Aptargroup, Inc. (ATR) February 25, 2026 Conference Transcript

uh stefan tanda ceo for the company and mary scafides uh who does a wonderful job on invest relations uh here for aptar uh they unfortunately ran the gauntlet and ultimately could not be here live but we are grateful that they're here uh virtually and uh and that uh you know all the great work that our conference planning people have done um to enable the meetings and the presentation for Raptor to go on as planned, if just in a slightly different format. So welcome, Mary. Welcome, Stéphane. How's the weather?

Excuse me?

It's still snowing in New York. It starts snowing again.

So we're very, very jealous of those who were able to make it to Florida and are enjoying what I think is some cooler weather, but still better than New York. good deal so maybe just to stefan if you can hear me okay warm up you know you know what couple three things would you want to remind investors on regarding aptar uh and why you know it is the wonderful company that it is um and then we'll we'll get into the meat of the questions yeah um Good to be with all of you.

Thanks for making it happen like this, George. Fundamentally, we have a best-in-class leading proprietary drug delivery system business. And basically, if it goes through the nose, it goes through Aptar. And that used to be true just for the sniffles and allergies, but increasingly, it's true for almost anything that you need to get into the bloodstream to affect human health, which can be a lot. I think that's number one. Number two, consumer-facing businesses have been significantly improved. The closure business is in and out of its long-term target range. The beauty business has resumed growth. And many aspects of the consumer business benefit the pharma business. For example, our leadership in sustainability that we've developed in the consumer business is now increasingly relevant for our consumer healthcare business. I think that's number two. And number three, just a reminder, we're very global. Our supply chain is set up in region for region. While we don't appreciate at all the global attentions around trade and so on, we are well positioned to manage and deliver to customers and patients in every region because of our multi-region supply chain setup.

Understood. Thanks, Stefan. And some good meat to get into in discussion in a minute off of those points. And just I'm not sure if you can see from where you're sitting, but it's actually a very full room here. So a lot of interest in Aftar today. As always, the company is guiding me. We'll get to the first of the questions to $1.13 to $1.21 in the first quarter. To the extent that you can comment, you know, midway through the quarter, how are trends progressing? And or what were some of the key assumptions and or some of the macro sort of guardrails? You know, from what you can see, no guarantees in life, you know, relative to what you said, you know, a few weeks ago, how are things looking from those data sets for the first quarter?

Yeah, obviously, we're not updating our guidance here. But fundamentally, we're comfortable with the range that we gave when we announced Q4. and the exchange rate was at 118 it's still pretty much there so we expect a good quarter across the board obviously with the exception of emergency medicine primarily in aloxone so I think overall things really changed.

Okay thank you Stefan and what were the key reasons to the extent that you could talk that you expected to be in your overall range for margin for the year, which I think is 21 to 23 percent for the company. And would that remind me if you if you already talked about it, would that necessarily would that not necessarily mean that pharma's got to be in its range of, you know, 32 to 36 percent? How would you have us conjure on that? ponder on that.

Yeah, I think we expect pharma to do quite well with the exception of emergency medicines. Most of that impact will be in the first half. I think the good news is that with quarter four, we could kind of confirm the 65 million impact that we had given you three months earlier so i think we kind of uh quarter long in in honing in on that number and uh triangulating order intake what we hear from customers what little we see from customers inventory so that we boxed in that impact and most of that will be in the first half but apart from that we see consumer healthcare being back to growth we see of see of course injectable growing very briskly uh including glp1 but not only also other areas so and active materials doing well so overall we we expect the farmer business to do well uh i will not commit to the range uh for the full year uh but clearly we expect improvement in in the bottom line uh margins for the consumer business and the pharma to be uh doing very well um for the company to be within its long-term range uh for the year which we still feel quite comfortable with thank you stefan um i want to switch gears just for a minute uh to beauty enclosures um where the performance in the quarter was was a little off from what we were expecting a little off from what you were expecting

uh certainly one-off factors were at work but i think you know speaking for someone as someone who's covered the company for a long time we'd you know love to see maybe a bit more steady progress on the the margin towards the margin goals and beauty you've been getting better closures you know has been doing very nicely um you know how soon to the extent that you can comment will you be back making more progress towards those goals is it you know first quarter and then what in particular went so well for you in the closures reorganization that really reinvigorated the growth and the margin that was um we've said before that was more than we expected better than expected and props to you on that yeah let's start with that part um while we practice the same

fundamental uh industrial processes across the company closures is very specific um it has by far the highest material content of any of our products is heavy-duty injection molding and a little bit of assembly in the logic of that business is different than a nasal spray an airless system an aerosol that we practice in beauty and pharma so the industrial logic of and the assets are fungible it can make one closure one day another closure the next day you just swap out the tool so it is more of a operations intensive business where you need really need to watch capital intensity and you need to watch your car space and you need to be close with customers both in the stock business and in the Taylor business hindsight is always easy 2020 it's used to be a business structured that way but in 2010 after decided to go to the end use segments and took some of the closures activities into different segments and we just went back to saying hey this is the with this particular business the better way to run it and all the things that I said the team has done I'm very proud of what the team has done drive capital efficiency drive cost down be on the front foot with customers and of course the market helps I mean let's let's be clear food and beverage which is a big part of this business it's very resilient whether the consumer is doing great whether the consumer is not doing great whether they buy private label or brands when they apply smaller formats or bigger formats if they eat out less it's even better for us so we could consumer doesn't hurt that business maybe even helps a little bit so all of these factors have come together to get that business back to where it needs to be not perfect we had some operations hiccups at one of our larger u.s sites in the corner that kind of made it tip out of the margin range but we feel very good about the business now coming back to beauty beauty is complex it needed substantial renovation that you are very well aware of we've kind of 80% done with that but as you get done you have additional ideas and that's one thing too we were quite with the bounce back of demand that we saw in quarter four I wasn't 10% 25% of that was tooling and some easier comparison but nevertheless we see that the market come back customers come back but unfortunately uh we did lose it with uh some significant operation hiccups one we lost an important supplier uh where we had to qualify last minute somebody else at higher prices and poor quality and we had some um one-time compliance cost at the an organization facility in france so um the waterfall margin is not representative for what that business can do by any stretch and we expect that business to progress along the trajectory we had before and we will do more productivity actions in that business.

Thank you, Stefan. A little bit later on, we have a great presentation at lunch from a trade economist, an attorney who worked for the administration. We're eager to hear what she's going to be talking about in terms of different regional hot buttons and things like that. And one of the things, obviously, and you touched on in your comments at the open, you know, that, you know, there can be pressure points depending on the region, but APRA has long sort of navigated these well. You have, as a company and probably more than most companies that we track, I've done a very good job of expanding in China and growing your presence there. Help us understand why you're comfortable with that strategy, particularly as regards pharma. And then more broadly and more specifically at the non-pharma businesses, are you seeing more competition from non sort of classic APTAR regions making it a little bit a little bit tougher in beauty, or is that really not an issue for the company on a going forward basis?

We could talk for hours on this one. I think the first one I would say is we've been in China since the mid-90s, so that's now 30 years, and we're, during COVID, renewed our asset base to now be state of the art. complemented with some acquisitions and joint ventures. So, in this new geopolitical environment, I'm actually very happy with the competitive footprint we have there, primarily to serve the growing domestic market, but also especially for beauty to help with accelerating development timelines and speeding up processes. in Europe. So take the pilot mold or getting a product to market. It used to take 18 months was the standard. With the Chinese infrastructure, we can do it in six months, even if we produce it still in Europe. But the front end of that work, prototyping, the prototype molding and so on, it's just faster. I've been on record, geopolitics aside, just as a business person, And the capitalistic nature and the just sheer will to succeed in the country is unparalleled, and that includes our own teams. So getting things done is just very quick. But then when you talk about the domestic market, look, it's 1.4 billion people with increasing spending power. thankfully we address consumer and patient needs that are not sensitive to geopolitical issues or national security issues so everyone wants us to succeed our shareholders the local government consumers patients so there is no misalignment of incentives and we feel very comfortable and the last point I make we have very strong local talent you cannot run a multi-region business especially in today's world without the strong local talent we have at the senior level at executive committee shang weigong uh who has very skillfully led the region including china so all of these factors make make us quite comfortable um pharma is not so different than the other businesses and in fact When you go to pharma, who follow the pharma industry, a tremendous part of the upstream development work now happens in China. Clinical trials happen in China. A lot of the biotech innovations happen in China and are now licensed to Western companies. So it's like in some other industries, maybe a little bit later in pharma, it has gone from low cost production to now being an innovation powerhouse. that is important to feed into the global system. So it's, yes, you need to run it at a different rate than we ran it before geopolitics changed, but we are well positioned to do it that way. And the profitability of our China business is on par actually slightly better than our global company.

Thanks, Stefan. And just a quickie, there was a sidebar to that question. Just more broadly, are you seeing more competition from producers in China, producers elsewhere in Asia in traditional closure markets and traditional beauty markets that's affecting margin, the growth outlook? Or no, not really. It's competition has been pretty status quo. And then I want to pivot to the pharma business and get in a little bit more deeply there with our question.

Yeah. So it's actually interesting. One, the closures business is very much in country or in region for region, because of what I mentioned earlier, the material content being so high, it's not something that you ship across oceans. So what you produce in China stays in China, maybe surrounding countries and so on. In beauty, there's more of that. And certainly there's been a push of Chinese producers, especially into Latin America and into the US and Europe. given the geopolitics that actually has been slowed down a little bit or has demanded more of the chinese producers to kind of have foot uh boots on the ground so to speak in europe and in in the us and new mexico and um um you know i sometimes say running a true multinational is not that easy whether you're a us multinational or you're trying to be a chinese multinational So having boots on the ground in Europe, making that work, boots on the ground, making that work, there's a lot of fitness art. So actually, I don't see increased competition, maybe even a little bit less. Latin America is still more of a trading business for them. So we see more competition there. The other thing I would say for the pharma business, certainly the less regulated markets, you see more Chinese presence there and possibly into Russia. We used to have a big pharma business in Russia, and now it's a little smaller pharma business. And part of that is really a shared loss to Chinese producers where we couldn't get export license. And, of course, the Chinese were happy to step in.

Thanks, Stefan. I want to switch a little bit more to pharma now. So your investor decks show a multi-year increase in both the number and the weighted value of your pipeline opportunities, which is great. Could you bridge the pipeline by stage, you know, preclinical, pivotal, validation, launch, and how that might translate? I know you don't give more than a quarter guide, let alone a year, let alone a multi-year, but how that pipeline might sort of evolve over the next four years across those categories. And then within the pipeline, we've noticed that the value trajectory has come back down and converged more to be in line with the unit in the pipeline opportunity in that chart. What's been driving that? So those two questions, please.

Yeah. I mean, we disclose what we're comfortable disclosing for competitive reasons. And I think you'll have seen us over the last few years to peel back the onion more and more on that pipeline. And the way we give the statistics on the pipeline is, as you would expect, risk adjusted. Obviously, things that are early in the pipeline carry much higher risk than as things progress towards the launch. Indeed, we had a big spike of activities during COVID, vaccine opportunities, and now the pipeline ratio has more normalized. I think the big news on the pipeline that's really important to keep in mind, and we first discussed it at the capital market today in September, maybe it was a little bit drowned out with the narcan story but we gave you more visibility at jp morgan and it's in the investor presentation for this event is the richness uh of indications uh in the pipeline i mean you're talking if you had asked me george two years ago will you have these kinds of things the pipeline said no i don't think so um in fact you may have asked me uh but now we have peptides glp1s in pipeline of people working on neurodegenerative diseases alzheimer's parkinson's uh dementia the people working on mental health and people working on cardiovascular indications in fact we just had two important launches in in recent time against edemia and tachycardia so it's kind of an alternative to injection where to bring molecules quickly into your bloodstream in a defined manner the industry has kind of woken up that is a great way to repurpose all the molecules whether it was naloxone or or acetamine and but now it goes really across the board and the pipeline is just bulging and that's really what we're super excited about because it's in the sweet spot of our profit engine proprietary drug delivery devices through the nose in the inhalation space also we have a big transition going on to low global warming potential propellants last time that happened it was very uh accretive for our business and again that is a big piece of our pipeline so the richness and breadth and depth of that pipeline is is really super exciting and it's not about the sniffles anymore you know it's about treating heart disease it's It's about treating dementia. It's about maybe taking your GLP-1 through the nose.

Thank you, Stefan. I want to make sure there aren't any questions in the audience. Any questions for Stefan or Mary? Okay, so then we'll keep forging ahead from our side here. Stefan, kind of a micro question to the extent that you can comment. I know you're not going to break out the revenue, but is there a way to talk at all about unidose and how, you know, large it's been in your CAGR over time? You know, if your CAGR in pharma has been 7 percent, unidose has been, you know, a point of that, eight points of that, obviously it's not going to be that, but, you know, any way to size how important it's been to your growth rate in pharma?

And we obviously don't disclose growth or sales by product line. Clearly, the proprietary drug delivery systems is the key driver. When you think about the unidose and the bidose and related formats, they are really controlling the dosing of a drug. And if you talk about life-saving drugs that you need to dispense with 99.999% reliability, basically that unidose device is an auto-injector that goes through the nose. It has a vial inside. It has a plunger inside. It has very precise dosing. Same for the bidose. So those things will carry more value than, you know, a plunger in a pre-filled syringe. So that's why that's really what's driving. But the same is true for an inhaler. I mean, you want to get your asthma dose very, very great. The reason our inhalation franchise is so strong is, again, it's treating chronic disease. And if this thing doesn't work, patients get in trouble. So precise dosing of medications is what PDDS is all about. And unidose is a part of that. And it's an important part of it.

If I could add before, when you look at it, Profan mentioned that we had made available in the pipeline forward-looking for pharma for prescription, and not just prescription division, prescription, including injectables. And the top three, when you look at them, are pulmonary, so not unidose, biologics, right, which is primarily injectables. And then you have systemic nasal drug delivery, which is a number of delivery systems, including, you know, unidose, biodose, and others, as Stefan mentioned. So it's important, but it's not the only thing that's driving the growth or the only format that's driving the growth.

Thank you, Mary. Thank you, Stefan. Very, very clear on that. Can you talk a little bit about the tailwinds you expect to get from Annex one um you know maybe perhaps related to biologics and also for glp and then second question you know we've seen the growth in injectables it's uh it's very good business but it is a little bit lower margin than the overall for pharma uh over time how does that impact your longer term that mix effect as that grows more quickly perhaps than your proprietary drug delivery systems impact your long-term margin target of 32 to 36 percent in pharma yeah well let's start um

we are in the injectable business because uh injected medicines are really a major part of of how drugs get delivered especially modern biologic drugs that have been manufactured through biotech means meaning they are large molecule they are sensitive molecules you can't just punch them in the bill in a pill uh maybe too big for nasal delivery um and uh the injected format is the format of choice for modern biologic drugs whether they be biologics biosimilars And we wanted to be part of that. And, you know, we have the technology and the right to play. And by the time COVID came around, our technical capabilities have been developed so that they are on par with the market leader. The market, you know, we didn't have, thankfully, the big COVID whiplash because we didn't have a large position of COVID vaccine. But the market continues to grow. You mentioned NX1. Annex 1 is basically a leaning in or a tailwind that convinces customer in case of doubt go for the higher value solution go for the sterilized solution go for the solution that is premium coated and that means for us in a higher margin products and the means for the industry more in a shift towards a margin products GLP 1 obviously is a very nice tailwind I expect that to continue I do not believe that oral will take away or will just expand the market especially countries but not chill distribution so overall we're dealing with a growing market biotech is still at the beginning of its s-curve I mean if you think of how we understand traditional small molecule chemistry or physics compared to biotech i mean we're still many many many decades away from reaching the peak of the innovation cycle and many diseases to cure so i would never uh against biotech drugs and we wanted and we now have a position that now on your margin point clearly we've invested 200 million in brand new state of the art facilities um and they are now being filled as they're being filled we gain efficiencies margin will improve as we shift the mix to more higher margin products margins will improve so this negative mix effect that you've seen very pronounced in quarter four uh will be less over time will it ever go away well probably not and why Again, I come back to, in life-saving medicines, we control the dose to save the life. That's a slightly different value add than the plunger in that auto-injector or that needle shield. Not saying that it's not important, but it doesn't demand the same kind of pricing as life-saving medications. But certainly we see margin expansion in injectables itself through both operational efficiencies, economies of scale and mix enrichment.

Stefan, you've been very candid over the recent years that GLP is nice. It's nice to have. It's not the entirety, for sure, of your pharma business. And certainly investors like to come to APTRA because you have that full suite of products. With that being said, and you already commented on, touched on it, why do you think oral winds up being something that expands the category as opposed to, and also continues the growth in injectables as opposed to expand the category of maybe flattening out injectables? Kind of what takeaways have you had that you're laying with us here today?

Yeah, so I see a number of reasons. Number one, what drives a big portion of the GLP-1 growth these days is weight loss. And there is nothing today that's better than Zepan and a terseparatide. So if people are interested in weight loss, they're going to go for the one that delivers the biggest bang for the buck. I have not seen any data that oral formats outperformed chisepatite injected and you know we go with close behind that semaglutide number one number two there are many markets that do not have chilled distribution into the pharmacy or even chilling capability at home and those tend to be markets with massive uh overweight populations uh i think india i think china part parts of mexico um so that's where the oral those will be uh the biggest fit because it's the first option people have because they don't have the injectable option clearly there will be people who don't want to inject themselves or just have a phobia also in the developed markets in the U.S., and they will go to their oral format. I do not believe, again, until oral formats become more efficacious that they will rule the day. Last is an economic argument. Most of the oral formats come from the same producers who have built tens of billions of infrastructure to deliver you more auto-injectors. Their economic strategies and pricing strategies will be such uh to take advantage of the installed capacity and not obsolete it i think it's just uh economic sense and um there is plenty of commercial strategies available to them you just saw an over cutting price fifty percent um there is not a big strong relation between cost and price so they have a lot of flexibility in managing the market so that they don't obsolete their investment base. Now, I'm not talking about 20 years from now, but the kind of timeframes we are interested in, we believe this business can continue to grow and anecdotally consumers still have a hard time getting their injector when it's prescribed and often have to wait a week. So it's not an oversupply by any stretch.

Stefan, maybe touch on it here a little bit. How much runway does AFTR have across this injectable capacity before additions have to be made and where might the bottlenecks be, whether it's mixing or coating, if you can share or remind us.

So think of investments in injectables really in several categories. One is do you have the building and those are massive buildings with the ability, all the utilities that you need to run clean rooms and automation. we just made a massive investment in a brand new building in normandy france those come around every 10 15 years certainly nothing on the horizon we just finished one then inside the buildings you need the mixer which basically creates the first step the polymer then the molding and then the uh finishing whether that's coating washing sterilizing and so on those are much smaller investment increments, maybe the mix is a little bit larger than the others, and you can just creep capacity inside the existing buildings with doing that. So, again, we think we are done for quite a while with the large investment and now just can creep capacity in the ordinary course as this business is growing.

Thank you, Stefan. Any questions from the audience as we're wrapping up here with Aptar, Stefan, and Mary. Stefan, just a point of confirmation. On emergency medicines, you remain comfortable that the D-Stock will run its course based on the timeline that you said, most of it in the first half, based on the intelligence that you've got in the market. Just want to confirm that.

Yes, and you know that's more your territory, But what we kind of took away that the market felt somewhat relieved that we gave the same number three months later than we gave three months earlier. It kind of tells you that we feel comfortable that we've boxed this in. Based on what we hear from customers, certainly don't see any reason to change that. 65 million, most of which in the first half.

You could be a securities analyst, Stefan. So it's your next gig.

I'll stay in my lane.

Any last questions on beauty, on closures, on pharma, before we wrap with APTAR Group? Well, if not, we'll wrap it here. Stephan and Mary, thank you so much for your fortitude and being here even though you couldn't be. We appreciate everything that you do to support our research and the community's work on APTAR Group. so thanks very much everybody join me and thank you stefan and mary for a great presentation thank you george bye guys good luck the rest of the day