance around previous rev-rec.

It does then, say that the $510 million of EBITDA that you're taking out is essentially all second-half EBITDA that this was -- this is all kind of, from a chronological standpoint fiscal second half of the year impact. Is there anything about that, that I should think about differently as I think about the run-rate that is implied by the second half EBITDA ex these cuts?

Ricky Hopson
Interim Chief Financial Officer at Catalent

You're thinking about that correctly. But when you think about the second half also consider what we alluded to in terms of the one-time costs that impacted the second half run-rate. The full $500 million is related to the second half, it's not related to the first half, but as I said, a number of one-time non-recurring items in that second-half.

Dave Windley
Analyst at Jefferies Financial Group

Okay. Understood. And then I guess, bigger picture question. About $6.5 billion, the productivity expectations I guess, what in this review, I understand some of this is still in flight. I guess, Alessandro, what I'm really interested in is what gives you the confidence -- given that last answer, what gives you the confidence that you can get up to or back to target margin/productivity levels in light of some factors that if we exclude the one-time items, factors that make the margin in the second half look really, really bad. Help me understand your confidence in the long-term productivity.

Alessandro Maselli
President and Chief Executive Officer at Catalent

Yeah, sure, sure. So, Dave look, we need to go to root causes to get to the confidence, right. When you look at the root causes and this is primarily related to what my commentary around the operational COVID cliff. So, you're talking about doubling the workforce overall as Catalent, but this was very much concentrated in very few locations, okay. So, that was of course, needed and necessity for the mission we were on. But unwinding that these costs and these headcount in the the of implementing remediation actions for capex related to for increase is not the easiest of the task and I'm not searching for excuses here, but I'm just saying that these are highly, highly complex and surely we have underestimated that complexity usually at the plants to realign the cost structures to the reality of the product mix and the portfolio, but we had to make some decisions trade-off in delaying those.

We don't implement ERP systems every day and we don't do them, but to the extent we do it every day. This was necessary to be done and we were mindful that we have to do it early enough before a potential approval to a time to recovery is something was not going quite as expected. So, there were decision be made. There are things that are very, very special to this fiscal year, many firsts and many first timers as I said, we learned a lot, but I also recognize that some of those elements will reverse as we go into the next few quarters. As I said, I already see that the recent performance better than the most most performance.

The other element that you need to think of, we have built a significant number of assets in the new modalities, which have a very low-level of absorption of utilization at this point in time. Now, as I said before our expectation and forecast was to feel those assets, primarily in the cell therapy space much faster than what really happened and that's a combination of many items, some are environmentally related. I believe some are self-reflection that we need to do on our go-to-market strategy. But the overall appeal of those areas remains. So, as we -- and to be honest with you, these -- all these assets at the moment are heavily margin-dilutive to the organization. And the latest dollar element, looking at the portfolio considerations is also consideration around what are the assets that at the moment non-strategic and dilutive and these are the assets also that we need to look at. So, I hope I gave you all the elements Dave to get at the same level of confidence I have that the fundamental pricing of the business remains the same, the fundamental demand profile remains the same, the fundamental technologies that we use are the same. And so when you consider all these together, we will get back to the margin that where we need to be.

Dave Windley
Analyst at Jefferies Financial Group

That's very helpful. I appreciate it. I want to ask one last quick one. And that is on the contract asset, Ricky, coming back to that, can you -- I understand that's -- I believe that's applied to your development stage work and could you comment then on like an aging of that from an AR standpoint? So, I know you can't bill for it yet, but like how long or how long dated are some of those contract assets? How far back do they date? Thank you.

Ricky Hopson
Interim Chief Financial Officer at Catalent

Yes, Dave. Look, it's something that we obviously we look at, we assess. But at this stage, it's not something that concerns me in terms of the aging profile of those contract asset, those contract asset balances. If there is anything greater than one year, it would be deemed on the balance sheet a long-term contract asset. But just to clarify one point, the contract asset is not just for development as I mentioned in the prepared remarks. The large gene therapy program which is now being treated is a contract asset as well from a development standpoint.

Alessandro Maselli
President and Chief Executive Officer at Catalent

So, maybe I will add some other information, which we have already shared. So, this is like repeating what has already been made known. Clearly, as we got into this new modality today, but we didn't realize how long the production process might be also due to some of the intermediate testing that is required. So, there are several steps of the process, but between steps there are very long testing times in which you essentially cannot progress the process until such testing is completed. And that time is measured in quarters, so it's not measured in months.

So of course, we know much better now what the process ended up to be on some of these new modalities. And we are actively discussing also with our customers around how we can look at this from a contractual standpoint to avoid us having too much working capital tied with these assets as we go forward in the future. So, it's very much not lost on us that this creating an inefficiency from a working capital standpoint and we need to find ways to address it. But that is a big contributor to this contract asset and it's a big contributor also of the aging of it because you have several quarters worth of production at any point in time that is waiting to be finalized with the last steps of the process by design.

Ricky Hopson
Interim Chief Financial Officer at Catalent

Dave, just to make the point also, the balance sheet review that we conducted did confirm the overall soundness of our contract assets, which included the aging profile of those balances.

Dave Windley
Analyst at Jefferies Financial Group

Understood. Very much appreciate the answers. Thank you.

Operator

We will take our next question from Paul Knight with KeyBanc. Your line is open.

Paul Knight
Analyst at KeyBanc

Hi, thanks for taking the time. So in effect, are you going to have to reprice in the future cell therapy projects? Do you think that was -- and also the method by which you're doing the percentage of completion recognition, is that have to be adjusted both how you price it and the method of recognition?

Alessandro Maselli
President and Chief Executive Officer at Catalent

So, let's put -- if I understand well your question was around the pricing of cell therapies or maybe I would say look probably you're asking both cell and gene therapy, so I'm going to give you a little bit more broader answer. I don't believe that on gene therapy there is any pricing significant changes into the future. I do believe that on cell therapies we are still finding the right process to produce these therapies in an efficient way. It is not lost on the industry that we need to make sure that these therapies are made available to a wider group of patients because they have a significant impact.

So, we are really working with our customers and some of our key partners from a component standpoint to try to find the solutions to have more efficient processes that doesn't necessarily mean then only the price but also the cost of those processes to be addressed. So yes, I believe that in cell therapies over the next few years that you're going to see changes in those regards, but I believe it's a good thing because they will allow more patients to access these therapies and as a result will have more volumes for us to manufacture.

With regards of your second question, can you specify the question? I want to understand exactly what you're asking.

Paul Knight
Analyst at KeyBanc

The milestones needed to achieve revenue recognition, have you learned in this process that those need to be modified?

Alessandro Maselli
President and Chief Executive Officer at Catalent

I don't necessarily believe that is a matter of milestones. I believe that what we learn is that sometimes probably the invoicing triggers along the process could be different and so that you move faster. These value create from contract asset to AR and from AR to cash in the bank. So, I believe this is the learning and I believe what we are trying to address those learnings attacking them from different angles. So, on one hand I believe that we have opportunities to make the process much leaner, much faster, especially when it comes to the testing element of it and on the other part I believe that we can address these also together with the customers.

Ricky Hopson
Interim Chief Financial Officer at Catalent

What Alessandro is referring to is the balance sheet aspect, the working capital aspect, no change from our P&L perspective from a revenue recognition.

Paul Knight
Analyst at KeyBanc

Okay. And then the last question is regarding Bloomington and Brussels, did you expand beyond -- of course, you did the work to comply with 483, but did you expand the facilities in those locations as well, going above and beyond the 483 needs and they are running now? Is that correct?

Alessandro Maselli
President and Chief Executive Officer at Catalent

Look, I would tell you that expanding the footprint, especially in Bloomington, yes, as we mentioned many times, we're having additional lines being installed there. If the question is in around did we go over and beyond what was necessarily in the [Indecipherable] look, every regulatory inspection is a checkpoint and an opportunity to reflect what can be improved. And the Catalent has always had a very holistic approach to these situations. And so yes, we go over and beyond because we are here for the long haul. And whenever we have the opportunity, we need to make sure that we address everything at the same time, in a holistic fashion, no matter what the pain is in the short term.

Paul Knight
Analyst at KeyBanc

Okay, thank you.

Operator

And we will take our next question from Derik De Bruin with Bank of America. Your line is open.

Derik De Bruin
Analyst at Bank of America

Hi, good morning. Just some clarifications on two things. So, how much revenue from fiscal '23 is getting pushed into fiscal '24, right? And specifically, I'm curious about the gene therapy drug that's going commercial. What was that push? And we've heard there's some fairly big numbers out there on what that contribution could be to the company. I would appreciate any sort of like clarity on how to think about that and the margin flow through.

Alessandro Maselli
President and Chief Executive Officer at Catalent

Look, this is Alessandro. I appreciate your question. I really understand the reason why you're asking. I would tell you, though that it's premature for us to make any comment for fiscal '24. It's not the time. In the question, I understand the reasons. We're going to try to give this quantification in due course as soon as possible. But it's a complicated equation because there is the demand, but there is also the additional scale-up of capacity you want to do to catch up on that demand, how fast you can do it, what is going to happen in the first half of fiscal '24, second half of fiscal '24. I'm just not wanting -- it's not that I don't want to answer, it's just that we need to do some more work to make that quantification and I can promise that as soon as we're going to have that available, we're going to share this with you guys.

Derik De Bruin
Analyst at Bank of America

Right. But clarify this, you've got product that you've already made that can supply patients that are expected to be dosed with that drug for the next six to 12 months?

Alessandro Maselli
President and Chief Executive Officer at Catalent

Absolutely, absolutely. If you like, a part of the reason why we have the contract asset that we have is because part of that contract asset is what we call the price stock. Let me explain, it is a stock that can be converted to final product with only few remaining steps of the process and you do it to when some final information is available of market labels and so forth. So yes, we were well aware that this ramp-up might have been more complex than others because it's new processes, it's new modalities and there is ERP implications and so forth. So, we were very much mindful of building the stock ahead of the time so that we could have a periods of adjustments without impacting supply, again that definitely re-affirm very, very clearly, because this is important to me, it's important to the patients out there, there is no risk to supply any of these products.

Derik De Bruin
Analyst at Bank of America

And have you recognized revenue on that product?

Alessandro Maselli
President and Chief Executive Officer at Catalent

To some percentage of completion according to our policies, yes.

Derik De Bruin
Analyst at Bank of America

Okay. Let me try something else then. So, let's -- how much you think of your revenue miss is tied to the biotech issues and just because I mean, one would argue that's not going to come back next year and I'm also just curious you had a 6% to 10% guide for the PCH business longer-term. That seems to be arguably off the table now given some these asset write-downs and things there. Can you just talk about your thinking about that?

Alessandro Maselli
President and Chief Executive Officer at Catalent

So, sure, look, the biotech funding is clearly a situation that is still very volatile. I would say volatility there continues to be fairly high. I believe we were the first one speaking openly that there would have been a challenge in November. But continues to be a little bit of a challenge, especially for early-stage programs, and especially, new modalities. I want to stress that in the new modalities because of the nature of them, we have a high-level of exposure to the biotech -- to the biotech industry and as such to the biotech funding. So, I believe that the first half or the second half of this calendar year, we will continue to be a period of volatility and we need to continue to observe, but what is happening there in terms of understanding the time for recovery.

There are some elements, though that are more in our control in that regard, which is the late-stage programs, which are less affected by that, because they are so closer to potential commercialization, which are not really affected by the funding because you're going to progress those. And I believe that on those ones, we have more visibility and we are more optimistic. With regards of the PCH segment, when you look at what was in the script, there were three elements that really affected our outlook this year and made this business, which was expected to be a contributor of growth for this year to a more flattish story. One was that we had some delayed approvals, that's the business we're in, right. Sometimes you have years of periods where you have the approvals together and periods where they just get delayed. The first half of this year was disappointing, because many of these approvals were in fact delayed and as such, the launches. All of sudden in the last few months we received 10. Sometimes you don't control those events.

The good news is that now they've happened. And so as we look into the fiscal '24, those are going be launches that are actually going to happen. I believe this year, we suffered from an higher than expected erosion of some of our portfolio in the prescription business. The erosion was expected to happen a little bit faster. I believe is now bottoming to the levels to -- for these products that will be sustained going forward. We have resolved some supply, meaning raw-material challenges for one key product we have in that segment. So during the summer, we expect to be back on the supply of those ones. With regards of the consumer, I got to tell you a little bit the same response that I gave for the biotech. I believe it is still a volatile environment. We're still monitoring it. We continue to convert the portfolio to larger, bigger, more diverse customers, but that's an environment where we continue to observe in next six months cycles. I hope this color helps have.

Derik De Bruin
Analyst at Bank of America

It does. Thank you. And just one final one, just to be clear, you don't -- do you need any restatements do you think beyond fiscal '22? Basically, just if you go back and you look at the pre-COVID numbers before you start adding those capacity, are those numbers safe from what you reported?

Ricky Hopson
Interim Chief Financial Officer at Catalent

I would -- look, I would say that we just continue to assess and address the effect of these adjustments that we discussed earlier and our previously issued finance statements. When the assessment is complete, we will be back and fully explain to our investors these prior-period changes in FX on our financial statements.

Derik De Bruin
Analyst at Bank of America

Thank you.

Operator

And we will take our next question from Luke Sergott with Barclays. Your line is open.

Luke Sergott
Analyst at Barclays

Great, thanks for the questions. So, before the operational challenges, you guys were doing about $300 million, plus or minus in EBITDA per quarter. And so like outside of the next few quarters and you're clearly bit below those -- that level. But when do you guys expect to or when can we think about -- reasonably think about when we'll get back to those types of levels? And like is that back half of '24, more it's going to be like a '25 issue?

Alessandro Maselli
President and Chief Executive Officer at Catalent

Look, I believe that as I said that these are -- would require some time and some work. I have confidence that we're going to get back there. It also depends on the on top line. So, there are many variables attached to it and of course, as you know, we have a pretty consequential events on the horizon in the next few weeks. So, I believe it's hard to make a prediction, but I believe that if you assume calendar '24, you're not far from where we expect to be.

Luke Sergott
Analyst at Barclays

Okay, great. And then I guess on on the approval, can you, for the gene therapy, I mean, you guys are scaling up to I think it was like 16 or 18 suites. Can you update us on what that manufacturing capacity? Do you guys need to build-out additional suites, because it's clearly taking more of the materials and inventory to make to the drug than what was earlier anticipated?

Alessandro Maselli
President and Chief Executive Officer at Catalent

Look, as we said the BWI facility with a lot of capacity and we believe that we are creating a capacity for our current needs but this facility can continue to serve the demand in gene therapy for years to come after the expansions that we have done. So, there is a lot of capacity available there. We feel very comfortable. That is a premium facility, is a commercially approved. This is recently to more successful PAI inspections, is it still a jewel in the crown of Catalent, notwithstanding some of the short-term challenges we discussed with our ERP implementation. Very, very pleased with that facility and very optimistic about the future.

Luke Sergott
Analyst at Barclays

Okay. And then lastly here on the sticking with the percentage of completion, how do you plan to do that through actually after the drug is approved, assuming it does get approved? I mean, how does that work?

Ricky Hopson
Interim Chief Financial Officer at Catalent

Yeah, yes. So, we've concluded on the accountant with regard to that product. It will be continued on a percentage of completion basis. But as we shared during our prepared remarks, it was such a complex agreement, we are looking at other contract terms that could prospectively modify accounting for that product going forward.

Luke Sergott
Analyst at Barclays

Yeah. I mean, it gets approved, it's commercialized, that's no longer development, right. So, it have to be recognized in batch commercialization.

Ricky Hopson
Interim Chief Financial Officer at Catalent

No, that's the point. We will continue to recognize it if it is approved and it's a commercial product on a percentage of completion basis.

Luke Sergott
Analyst at Barclays

Got you. Alright, thanks.

Operator

We will take our next question from Jack Meehan with Nephron Research. Your line is open.

Jack Meehan
Analyst at Nephron Research

Thank you, good morning. So, my question is simple. Can you grow EBITDA in 2024 based on the transitory impacts you've talked about, can you just confirm 2023 what you've laid out. Is this going to be the trough?

Alessandro Maselli
President and Chief Executive Officer at Catalent

So, look, clearly this question requires some -- you make these answers are based on assumptions. So, based on some assumptions of these, I would say that is a credible expectation. And some key assumption is also regarding some expected approvals in the next few months.

Jack Meehan
Analyst at Nephron Research

Okay. And then, I believe I heard you mention the COVID forecast down 50% Year-over-Year. So, it sounds like you maintained that over $600 million for the fiscal year. Could you confirm that and what's embedded for the second half of '23?

Alessandro Maselli
President and Chief Executive Officer at Catalent

It's about right, yeah. We pretty much expect that to be the number. Maybe a little bit different than phasing, but yes.

Ricky Hopson
Interim Chief Financial Officer at Catalent

Yeah, we can -- no change to our private -- previous estimates around that number, a little more than $600 million.

Jack Meehan
Analyst at Nephron Research

Great. And one final, what was the $26 million impact in the fourth quarter of '22, you called out?

Ricky Hopson
Interim Chief Financial Officer at Catalent

So yeah, as a result of the balance sheet review that we -- that we are still ongoing, one of the reasons why we are late in our Q3 financial statements is it did lead -- the review did lead to some accounting adjustments and one that we shared here today was correct, a $26 million revenue error related to fiscal 2022. But overall, I'm very pleased with the pace, the debt, the overall quality of the review that we're doing to make sure that we don't leave any stone unturned.

Jack Meehan
Analyst at Nephron Research

Thank you.

Operator

And we'll take our next question from Max Smock with William Blair. Your line is open.

Max Smock
Analyst at William Blair

All right, thanks for taking our questions. Just wanted to follow-up on an earlier question, the point from the deck around net leverage peaking in the middle of fiscal 2024. I know you said it's a little too early to give a guide on next year. But can you just confirm that net leverage peaking in the middle of fiscal 2024 adjusted EBITDA in the first half of next year will be down year-over-year?

Ricky Hopson
Interim Chief Financial Officer at Catalent

Again, we have not completed a full assessment of fiscal '24. Myself, I'm getting up to speed here on financial matters at Catalent. My focus has been around Q3 financial reporting commitments. And at this stage, we don't have a fully built-out FY '24.

Alessandro Maselli
President and Chief Executive Officer at Catalent

Yeah. I would say, look, that being said, our ratio is always calculated on an LTM basis, right. So, there's not only -- is not necessarily only the next couple of quarters, it always look at four quarters back. So, that is an averaging factor there.

Max Smock
Analyst at William Blair

Okay, got it. Maybe just a couple of quick ones on Sarepta. There was a lot of focus last week during their AdCom on the ratio of empty capsids. Can you just discuss what's going on there? Why you changed the manufacturing process to one that has higher empty capsids and did not add steps to address this issue? And then whether or not there could be some CMC issues moving forward as a result, even though the FDA has already completed its inspection at your BWI facilities?

Alessandro Maselli
President and Chief Executive Officer at Catalent

So, look, there is not necessarily a change of the process. Sometimes when you develop a drug, there are processes that are suitable for the early clinical-stage and they are not necessarily suitable for larger clinical production, commercial production. And so this sometimes use different technologies with this process. I don't believe that there was any comment around these, it's more in and around -- it's in the nature of what we do. Bench scale is not same on industrial scale. It is an industrial what we use here.

It is an industry-standard process that is used for this type of therapy used in many other programs and I believe the data continues to be pretty sound. Also, with regards of the use of these a process. That being said, we in an industry where we always look at opportunities to further enhancing processes, but as it stands today, it is an industry-standard, is more suitable for the large commercial volumes and the data are supporting the use of these products.

Max Smock
Analyst at William Blair

Okay, got it. Maybe just one final one for me on Sarepta. You mentioned already having product for initial dosing of patients and understand that SRP-901 is a big opportunity moving forward. But how should we think about the potential revenue in fiscal 2024, given Sarepta said during AdCom that it only expects to treat about 100 patients in the first six months post-launch? Does this mean that we could actually see a step-down in revenue from this program in fiscal 2024, especially considering Thermo could be up and running by then? Thank you.

Alessandro Maselli
President and Chief Executive Officer at Catalent

So, look, if on the basis that the product is approved or received an accelerated approval, I want to be more specific, surely, I do not expect that, that would be a reduction.

Max Smock
Analyst at William Blair

Okay, perfect. Thank you for taking our questions.

Operator

We will take our next question from John Sourbeer with UBS. Your line is open.

John Sourbeer
Analyst at UBS Group

Hi, thanks for taking the question. I just wanted to dig in a little bit deeper on some of the emerging biotech that you mentioned earlier. I guess some of your peers have provided what percentage of revenue is they are exposed. Would you be willing to provide that and maybe even ex Sarepta and gene therapy, what does that look like for your customer base? And then you mentioned that there were no customer cancellations, but assuming that some of these companies have no capital, do you think that maybe these assumptions here a little bit more too optimistic and that there could be cancellations here moving into next year?

Alessandro Maselli
President and Chief Executive Officer at Catalent

I mean, when I, when I, of course, whenever I make a commentary, I'm making commentary around the sizable, notable cancellations in our business because we are -- in the clinical world in modalities there are all the time cancellations, just because of the nature of the business that some of the -- most of these programs do fail as they go through the clinics. I just want to caveat that, that I was referring to large notable commercial supply agreements that will potentially be canceled and can have a material impact on the company.

With regards of your comment around optimism, I believe we'll be pretty humble and open here in saying that yes, we've been optimistic. I don't believe necessarily on the rate of cancellations. I believe we've been optimistic around the amount of assets, which would have been entering the clinic or progressing through the clinic in these last call it nine months and the pace at which this was happening now is very, very different from where it was in 2021 and 2022. I would say mid-2020 to mid-2022, has been a sharp correction. What we've seen from our observation standpoint. But the science is still there and the potential, the unmet need for patients is still there and the efficacy and safety profile of this is still there. So, these are all elements that will bring these back at some point. So yes, we were optimistic. Yes, now we have learned and we have a more realistic outlook, but yes, we continue to be bullish about the long-term prospects of these modalities.

John Sourbeer
Analyst at UBS Group

And then I guess just on the Brussels facility, the previous press release didn't provide the timeline there. I just want to confirm just the timelines on when you think that these productivity issues will be resolved. And then just from high-level, can you remind us on an overview there? What percentage of that facility is dedicated to Novo and Wegovy?

Alessandro Maselli
President and Chief Executive Officer at Catalent

So on the last question, I cannot give you that information, it's such as simply that were not authorized to share without our customers. So, I can tell you that for Brussels we have now, the facility is now finally fully after running -- after some periods of challenges and especially when you restart from these long periods, it's complicated to reach the efficiency levels that you experienced before. I would say and with all honestly they're still a while we are now at the full absorption, it's still a work-in progress.

I still believe that in Brussels we're going to have to do more work and will require some more time to be honest with you, but the good news there is that we have all the demand that we want because we have to recall that on a lot of backlog. So, the absorption and the utilization is not going to be a problem, it's just recovering. The manufacturing consistency that we had before and we are making very good progress in that direction, but this is something that just doesn't happen overnight when you experience the challenges that you've experienced.

John Sourbeer
Analyst at UBS Group

Thanks for taking the question.

Operator

And we'll take our next question from Sean Dodge with RBC Capital Markets. Your line is open.

Sean Dodge
Analyst at RBC Capital Markets

Yeah, thanks. Alessandro, you said with the Bloomington tech transfers, there is a couple that you've won there and working on launch. There are no more complex and taking longer than expected. Did I hear correctly those are done now and up and running. And then as we think about how meaningful those are, could you I don't maybe compare the size of those relative to the COVID work and Bloomington that you're working to backfill?

Alessandro Maselli
President and Chief Executive Officer at Catalent

Sure, that's a great question. So first of all, I believe that technical challenges [Indecipherable] that we experienced. The call out to experienced delay to the final steps of the validation of these programs have been overcome now. So, now is completing the last steps and waiting for the regulatory timing that is required that to get ourselves into position to commercial production. So, as we said, it is in our remarks we expect now this to be our second calendar year '23 impact in terms of these, these are meaningful products.

So, I can tell you that at this point in time, my biggest concern is to have enough capacity more than demand we're trying to make an effort of freeing up any stalling additional capacity there, so that we can support what we envision to be very high demand products because the end-market is a very strong and at the moment is not fully satisfied. It's difficult to make a parallel to the COVID times because these are very different products. I can tell you from a profitability standpoint, we are aligned in terms of the margin. Clearly, you need to understand that there is no product in the world that will ever be produced in 1 billion doses in 18 months, that is never going to be in terms of in terms of what we've done in Bloomington. So, I believe that was a little bit of a unique situation, but net of debt, which we have now already washed out of our numbers, it's a very healthy portfolio that we have done there.

Sean Dodge
Analyst at RBC Capital Markets

Okay, great. And then you pointed out that you all continue to win new business, including an expansion with Novo. When was that expansion signed and maybe is there any more color you can provide there. Is this kind of involving you working with them on more products or is this expanding what you're doing with them beyond the Brussels facility?

Alessandro Maselli
President and Chief Executive Officer at Catalent

Yeah, yeah, sure, sure. Look, it's clearly as we bring new assets online, we give -- and these assets are in high demand, as you can expect we said that repeatedly and also some of our competitors that giving same information, right. So, when you look at these, clearly, where you have these new assets coming online, the first thing you do, you offer them to your existing partners with which you have a very healthy established and fruitful discussion and many times -- more times than not in recent months, those customers have picked up on the offer to go in some other sites and to go to some other capacity and bigger capacity. So, I believe that that's very, very exciting for us. The fact that customers continue to give us confidence and continue to want to serve from us, it's probably the best thing that can happen to us.

Sean Dodge
Analyst at RBC Capital Markets

Okay, great, thank you, guys.

Operator

And we will take our final question from Justin Bowers with Deutsche Bank. Your line is open.

Justin Bowers
Analyst at Deutsche Bank Aktiengesellschaft

So, two questions, one related to gene therapy and then one just related to the guide down. With respect to gene therapy, you talked about bringing new capacity online. I'm just curious if the timing through the end of this year and is that related to BWI and all its suites that you've sort of talked about before. Part two of that is you also said that you have sort of seven quarters of our production I believe waiting to be released in the contract assets. I don't want to paraphrase, but I just want to clarify that, that is what you said. So, that's related to gene therapy and then I'll come back with the second one on the guide.

Alessandro Maselli
President and Chief Executive Officer at Catalent

Let me let me address the last one, I didn't say several quarters, I said a few. Means that I was saying that it's not -- it's not a contract, the process length is not three months, is more, is longer than that. It depends on a few things, but you need to think about the process length from the start to finish somewhere in the several months, the type of timeframe and we are working actively to reduce debt. With regard to the suites, yes is BWI, the ones we were referring to, you don't have to think about these as a binary event. They told us at the start you have all the suites. These suites have the ability to come online progressively in selling capsules according, because the facility allows that to happen. So, you have two, then another two and another two and over the next few months we're going to bring online that these additional capacity.

Justin Bowers
Analyst at Deutsche Bank Aktiengesellschaft

Understand. And that makes sense. And was that one of the inspections or one of the inspection is related to those suites as well and then just the other part to that in terms of the contract terms, since you're still doing it on percentage of completion, it sounds like the amendment that you're looking for is maybe around invoicing is that, is that fair?

Alessandro Maselli
President and Chief Executive Officer at Catalent

So, the first part of the question, look, the inspection is never by suite, you inspect the whole facility and for us, from a regulatory standpoint BWI and BWI 2 [Phonetic] belongs to the same campus. So, you need to look at these, when you get inspected, the inspection is spread amongst the entire campus so that the answer to your first part of the question. So, very, very pleased that those inspections were successful because again, it's an impact that these are inspection related to that, but today they have an impact on the overall facility, so very pleased with that outcome.

And with regards of the terms to local, probably a little bit of a clarification here. Ricky was referring to some other terms of the contract with regards of our revenue recognition mechanisms there beyond the percentage of completion. I do believe that we have an opportunity to and we are already making progress in terms of setting the different milestones for invoicing of these contract assets going forward that we're going to continue to work against these objectives.

Justin Bowers
Analyst at Deutsche Bank Aktiengesellschaft

Okay. And then just quickly on the change in the guide, it sounded like of the $500 million, $400 million was related to forecasting and then the other $100 million was related to sort of the one-timers. I just want to clarify that. And then of the one-timers, you guys did spike out sort of $55 million in inventory markdown. Is that one of those one-timers? And is that running through the P&L with the new guidance? Thank you.

Ricky Hopson
Interim Chief Financial Officer at Catalent

Yeah, if I take that, Alessandro, I would say that you're right about the $55 million in terms of being one of the one-timers. But after that one-timer, I would estimate that to be roughly split equally, 50-50 between the forecasting challenges, Alessandro referred to and the operational and productivity challenges being the second issue for the quarter and on our guidance.

Alessandro Maselli
President and Chief Executive Officer at Catalent

And I would add that when you think about one-timer, Ricky fares to one-timer if you feel like more from a financial accounting standpoint, but also in the execution challenges that are issues that we deem temporary in nature, which we are addressing. We don't believe that will affect long-term the business performance from a profitability standpoint.

Justin Bowers
Analyst at Deutsche Bank Aktiengesellschaft

Okay. I appreciate the time.

Operator

Ladies and gentlemen, that concludes the question-and-answer portion of today's call. I will now turn the call back to Mr. Alessandro Maselli for closing remarks.

Alessandro Maselli
President and Chief Executive Officer at Catalent

Thank you. Thank you everyone for taking the time to join our call and your continued support of Catalent.

Operator

[Operator Closing Remarks]

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