West Pharmaceutical Services Inc (WST) September 2026 Conference Transcript

I'm getting a little sick, so I'm going to do my best here. But thanks, everyone, for sticking around with us for day three of the Wells Fargo Healthcare Conference. We're really excited to have Bob and Mann, CFO of West Pharmaceutical Services, with us here today. So thanks a lot for coming. Maybe best place to start, new CEO, Michelle. how do you think that how do you think about leadership change is going to impact the business?

Yeah, first of all, Evan, thanks. Thanks for having us. It's it's great to be here. This was one year ago. This was the first conference that I had coming to West. And it's been a great year. But I will tell you, there's still a lot more opportunities going forward. So I feel really good about the business. I would say Michelle is joining the company had a really great time you know as you guys know we are the market leader and really serving a critical role uh within the pharmaceutical supply chain and uh we've had some very nice momentum this year um and i'm sure we'll talk about that and uh i think there's opportunities even to continue to expand that and and speaking with michelle he's his week two um and uh you know I think what's really great about him is he knows our markets extremely well. I mean, he knows our customers, and in fact, he's already spent time with our customers. He's on a site visit and going around looking at our sites and talking to our employees. And so I think he will continue to accelerate the work that's already being done And actually, I think, elevate our conversations with customers, which I think will be good, not only in terms of our current opportunities, but future opportunities. And so I expect not only a seamless transition, but an acceleration of the opportunities that we have in front of us.

Great. You reported 2Q recently. It was a strong beat, $35 million, $4.2 organic revenue beat. What kind of exceeded your expectations, and what were the kind of puts and takes in the quarter?

Yeah, we were really pleased with Q2. You know, the momentum of the business continues to be strong. You know, the market's constructive demand continues to be there. It's very good. And I'm very pleased with Q2. You know, we, as you mentioned, we beat by over $35 million, and really the area that beat was our HVP components business, which is really over 50% of our business and our, you know, the business that we expect to continue to have the strongest legs going forward. And really, both HVP, non-GLP1, as well as GLP1s performed very well. And this was on the back of recovering out of a cyber attack as well. And so we were very pleased with the team. The biggest contributor actually was non-GLP1 HPP. And when you think about the growth drivers going forward, the continued rise of biologics where we have greater than 90% participation rate, the regulatory requirements around Annex 1, and just the overall kind of mix shift there, I feel very good about the continued momentum in that side of the business. We took our, as a result of Q2, we actually took our guidance up by 250 basis points at the midpoint. That's now 10% to 11% growth for the full year and very, very good.

Yeah, it's great. I mean, that's where I was going to head next was on the guidance. And that's, I mean, across the peer group, that's among the highest. you know what were the drivers of that increase and then just kind of as we you know as we flow that through to margins what what kind of margin expansion you know anticipating for within the guidance yeah you know we started the year the the strong growth is really driven by our HPP business as I was mentioning before of that 10 to 11 percent that's over eight points of growth is HVP components growth.

So very strong performance there, really driven by the underlying factors that I just kind of mentioned. And we expect that to continue as we move forward. The rest of the performance was actually in our drug delivery device business, particularly in the first half of the year. But what's really nice is the HVP business also drives very nice margin expansion. And so with the addition of that, going from 7% to 9% to 10% to 11% for the full year, we are now forecasting greater than 200 basis points, almost 250 basis points of margin expansion growth for the year. That's 50 basis points higher than what we had seen in our previous guide. So very, very good start to the year. Not done yet, but feel good about the momentum in the business.

That's great. I mean, you mentioned a couple of times HBPC and the strength that you're seeing there. It was up, I think, high teens in the quarter you mentioned. What were some of the underlying drivers of that performance? And were there any particular impacts within that segment from the cyber attack that you also mentioned? And how should we think about any, I guess, follow through acceleration in that growth as we go through the rest of the year?

Yeah, we were really pleased about the recovery that we had in Q2, although there was some mixed shift within HVP. The HVP growth has really been driven by a couple of things. We talked a little bit about this continued mixed shift really driven by Annex 1 or the regulatory requirements. That's been driving a very strong performance not only last year but continues to do that this year. When we think about the number of programs, this is a regulatory framework that's come out of Europe, and now we're actually starting to see some of those requirements and changes here in the U.S. as well. We had initially sized that at 6 billion components. We're about a billion into that right now, so still a long way to go. And that was just the European side. If you think about the U.S., that would obviously expand that 6 billion to even more. And we're actually seeing, you know, a potential acceleration in that. The number of programs that we have year on year was greater than 50 percent higher than it was this time last year. And so really feel good about that. The biologic approvals continues to be very strong. And that's where we also have a very good performance and participation. I mentioned our overall market share in the elastomer side is greater than 70 percent. but in biologics, it's greater than 90% as we measure it by participation. So as that grows, we feel good. And then we've been ahead of our plan from a pricing perspective as well. And then obviously GLP wins, which I'm sure we'll talk about.

I mean, you mentioned approvals. It just came to my mind. I mean, is that the best leading indicator to think about your business and potential growth? I mean, just because your attachment rate there seems so high, I was just thinking that, is that?

Yeah, it's one of them. I would look at it in two elements. One is just the number of biologics that are in the pipeline, the clinical pipeline, relative to small molecule. The majority of biologics are injectable drugs. And so that is even a further leading indicator. And then certainly in the more near term would be the number of approvals. I would also say as we think about kind of going forward, the opportunities that we have because of the way that we're specced into these businesses. And so we have a very, again, a sticky business. As some of those products or molecules are going off a patent, and we talk about biosimilars, it's a real opportunity for us to actually continue to capture the volume there. And potentially it could even be greater because of lower pricing and greater market access. And so we also see that as a more of a longer term growth opportunity for us as well. Whereas, and I think that's kind of a unique kind of opportunity that we're well positioned to take advantage of.

So you mentioned Annex 1 a couple of times. You know, what was the, I mean, if you can kind of contextualize it, the contribution from that and HVP components conversion in the quarter, what's driving this and how should we think about that going forward?

Yeah, we, sorry.

Yeah, no, I mean, I think maybe you are able to frame the actual number of projects in the quarter, so that would also be helpful.

Yeah, so we've talked about Annex One contributing, you know, an incremental 200 basis points of growth for the total company. So if you think about kind of the components, you know, the business, you know, for HPP, it obviously has even a bigger impact for the HPP side. That continues to be very, very robust in terms of the number of projects. It's approached, you know, a little over almost 800 projects now, which is 50 percent greater than where it was this year. That's a combination of projects that are currently being in production or development, as well as production. And so you're starting to see those come through as, you know, higher value, moving up that value chain. And as I mentioned before, from a penetration standpoint, we're still relatively early innings, so to speak, of kind of that penetration. And then, so we're very optimistic about the continued growth of Annex One, the Annex One opportunity for us going forward. As I mentioned, it's been primarily in Europe, but we are now seeing opportunities come in those projects in the U.S., which would expand that $6 billion market opportunity to even further. And so we see this as a multi-year tailwind for us, that we're uniquely positioned because we're on these drugs already. And so, you know, being able to take a standard product into an HVP, you know, we are the supplier of choice from that standpoint, a partner of choice.

Gotcha. Another thing that you mentioned a couple times, right, GLP-1s, it's a very high level. Can you talk about the trends you're seeing there? I know people are talking a lot about the orals and how that might be impacting the injectables. Is there any comments related to those?

Yeah, we're still very optimistic about the GLP-1 business. It is about, from an elastomer side, about 10% of our revenues. But we think there's still a long runway of that market in terms of just the amount of penetration to date. in the U.S. as well as the rest of the world. It's just getting started. Orals have been, I know that's been a lot of topics kind of playing out as we expected, which is actually bringing new patients into the market as opposed to cannibalizing the injectable side. The injectables still have benefits in terms of better efficacy, lower side effect profile. And if we think about kind of the additional opportunities going forward, there certainly are additional indications that are being investigated with the current drugs on market. There's a very robust pipeline of next generation GLP-1s that will have even better side effect profiles, better weight loss, or better efficacy. We have a very strong participation in those as well. So I think we're very well positioned to continue to drive that business going forward. And, you know, we have continued to increase our expectations for the GLP-1 contribution to growth throughout this year.

Great. You know, sticking with GLP-1s, again, you mentioned generics. It sounds like some companies are not using West. You had indicated here as well as previously that you have strong participation in generics in India, Canada, China, Turkey, and Brazil. So maybe just talk about just broadly what's going on in the generic space with GLP-1.

Yeah, I think if we think about kind of the GLP-1 space in general, I'll answer your question directly in just a second. You know, there is still, as I mentioned before, a very long runway, and not only in the emerging markets through generics, but also in the developed markets with some of the things that I was talking about. And so we're very optimistic about the continued volume growth of this. What generics bring is a lower price point, and you're actually even seeing a lower price point in the U.S. and in certain markets in Europe as well. We actually see that as very positive for us because that actually increases access for patients, more affordability. And so even in the U.S., you know, not every, you know, not all employers cover GLP-1. So as more and more employers cover it, as the government covers it, there will be more patients that will have access to these drugs. And so we see that as very good in the developed markets. To your point specifically about generics, we have very good participation. You can see that in our numbers. You know, in Q2, we had very strong growth in Asia Pacific, over 25% growth on an organic basis. That was really driven by, in large part, some GLP-1 business in places like India and China. And I would also say, as we think about kind of the path for whether it be GLP-1s or biosimilars in general, the fastest path typically is to use the same delivery mechanism or packaging as the innovator drug does. Because you don't have to do as many studies. It lowers the regulatory potential risk and actually speed to market is critical there. And so what we see is if we're on the innovative drug or the branded drug, the biosimilar or generics will come to us and use the same elastomer equipment or same elastomers as the branded drug and use that in their process. And so there's a very small kind of dropout from that standpoint. And so we feel very good about our participation, to get back to your original question, in the generic marketplace for GLP-1s, I think more broadly for biosimilars going forward.

Moving to standard products, slower growth there, but you're up 1% in the quarter. Maybe talk about what shows the performance there.

Yes. So standard products, roughly about 20% of our revenues. Think about that as the feeder pool into what we were just talking about as part of the HVP upgrade mix. So these are products that really are out in the marketplace today, but really have the opportunity, not all of them, but a lot of them have an opportunity to be upgraded to HVP over time. So we see this as, so some of that is actually being impacted by, as we are moving up the value chain, the growth rate in standard products kind of gets offset by that. But we think about this as kind of a really important pipeline for HPP going forward. And so it is a lower-growing business, but we think about that as a way to upgrade, stay with customers, and then upgrade over time.

I mean, just thinking, I mean, it sounds like slower growth there and coupled with higher growth elsewhere is actually a good inspiration, right?

That's exactly right.

Not just for your business, but also from a margin perspective.

Yeah, that's exactly right. You know, one of the things that, as you think about moving up that HVP value range, you know, the number of units actually doesn't change, but the value that we're providing to our customers and able to capture ourselves is very beneficial. And so to the extent that that continues to be a source and the HVP business growing faster, that's actually a good thing for us. It says that strategy is working.

HVP DD was also strong. I think you exited a business within that. What can we expect from that business going forward?

Yeah, we had a really good first half of the year with our HVP, drug delivery device business. This is where our SmartDose 3.5 is. We actually did better than we anticipated, both in first quarter and second quarter, really helping support the transfer of that business to AbbVie. That closed on July 1st. But that business isn't solely SmartDose. So if we actually take the SmartDose 3.5 business out there, Q2, we actually grew double digits. This is our products like Crystal Zenith Admin Systems and our SmartDose 10, which we will continue to develop. And so we're optimistic about the continued growth. That's probably a slower grower, a slightly lower growth business today than what our HVP component growth is, call it mid-single digits. But this year, if we think about the full year, it's double-digit because of the strong first half.

You did mention APAC. I think you said it grew 20%?

Yeah, in excess of 25%.

25% in the quarter. Yeah, 27%. You know, what drove that performance, and how should we think about that going forward?

Yeah, if we think about our opportunities going forward, you know, we've got a new leader in Asia now here for about the last nine months. And I see it as a real opportunity to continue to capture growth. And today, a lot of that has been driven by GLP-1s that I mentioned before. But if we think about kind of the emerging dynamics that are happening in Asia, you're not only having an increasing number of aging, you know, individuals in Asia that want access to health care. You're also seeing, which will drive volumes for us, I think just as importantly and maybe more importantly, is the amount of innovation that's coming out for novel therapies and therapeutics out of Asia, particularly in China, has just skyrocketed over the last, I would say, decade. And I would expect that to continue. And so those are not only in China for China, but also taking those molecules and bringing them into the U.S. and Europe as well. And so getting on those molecules early on is really what our strategy has been and will continue to be. And I think there's more growth in Asia for that going forward to really get a good bead on what are the development activities that are going on there, and then how do we actually help support them as they license those products back. Because typically what they'll do is, and you're seeing this, many of the major pharma companies or major biotech companies are now licensing those products. Those are customers of ours already. And so if you can talk to them and say, hey, we've already got the best-in-class kind of containment systems, that's a much easier way to market in Europe than in the U.S. And so we're optimistic about the growth in Asia, not only for this year, but for many years to come.

Yeah. No, and based on what you were saying, I was going to follow up with that. You know, you hear a lot since you've seen this kind of explosion in China, people in the space across it, across tools have been asking, you know, if it's coming from Asia, are they using cheaper copycat products? And, like, typically the answer is, like, no, because they're actually, their exit strategy is to go to the U.S. So that's what you're seeing as well. And so you're specced in at the trial. They know that they want to enter the U.S. market.

And typically what, you know, what you'll start to see is, depending on the company, they want to standardize on a certain containment platform. And so if there is a, you know, a local platform that they want to bring into the U.S., they'll have to do additional studies or actually change it. And so to the extent that we can get there up front and do that, it makes the diligence as well as that transition much easier for the, you know, multinational corporations that would want to bring those products into the U.S., not only from the standpoint of manufacturing, but even regulatory as well.

Makes sense. Let me move into West Vantage. You invested heavily into this business a couple years ago. How should investors think about the return on those investments? Do you expect them to drive an acceleration in growth in that business? And, you know, going forward, how much left or how are you thinking about further investments there?

Yeah, so it's a good question. So, you know, our West Vantage business is a little less than 20%. I think it was 17% of the revenues in the quarter. It did have, this was one area where we did have some deferred revenue associated with the cyber account just because of the way the business model worked. We'll catch that up in Q3 and Q4. But just for the benefit of everyone, we, you know, Q3 will be a trough in terms of performance because we exited a CGM contract that we've been talking about and are ramping up drug handling. And the reason I bring that up is because drug handling is where really our strategy is going forward. And so we're on track for $20 million. So the CGM contract was about an $80 million annual contract, so about $40 million. It's already been built into our forecast. You'll see that come out in the second half of this year, roughly 20 million dollars in Q3 and Q4 each. And then what we do have is a program and a strategy to actually add more value to the work that we're doing with customers. And we call it drug handling. But think about it as we make the auto injector and pens today. We assemble the product. And then somebody else actually puts the cartridge of drug product into that to make it finished good. Drug handling for us is then getting the cartridge ourselves, taking it because it's right off the manufacturing line. We do the QC to ensure that's the right product. It's still within spec. Actually put that in and make the finish good ourselves. So that is more value added. So what does that benefit our customers? It reduces a step in the manufacturing, you know, somebody else that would be doing that. So it should reduce the time it would get to take that product to market, to finish because of the transit time. It also creates a more consistent regulatory or quality system at least in that side and so and you know we're taking some additional steps out of that manufacturing process now that's a higher profit it's a higher risk for us because now we're handling drug product but it's higher profit for us and we're just getting into the end into that business our strategy is to get more upstream into into that business with with West Vantage going forward. That $20 million that I mentioned before is on track. Most of that's in the back half of this year and probably about five of that, about five of it was in the first half of the year. So 15 in the second half of the year, about five in Q3 and then the rest in Q4. And so, but that program is a, you know, 60 plus million dollar program at full maturity, which is probably going to happen in 2028 so it will continue to grow in in 2027 you could expect you know we're ramp we're exiting at a 40 million dollar you know kind of run rate and queue and that will continue to grow uh into into 27 um and we're we've got in our pipeline a number of other opportunities to to expand that's that's based uh in in our dublin facility uh but we're looking for opportunities here in the U.S. to do that as well.

I mean, sticking with West Vantage, margin performance, you know, as you move towards these higher value services, how should we think about, you know, like drug handling you mentioned, how should we think about the margin cadence or, you know, expectations for that going forward?

Yeah, you know, I'll start with Q2 was impacted because of the cyber. I mentioned it before, that's a highly levered business. So if you don't get the production out, you know, you do have the cost and so forth. And as I mentioned, because it's a kind of a captive program, that revenue isn't lost. We'll capture it in Q3 and Q4. But it did impact our margin performance in the quarter. And so I would expect margins to improve in Q3. That's built into our guidance and then continue to improve going forward. The drug handling should help accelerate our margin improvement in our West Vantage business over time as that ramps up. And, you know, our goal is to get it much closer to the overall company average over time. And, you know, we've invested heavily from a capital perspective in creating capacity for that business. And so I would expect the large amount of capital investments are largely behind us for the next several years there as we build out the programs to take advantage of that capacity that we've built. And where we would go invest, I would say, more disproportionately going forward from a capital standpoint. is really behind our HVP business and particularly in the finishing areas where we would have a higher ROI. We're, from a capital perspective, moving into a 6% to 8% kind of range of CapEx spend for revenue, roughly $250 million this year, and feel good about the capital efficiency going forward. That's one of the areas is that I'm really focused on making sure that we're investing in our highest return businesses and getting the returns up for the investments that we've already made.

See, I mean, you mentioned this already, you know, moving upstream from where you are, and it sounds like West Vantage is part of that strategy. And I think your CEO knows a lot about moving upstream. So when you think about, I guess, organic investments and also M&A, what should, you know, investors expect on that front? And, you know, where are your capital allocation priorities?

You know, one of the things I think is, you know, we're blessed with is a, you know, a very strong balance sheet. We generate a lot of cash as a company. And I think there's an opportunity to be better efficient or more efficient with that cash going forward. And so we spent time over the last year driving that. And I think you can see some of that, the results of some of that this year already in terms of how we're thinking about capital allocation. I would say first and foremost, it is around how do we continue to invest in the business, you know, to drive that organic growth. And as I mentioned before, disproportionately invest behind our HVP businesses to take advantage of the secular drivers that we were talking about earlier in the discussion, as well as staying ahead of the curve, so to speak, in terms of taking advantage of that. So that's priority one. But I do think there is an opportunity to look beyond just our organic growth to more organic means. And, you know, I would say, you know, stay tuned from that standpoint, but I think we have a right to play beyond kind of the critical component that we are in providing solutions to solve our customers' pain points across the supply chain. And so I do think that that will be, you know, a more important thing over time. We obviously have to demonstrate the ability to do that. And then the last, I would say, is we continue to be committed to our dividend, but probably just as importantly and more importantly, returning cash to shareholders is also important, and we have an outstanding $1 billion share repurchased. We purchased about half of that, $450 million, the first half of the year, and I would expect us to continue to be active in deploying capital.

Great. That's all I got. Sounds like you covered a lot. Is there anything you want?

No, I would just say, you know, maybe I'll just I'll end where we started, which is, you know, I think West, one of the reasons I came to West is really excited about the unique position that we play. And the strong competitive position, the stickiness of our business, and then the ongoing structural growth drivers that we have, I think there's not too many stories like that out there. And so having an organization to be able to be focused and taking better execution and continuing to drive that, I'm really excited about, not only on the top line, but the margin expansion opportunity here as well. So we've got good business momentum here in 26. I would expect that to continue, not only in the top line, but have disproportionate growth through margin expansion as well as we're not only moving up that value chain, but also really driving better performance in the company. So I'm super excited about it, looking forward to having Michelle on board and having a chance to talk to investors, and we're good.

Great. Any chance you want to give 27 guidance now?

No, we'll hold on that.

Thank you so much.

Thank you so much.