West Pharmaceutical Services Inc (WST) Q3 2026 Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the Q3 2026 West Pharmaceutical Services Earnings Conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question-and-answer session. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. I would now like to hand the conference over to your speaker today, Michelle Polinski, Vice President of Communications.

Good morning, and welcome to WEST's third quarter earnings conference call, which has been webcast live. With me today on the call are WEST President and CEO, Michelle Lagarde, and WEST Senior Vice President and CFO, Bob McMahon. Earlier today, we issued our third quarter financial results. A copy of the press release, along with today's slide presentation containing supplemental information for your reference, has been posted in the investor section of the company's website at investor.westpharma.com. Later today, a replay of the webcast will also be available in the investor section of our website. Before we begin, we'd like to remind you that statements made in management during this call and in the accompanying presentation contain forward-looking Please refer to the accompanying safe harbor statement in today's presentation and press release, in addition to other disclosures made by the company, such as our 10-K and 10-Q, regarding the risks to which the company is subject. During the call, management will also report on certain non-GAAP financial measures, including organic net sales, adjusted operating profit, adjusted operating profit margin, free cash flow, and adjusted diluted earnings per share. The accompanying disclosure statement, as well as reconciliations of these non-GAAP financial measures to the most comparable financial results prepared in conformity with U.S. GAAP, are provided in this morning's press release and today's presentation materials. I'll now turn the call over to our CEO, Michel Lagarde. Michel?

Thank you, Michel, and good morning, everyone. Thanks for joining us today. I'm very pleased to welcome you to our earnings call, and before getting into the details of our strong third-quarter performance, I want to begin by saying what a privilege it is for me to now be part of Team West. Having joined West two months ago, my priority has been spending time with our global teams, visiting our sites around the world, and meeting with our customers and investors. It's been incredibly rewarding to connect and learn from the company's stakeholder network and start to identify how we can build on our strengths and continue to evolve. These have been valuable conversations, and I'd like to give a few examples. First was my visit to our Eschweiler manufacturing site in Germany. What was immediately apparent was a strong mission-driven culture and teamwork among the colleagues. Confronted with the need to increase output, the team focused on execution and unlocking new efficiencies, for instance, by integrating more automation onto the production floor. This effort is helping to expand capacity and support our global network optimization to improve the service levels for our customers. A great example of our opportunity to drive more impact from continuous improvement across our company. Second, my conversations with our customers. I've called on these same customers for the last decade, so it wasn't hard to get transparent feedback from them. And from all my conversations, a very clear pattern has emerged. First, West is firmly on the very short list of preferred partners. Our reputation, combined with our deep technical and regulatory expertise, forms an incredible foundation to build upon. And we're invited to establish closer relationships with our customers. By doing so, we will understand their current and future needs even better, so we can drive innovation adoption faster, And, of course, keep earning their business every day by a high-quality and delivery performance, a clear path to continue to strengthen our enviable leadership position. These two examples point to the opportunity at C4West to drive more impact from strengthening our continuous improvement efforts and continuing to develop more strategic customer relations, which will provide us with superior insights and allow us to better anticipate their future needs. And they were super excited to start contributing to our company's strategy and performance, build further on 100-plus years of accumulated experience, and unlock even more impact from our talented team. And with that, enable our customers to improve the lives of many more patients in need. Now let me recap our quarterly performance. I'm pleased to report that we've had a great third quarter, exceeding our expectations for both revenues and earnings. Revenues of $874 million grew 12% organically, and adjusted EPS of $2.66 was up 36% compared to last year. Given this strong performance, we are again raising our top and bottom line full-year expectations, which Bob will talk about in more detail. Let me now shift to how our segments performed in the quarter. Our proprietary product segment delivered 16.6% organic growth. The highlight was HVP components, which grew 20%, driven by both GOP-1 and non-GOP-1 components demand, and HVP upgrades. HVP devices grew 26% organically, after adjusting for SmartDose 3.5, led by Crystal Zenith and Admin Systems. While the West Vantage segment revenues declined 7% organically, the performance was slightly better than expected. As a reminder, the strategy of West Vantage is shifting the business to higher value-added parts of the work handling. And as a result, we're rolling off legacy programs as the new programs continue to ramp. This is a muted effect on segment growth this year and next. To conclude my remarks, I want to thank our team members for their efforts and amazing work. Our end markets remain strong, our position as the leader is firm, and we will continue to step up our performance to exceed our customers' expectations, which in turn will deliver value to all the stakeholders of West. I now turn the call over to Bob to provide more details on our quarter performance and updated guidance. Bob?

Thanks, Michelle, and good morning, everyone. Today, I'll provide some additional details on Q3 revenue and take you through the income statement and some other key financial metrics. I'll then cover our updated outlook for the rest of the year. As Michelle mentioned, we had a strong third quarter as revenues of $874 million increased 8.7% on a reported basis and grew 11.9% organically, exceeding our expectations overall. Price contributed just over four percentage points of growth in the quarter. This strong performance was driven by our proprietary segment, which increased 16.6% on an organic basis. West Vantage declined 6.6% organically, which was better than expected. Within proprietary, our HPP components business was a standout and now represents 53% of the total company's revenues. Revenues of $467 million grew 20% organically, exceeding expectations. The performance was broad-based and driven by multiple factors, including robust growth in biologics, continued strength in GOP-1s, and positive HPP product mix shift. Diving a bit deeper into HPP components, we had another strong quarter of growth outside of GOP-1s, growing high teams organically. This underscores our view that overall injectable market continues to provide runway for both increased volumes from existing and new drugs and for HPP upgrades across our existing portfolio. Annex 1 regulations have been driving HPP upgrades in Europe and were encouraged by increasing signs of upgrade activity in other geographies as regulatory frameworks continue to raise the bar on containment systems. We have added over 200 upgrade projects this year and believe upgrades can be a multi-year tailwind to our business. Our GLP-1 HPP business also performed very well, accelerating nicely in the quarter, growing well into the 30s organically. HPP GLP-1s represented just under 12% of total revenues in the quarter. We continue to remain optimistic about the long-term growth prospects of the GLP-1 category, driven by the continued adoption of existing products, the potential for expansion into new therapeutic categories, the development of next-generation molecules, and increasing access in certain markets as generics are launched. Now, looking at other product categories in the proprietary segment, HPP delivery device revenues were $99 million in the quarter. This was flat on a reported basis and up 26% organically after excluding currency and the impact of the SmartDose 3.5 divestiture. Both Crystal Zenith and Admin Systems contributed to growth in the quarter. Of note, in Q3, we generated $12 million in SmartDose 3.5 revenue, which wasn't included in our Q3 guidance. This compared to $30 million in Q3 of last year. Both figures, along with FX, have been excluded to calculate or organic growth in the quarter. As we've previously mentioned, SmartDose 3.5 product revenues were $55 million in the second half of last year, $30 million in Q3, and another $25 million in Q4. Those figures, along with the $12 million in Q3 of this year, are excluded from our organic growth calculations. And now that we've closed the transaction and do not expect any additional SmartDose 3.5 product revenues going forward, I want to provide the SmartDose 3.5 revenue details for this year to help you with your modeling for next year. Smart Dose 3.5 revenues were $100 million this year, $46 million in Q1, $42 million in Q2, and $12 million this quarter, as I just mentioned. Consistent with this year, we will exclude those revenues from next year's organic growth calculations, but this will result in a roughly 290 basis point headwind to reported growth next year. And lastly, in standard products, revenues of $163 million were up 3% on an organic basis. Now, let's move to our West Bandage segment. West Bandage delivered $146 million in revenue, declining 6.6% on an organic basis, slightly better than expected as we were able to fully recover the revenue deferred by the cyber incident in Q3 versus Q3 and Q4. As Michelle stated earlier, the year-on-year decline was expected as incremental sales from new programs were more than offset by the decline associated with the roll-off of a CGM program starting this quarter. And looking by geography, we delivered solid growth across each of our three geographies. Our smallest geography, Asia-Pacific, representing 11% of our total company revenues, grew 42%, led by India and China. Americas grew 12%, while AMEA grew 6%, as good growth in proprietary was partially offset by the CGM program roll-off in West Vantage. Now, let's take a closer look at the rest of the P&L. Total company gross margin was 39.7% in the quarter, up 310 basis points year over year. The year-on-year increase was primarily driven by better-than-expected proprietary product sales and the associated positive mix shift to HPP components as well as price contribution. We have been able to offset inflationary pressures on our cost base through good plant performance and some cost recovery via pass-through. While West Bandage gross margin was down year-on-year, It improved sequentially. Adjusted operating margins of 25.3% were up 420 basis points compared to the prior year, driven primarily by the gross margin expansion and leveraging our SG&A cost base. We also benefited from improved below-the-line performance in the quarter, as our adjusted tax rate was a better-than-expected 17%, and we had 70.8 million diluted shares outstanding. Adding it all up, Q3 adjusted earnings per share were $2.66, up 36% versus last year, and $0.47 above the midpoint of guidance we gave on the last earnings call. Before moving into our updated guidance, I did want to highlight a few additional financial metrics. For the first nine months of this year, we delivered free cash flow, that's operating cash flow less CapEx, of $278 million. This is roughly a 5% decrease compared to the same period in 2025, due primarily to increases in customers' accounts receivable, as well as increased inventory levels to support our operations, partially offset by lower capital spending. This is an improvement from Q2's results, and we expect continued improvement in Q4. For the first nine months of 2026, capital expenditures were $125 million, lower than initially planned, and we now expect full-year CapEx to be between $215 to $220 million for the year. This is still within our 6% to 8% of revenue corridor, albeit at the low end. We continue to be focused on investing for growth and are kicking off a new wave of meaningful capital investments to expand our HVP finishing capacity both in Europe and the U.S. That said, we expect to remain in that 6% to 8% of revenue range for CapEx spending in the future. The success of our global operations this year has put us on to more solid footing as we have been adding and training new shifts and optimizing our global network and increasing capacity. Our Q3 outperformance is a great example of the success of our teamwork. We are well-positioned to finish the year strong, and the new HVP finishing capacity expansions will further support growth in the coming years. Additionally, from a balance sheet perspective, earlier this week, we upsized our revolver to $750 million and renewed for another five years, providing balance sheet flexibility. We also continue to return cash to shareholders via our dividends and share repurchase plans. Year-to-date, we've paid out $47 million in dividends and just announced our 34th consecutive year of dividend increases, with an 18% increase in the dividend in the quarter. And for the first nine months of this year, we have repurchased just over 2.4 million shares for $685 million. Our cash flow and strong balance sheet continue to position us well as we deploy capital for growth and deliver value to our shareholders. In summary, we had a strong third quarter that exceeded our expectations on the top and bottom lines and are pleased that our solid business momentum continues. And now let me turn to our updated guidance. Given the strong third We now anticipate full-year revenue to be in the range of $3.41 to $3.42 billion, up from a prior range of $3.345 billion to $3.38 billion. This revised guidance assumes full-year 2026 organic sales growth of 11.3% to 11.6%, up from a prior range of 10% to 11%. FX is expected to have a full-year benefit of 120 basis points, while the SmartDose 3.5 divestiture negatively impacts reported growth by 160 basis points. This translates to Q4 revenues of $820 to $830 million, an improvement from our Q4 implied guidance last quarter and represents 6% to 7% organic revenue growth. Consistent with the first nine months of the year, we We expect Q4 will be driven by double-digit growth in HPV components. This prudent guide absorbs incremental negative FX as the dollar has strengthened in the past month and the West Vantage Q3 pull forward. Full year 2026 adjusted EPS is expected to be in the range of $9.38 to $9.48, up from A prior range of $8.85 to $9.05. This now represents growth of 29% to 30% year over year. We expect full-year operating margins to expand almost 300 basis points, driven by gross margin expansion and SG&A leverage. This is above our long-term growth construct of 100 basis points per year improvement, as we have benefited this year from stronger than expected revenue growth, portfolio optimization, And to help you with your models below the line for the full year, we're projecting $5 million of net interest income, a tax rate for the full year slightly lower than 18%, roughly $18 million in affiliate profits, and $71.4 million diluted shares outstanding for the year. In summary, we're very pleased with how our business is performing. We're well positioned to finish the year strong, and we look forward to introducing 2027 guidance on our Q4 earnings call in February. Now, I'd like to turn the call back to Michelle for closing comments. Michelle?

Thank you, Bob. So early days for me, I'm incredibly excited about the journey ahead. This year, we're on track to deliver over 40 billion highly critical components to our customers. This gives you a good sense of the dimensions of the patient impact our colleagues are focused on delivering. And this is why West is such an incredible company with a great financial profile that allows us to compound EPS consistently and at a high rate. Looking forward to speaking to more of you in the coming weeks and months. And with that, operator, we're now ready to take the questions. Thank you.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit yourself to one question. If you have a follow-up, you may re-cue. One moment for questions. Our first question comes from Paul Knight with KeyBank Capital Markets. You may proceed.

Thanks very much, Michelle, and congratulations to everybody. The China, excuse me, Asia growth was spectacular at 42%. Could you talk to the dynamics there, please?

Yeah, maybe I can start just generally, obviously, small base. And so we're excited about the growth as that market continues to provide us with lots of new customer opportunities. And so I would say a great contributor.

Yeah, and Paul, good morning. This is Bob. Just to follow on what Michelle is saying, you know, we've been very pleased with the growth we've had in Asia-Pacific. We've had three consecutive quarters here, a very strong growth. You know, it is the smaller part of our business from a geography standpoint, but it really has been driven in India and China, you know, really across a number of different markets. One is obviously the introduction of GLP-1s in both those markets, and as we think about this over time, I think there is a bigger opportunity to continue to drive growth in Asia as you think about the innovative drugs that are being developed there and so forth, and so we've certainly had, it's early days for us, but I think there's an opportunity for us to continue to grow there and excited about the progress today.

Thank you. Our next question comes from Daniel Markowitz with Evercore ISI. You may proceed.

Hey, congrats on the quarter, and thanks for taking my question. Can you help us understand some of the moving pieces for the GLP-1 elastomers between the Medicare Bridge Program, OUS Generics, and then offset by some potential mix shift to multi-dose? It was a massive record quarter, super impressive. I was curious, was there anything one time in this 3Q number, and can you just Help us understand the growth outlook here as we turn the page into 27, please.

Yeah, before I turn it over to Bob for some specifics, the way I would think about it, you know, that class of medicines continues to demonstrate that it's transformative in its nature. I would say we're still quite early in the full potential of that class, right? You talked about access, you know, different geographies around the world There are different levels of maturity, and so we think it's a durable growth driver for us in the years to come, and certainly nothing one-offish in the quarter.

Yeah, I was just going to say to build on that, we didn't see any kind of one-time things there. We obviously aren't going to provide any granular level of details here, but as you know very well, Dan, we do think that this is a longer-term opportunity growth for all the reasons that we talked about in the prepared remarks as well as what Michelle just talked about. The bridge program certainly is one area where it's actually increasing access, and we're glad to participate in that with our customers. And then certainly outside the U.S., there's opportunities to continue to grow as the generic opportunity in various markets comes to bear. And then obviously down the road, you've got opportunities around next-generation molecules as well.

Thank you. Our next question comes from Matt LaRue with William Blair. You may proceed. Hi.

Good morning, everyone. I wanted to actually ask on HVP devices, which, you know, sort of has continued to be strong this year. Is that associated with any particular drug launch or new customer wins, or perhaps is this indicative of customers asking

you to do more and sort of a broadening opportunity set for that category? Thanks.

Yeah, let me take that, Matt, and good morning. Yeah, Yeah, we've been very pleased with that part of the business. I wouldn't say it's indicative of any one particular new launch or molecule. I think, you know, as we talked about, you know, Crystal Zenith and both the admin systems, they've got a number of different customers and broad-based across, you know, different markets as well. And so we've just been able to see, I think, nice kind of broad-based growth there. I would say, you know, as we think about Q4, sometimes that business can be a little lumpy. I wouldn't say that there was any pull forward, but it had a very strong Q4 of last year, and so we're not expecting the same kind of growth that we saw in Q3 to repeat in Q4. But that being said, you know, we're continuing to work with partners also on the self-injection system, the next generation, SmartDose 10, and so forth, and still feel good about that portfolio going forward.

Thank you. Our next question comes from Justin Bowers with Deutsche Bank. You may proceed.

Bonjour, Michel, et bienvenue. Appreciate you sharing your initial observations in your first two months to West. Can you discuss your priorities over the next six to 12 months and also some of the opportunities you see to fortify West smoke?

Yeah, no, thanks for the question. It's been a great first two months. I'm able to spend time with our colleagues around the sites and around the world, spend a lot of time with customers, and obviously with our investors. And so what stands out to me first and foremost is our colleagues are just awesome, really an incredible team, mission-driven, really understands the importance of every single component needs to be at the highest quality, and obviously deliver for our customers. So it's really a towering strength, I would say. And we've been at it for 100 years. And so the technical depth in the team is another one that I think really is unmatched. With regards to areas for improvement or priorities, and I highlighted some of them in the prepared remarks, but there is an opportunity to forge even closer relationships with our customers. I would say currently our points of connections are perhaps more at the operational, sort of technical level, and we're invited to elevate these relationships, and I think that's exciting because it will provide us with better insights, will really allow us to have opportunities to do demand planning together so that we have always the right capacity available as demands go up, and then improve the adoption of our innovation, I think, are some of the benefits of connecting with these customers at the more strategic And so that certainly will be an area of focus in the months to come. The second one is around continuous improvement. You know, obviously that is part, you know, of what we do, but it's a muscle group that can be strengthened, I think. I think it's about being even more specific about the scale and dimensions of the impact we expect from continuous improvement, Raise our ambitions, and then help our colleagues with some tools so that we can drive more benefits from digitization and automation and just this general view of let's find a better way every day. I think that continues to be a real area across the sites, but also in our global functions, and that will also be a priority to make sure that we define that well, help our colleagues through that, and over time, therefore, deliver more impact. Thanks for the question.

Thank you. Our next question comes from Larry Solo with CJS Securities. You may proceed.

And welcome, Michelle. Appreciate your opening remarks and look forward to working with you and best of luck. I guess just first question, maybe just on the, Bob, on the margins. I know you mentioned we're running a little bit ahead of the 100 BIPs annual increase. And you kind of called that nothing really unusual in the quarter. I know Q3, it was a strong revenue quarter, but it's just kind of significantly ahead of our expectations. I realize Smartos was a little bit lower margin, but it's just kind of a new floor. Like, you know, should we look at kind of mid-40s on the proprietary side as a good starting point and growing from there? Or, you know, just kind of trying to get a little bit better handle on that.

Yeah, hey, Larry, this is Bob. Appreciate the call. And yeah, I wouldn't say that this is the new floor, but we are very optimistic about our continued margin expansion growth. We didn't have any one-timers in Q3, but it actually shows when you have the mixed shift that we've seen, particularly in our HPP business, as well as that above expectation around growth, it shows really the incremental margin strength that we have. And so we certainly, in the quarter and moving forward with the divestiture of smart dose, that's going to be helpful for us. But the 300 basis points gross margin really was a combination of positive mix shift, continued leveraging of our existing base, given the strong performance that we've had from a filling the factory's perspective. Price was also a factor there. And then below the line, being able to leverage our SG&A. As we think about Q4, we're still in line with very significant margin expansion year on year. We are probably investing a little in Q4 as we think about going forward, but I'd leave you with the expectation that I think that's one of the underappreciated opportunities for us going forward, and particularly with what Michelle was just talking about with continuous improvement. I mean, I think we have an opportunity to continue to drive margin expansion going forward. So we're certainly optimistic and not done with driving those margins over the next several years.

Thank you. Our next question comes from Doug Schenkel with UBS. You may proceed.

Good morning, and thank you for taking my questions.

Um, Michelle, I want to I want to start with one on your view of the portfolio today and whether you see any gaps that represent opportunity as you think about technology, adjacent capabilities, you know, maybe new therapeutic categories. I ask in part because you have a really successful history of M&A most recently across your decade at Thermo. So I just just want to see how you're thinking about the portfolio and really what is your M&A criteria. And then if I could just ask my second one, and then I'll get back and listen. Year-to-date, you've grown GLIP revenue. I think it's over 30%. That comes after a year of growing, you know, around 50% in the prior period. So, robust growth against a tough comp. I hope, given this, is approximately 10% still the right planning assumption going forward for GLP-1 revenue? It just seems like you're continuing to have just tremendous momentum there in spite of any concerns about generics, multi-dose, or orals that were prevalent in investor discussions earlier this year. I'm just wondering if that 10% is still the right number. Thank you.

Good questions. So on portfolio and M&A, this is how I sort of think about it, and obviously it's early. But the first thought is around the fact that our organic profile here at West is so incredibly strong, right? We have multiple secular growth tailwinds, an enviable market position, and a super capable team, right? That is what has earned this company its premium valuation. And so the first focus will always be about continuing to strengthen the organic prospects of the company. Then having spent a lot of time with our customers here over the last 10 plus years, it's also clear that they are looking for simplification of their supply chain and consolidation of their supplier base. It's hard for them to design supply chains when there's so many people involved that are responsive and resilient and economical. And so they're quite vocal on this point, and I've demonstrated that they would move market share towards their preferred partners. And we're on that very short list, and therefore have the opportunity to think about what else could we offer these customers and extend our impact. Obviously, given our financial profile and our organic prospects, the bar for M&A is incredibly high. And that's a good thing from where I sit because it will allow us to be incredibly patient, disciplined, to only pursue transactions that truly amplify our financial profile and be regarded as very favorable in the eyes of our customers because then they will also deliver great value for our shareholders. So the organic focus, I think, is what it will be, and then over time, as I go through the process here, we'll think about what other opportunities may arise in the future. You know, on your point around GLP-1 growth, look, the percentages indeed at some point become harder to comp when you sort of roll them over, but I do think we stay incredibly And again, as a company, we have the great opportunity to participate in that market very broadly, right? Not only with the current players and continue to do a good job for them, make sure that we're part of the new entries to the market and the new molecules that are being developed, and then, of course, the biosimilar players or the generic players. So I feel good about the fact that GOP-1 will continue to be an important driver of growth here in the periods to come.

Thank you. Our next question comes from David Winley with Jefferies. You may proceed.

Hi. Good morning. Doug stole a lot of my thunder there. Appreciate your answers on that. Matt, I wanted to ask, I guess, on capacity and the commentary around CapEx and thinking, you know, kind of strategically around ROI and, Michelle, your comments about the strength of the organic franchise. Is there an opportunity to drive efficiency into the footprint and supply the demand that you're seeing with a fairly, what sounds like maybe a fairly efficient CapEx expenditure for expansion? Or I guess I'm trying to feel out, are we about to head into, you know, a multi-year elevated CapEx spending regime again?

Thanks, Dave. Look, as Bob mentioned, I think we're very comfortable with the 6% to 8% sort of range. You know, some years you're at the lower end of that range, some years you're at the higher end of that range, but this is not a place where I think we would be outside of it on either side. I think your point around capacity is a good one, right? That's why I also mentioned we have this opportunity around companies improvement Because a lot of that effort will be going towards the bottlenecking and increasing output from our current, you know, capacity. And so that has a real focus, and we'll continue to strengthen that. And then in addition, as we mentioned, we are starting on the next wave of finishing capacity. And that's just, you know, new investment that will expand our available capacity so that we have the right capacity available for the continued growth of this business. But expect us to operate inside that range as provided.

Yeah, and David, maybe just to add on what Michelle's saying, you know, one of the things that we've done internally in the last year is really be much more thoughtful about the priorities within the capital spend that we have. And so driving, I would say, disproportionate investment in our highest return areas would be HPP. So not only do we have the opportunity to continue to drive efficiencies within the factory footprint that we have through the continuous improvement that we're doing, we're also doing some tech transfers to better level load our facilities, which provides not only multiple sources of product to our customers, which is important, But it also helps us leverage the existing footprint even more efficiently. And as we think about the upgrade opportunities to moving towards less and less contamination, higher and higher regulatory requirements, that finishing capacity has a higher ROI. And it actually doesn't require, you know, the beauty of that is it doesn't require more units. It's really taking the existing units and upgrading them to higher-value units. And so I feel like we've got a sufficient molding capacity, which is probably the higher areas of investment, and then continue to invest in advance of the HVP finishing activities that we were just talking.

Thank you. Our next question comes from Luke Sergat with Barclays. You may proceed.

This is Salman Falouk. Thanks for taking our questions this morning. You know, the HHS fairly recently released a draft guidance that has some similarities to Annex One. Sounds like you've already seen movement over to HBP components outside of Europe, but just wanted to get an update on how you see this affecting the market just from your previous experience with how Annex One kind of progressed and how you expect things to trend. Um, uh, within the U.S. And then also kind of separately, uh, just wanted to, to hear an update on how drug handling is, um, progressing versus your expectations this quarter and, and in 4Q. Thanks.

Well, thanks for the questions. A good observation on the regulatory front. I think this is sort of how these global regulators work. Uh, sometimes one region is a little bit ahead with an insight and, and a set of regulations. And then others follow, right? And so the way I would think about it is the regulators in Europe, when they publish their Annex 1 requirements, obviously we're trying to solve a very specific problem around contamination, but that has nothing to do with being in Europe, right? It has everything to do with sort of how these products are being manufactured. And so it's quite logical for other regulators in the world to solve or focus on that same And so, we're seeing now very clearly that in the guidance that the U.S. is now embarking on. And I think our customers are used to that. So, you know, when they think about, for instance, upgrading to our HVP components, that's never a regional strategy. And so I think it's in our expectations that, therefore, the broader regulatory push towards a higher contamination will continue to be a real secular, long-term growth trend for us to upgrade customers to even better solutions.

Yeah, and maybe to build on that, you know, most of the revenue upgrades that we've seen today have been the European-based, but increasingly, as we talk about those new projects, those are in the pipeline. So, that's more opportunity, I think, going forward, as Michelle said. So, I've seen some nice pickup there, mainly on the project side, but I think that that's a multi-year kind of opportunity for us.

And then on the point around drug handling and the sort of strategy in West Vantage, I think it's progressing as per our expectations. So we continue to ramp up those higher value added contracts and continue to see a good funnel of opportunities and team is doing a good job executing those and then, of course, are rolling off, you know, the more legacy projects. And so I think that's why you see, you know, sort of that muted effect on growth this year and next.

Thank you. Our next question comes from Brendan Smith with TD Cowan. You may proceed.

Great. Thanks for taking the questions, guys. And congrats again on the print, Michelle. It's great to have you. Maybe one here on the revenue mix that we should think about moving forward. I guess you guys noted that HVPs are over 50% now of revenues, and some of which includes, I think, Biologics, around 43% you had in the deck there. So I guess as we look at our models through Q4 and into next year, I guess, where do you think that HVP mix ultimately gets to over the next year? And I guess just related to that, how are you thinking about, you know, where the current 26 revenue exit run rate is tracking versus that 7% to 9% LRP you've put out there previously? And just any updated thoughts on that looking ahead? Thanks.

Yeah, maybe two thoughts. One, I think the good thing about this business, as I mentioned earlier, is the benefits from multiple tailwinds when it comes to growth. And so we think the upgrade opportunity is one that will be with us, as we just talked about, globally, and therefore, you know, an important driver of revenue growth. And so you'll see the growth in that segment. But similarly, on the biologic side, because that's driven by record scientific innovation, right? And we're sitting at a record pipeline in clinical development, and a lot of that is biologics, increasing percentages. So also that segment will benefit from, you know, these growth tailwinds. So I think we feel good about all aspects of the portfolio, you know, benefiting from these trends, And therefore, we feel good about sort of the robustness of the growth profile of the overall company, you know, going forward.

Yeah, I know you asked, Brendan, about kind of revenue mix. We don't have a specific target of revenue, but we do expect that HVP will be growing faster than the overall company. So you could expect that, you know, that number to continue to rise over time. And that's the nice thing about this business is those secular tailwinds are in the areas that we're providing most value to customers, but also, you know, are best performing.

Thank you. Our next question comes from Curtis Moyles with BNP Paribas. You may proceed.

Hey, good morning. Thanks for taking my question, and welcome to the team, Michelle. Looking forward to working with you. So, I just wanted to start off on the biologics revenue. I know that it's grown 26% year-to-date, so just kind of curious how sustainable that is going forward, and maybe could we see that drop off since it's just a high level? And then, secondly, I just wanted to quickly ask on price as well. It was 4% of growth in the quarter.

Should we expect that to kind of continue going forward? Thank you.

So on biologics, as I mentioned, we're very excited to see the continued focus of both pharma and biotech on developing, you know, impactful new medicines, right? And if you look at the pace and the scale at which that innovation pipeline now sits, it's at all-time records, both true in terms of overall compounds that people are working on, But also true for the percentage of that that represents biologics, which is obviously super relevant to us because those will need to be delivered through injection. And so I think you'll see real continued focus on that part of it because these large molecules are proven to be really the key to addressing some of these unmet medical needs as our customers are developing those products. So that you should see as a continued driver of growth, you know, going forward. You know, on price, I think we've always said 2% to 3%. I think that is still sort of the right long-term assumption. I think this year, a little ahead of it, you know, part of that has to do with the environment in which we find ourselves. But I think the right planning assumption is probably the one that we talked about previously.

Thank you. Our next question goes from Mackie Duck with Stevens. You may proceed.

Hey, good morning, and thank you for taking my questions.

Michelle, looking forward to working with you as well.

Maybe just a quick one to follow up on maybe Doug's question earlier, but you have a

pretty unique multinational services background. I just want to get a sense for how you're thinking about leveraging West Vantage in the future. It's an area that maybe until recently was fairly underappreciated by investors, So I just want to get a broader picture for how you're thinking about that platform long term.

Thanks. Yeah, thanks. Thanks, Mike, for the question. I think if you look at our company, you know, the core of it are its products, right? That represents the vast, vast majority of the revenue, the profit, and I think also sort of the financial profile, as we've laid it out, is really one of a products business. And so I think that's an important observation. I think on West Vantage, it's all about improving the business we have. And in my assessment, we have the right strategy, moving towards the higher value added components, make sure we execute really well so that the contribution of that part of the business continues to strengthen here in the years ahead.

Thank you. Our next question comes from Aventika Dabario with Bank of America. You may proceed.

Hi, thank you for the question, and congrats on the quarter. You're starting a new wave of HVP investments. When should that capacity come online, and can your existing footprint support the demand you're seeing in the near term? Thank you.

Thank you for your question. Certainly not looking for more dots on the map. So, you know, I think these investments are going into our existing footprint, and, you know, I think the lead time of these projects is sort of similar to what we have experienced before, right? So if we start on these projects now, you know, the right assumption is probably 18, 24 months for those to come online and deliver a meaningful contribution, you know, to the growth of the company.

Yeah, and just to follow on to that, I think, you know, with the existing capacity that we have, we feel good about continuing to support the demand. We've made significant investments in labor to increase capacity at primarily several of our HPP sites. We've been able to see that drive the performance and would expect us to be able to continue to increase capacity within that footprint as this comes online.

Thank you, and I see no further questions. This concludes the conference. Thank you for your participation. You may now disconnect.