Ongoing CAPEX projects will cost $550 million but only the most critical projects will be funded going forward as Catalent attempts to put out financial and operational fires.
Amid numerous internal issues, contract development and manufacturing organization (CDMO) Catalent delayed its third quarter fiscal year 2023 financials for a third time and instead provided a business update Friday.
“This is not at all the call we expected to have now, and we are not at all where we expected to be,” CEO Alessandro Maselli said on the call. “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.”
Among the issues, the firm highlighted overly optimistic forecasting, which underestimated costs, the difficult biotech funding environment, and the severity of the full fallout from the pandemic. Having surfed the COVID-19 wave with – at one point – over 80 pandemic projects in hand, the firm has since suffered as demand for vaccines, therapies, and their related services have dried up.
The CDMO’s problems continued to mount, leading to the mothballing of an Oxford, UK facility, and, last month, the revelation of productivity issues across several of its plants. Specifically, the firm’s largest facility in Bloomington, Indiana has struggled to achieve anticipated productivity levels and associated revenue, with tech transfers for products to offset COVID declines proving more complex and lengthier than expected.
Furthermore, the CDMO is experiencing mounting costs relating to corrective and preventative actions following Form 483s received last year at both Bloomington, and at a fill/finish plant in Brussels, Belgium.
Meanwhile, the firm has suffered from capacity delays at its Harmans, Maryland facility – the primary facility of gene therapy maker Paragon, acquired in 2019 – due in part to the deployment of an enterprise resource planning (ERP) system at nearby Baltimore/Washington International Airport.
Despite the issues, management remained confident the CDMO can return to the sort of success that not too long ago saw it pull in approximately $300 million in EBITDA per quarter.
Among both changes in its C-suite and recent contract wins, Catalent highlighted the scaling up of a cost-reduction plan aimed at doubling its previous commitment of $75-85 million of annualized run-rate savings.
Among the measures, the firm said the completion of remediation activities in Bloomington and Brussels will have an annualized impact of roughly $100 million.
Furthermore, Catalent is limiting its capital expenditure (CAPEX) to essential investments going forward, following years of capacity growth.
“We now expect our fiscal 2023 CAPEX to be approximately $550 million versus our previous estimate of approximately $500 million,” said Maselli.
“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.”
Ongoing projects include additional suites in Maryland, now expected to be completed in fiscal 2024, sterile lines in Anaheim and Bloomington, and a high-capacity expansion of its orally dissolving Zydis offering.
“We estimate that, when we reach a planned level of utilization of this larger footprint, we will be able to generate $6.5 billion in annual revenue without the need for substantial new growth capital investments.”