West Pharmaceutical Services Inc (WST) September 14, 2026 Conference Transcript

Amazing. Good morning, everyone. Welcome to day one of the Morgan Stanley Global Healthcare Conference. I'm Calum Tishmarsh. I'm the Life Sciences Analyst here at Morgan Stanley. Really pleased today to be joined by Bob McMahon, CFO of West Pharmaceuticals. Thanks, Bob, for being here.

Thank you for having me. It's a pleasure and looking forward to the conversation.

Amazing. So just before we get started, for disclosures relating to this presentation, please see morganstanley.com forward slash research disclosures. So, Bob, maybe we can dive straight in. Q2 results for the second consecutive quarter came in ahead of the top end of the guidance range. You obviously had the cyber incident during the quarter, so maybe just talk us through what you saw as the quarter evolved across the months and how those drivers of growth compared perhaps relative to your prior expectations.

Yeah, we were really pleased with how Q2 shaped up despite the fact of the cyber incident. We were able to overcome that and actually beat expectations, as you mentioned. Overall, we grew 13% on the top line, beating our expectations, and what was really exciting to see is all business segments grew. That 13% was really led by our HVP business, which is almost 50% of our total revenues That grew 18% with both GLP-1s and non-GLP-1s contributing. Our drug delivery device business actually, and HVP drove the majority of the beat, so we were actually able to overcome the cyber incident. We continue to see very solid and robust demand throughout the quarter. Actually, you know, obviously May was a bit of a softer month, but we really came back in June as we ramped up the facilities and all the work that we had been putting in to drive additional capacity and utilization in our HVP plans really came to bear in second quarter. But drug delivery device also grew very nicely. some of that was actually our stocking associated with the smart dose in advance of the transaction but if you even take that out we still grew double digits in the rest of the business and standard core business was up one and I would say our west bandage business was up one percent that was the one area that we still had some lingering effects of the cyber just based on the way that business is geared you can't catch up as fast but we do expect that about seven million dollars of revenues to catch up in Q3 and Q4, so overall a very solid quarter we, as a result of that strong Q2, we actually raised our full year guidance to 10 to 11% organic for the full year, that's up 250 basis points at the midpoint, so continued solid demand and good start to the year got a second half here and we're optimistic about continuing to execute Amazing.

Focusing on the GLP-1 HPP growth, I think it's where 90% of my questions come from anyway from investors. So it remained really strong year over year, a bit of a sequential deceleration. So can we maybe just clarify some of the moving pieces here? I know you disclose a rounded percent of revenues for GLP-1s. I think there may have been some prior period reclassifications. So maybe we can just clear that up before we jump into some more specifics.

You know, our GLP-1 business continues to perform very well for us, if you look at it for the first half of the year. It led to growth across our business. It was high teens in Q2, as you mentioned. It just rounded up to 10% of revenues in the quarter. And as you mentioned, we did have a small classification from non-GLP1 to GLP1, so HPP was clean, $3 to $4 million in Q2 of last year. But I would also say, as we did have the cyber incident, we had to change and adjust our production plan that we had at the beginning of the year to ensure that customers didn't have any stock outs. So I think if you kind of take these things into account, we're not concerned about the performance of our GLP-1 business. We expect it to continue to drive very strong growth. And when you think about, and I'm sure we'll talk about this, the overall market for GLP-1s, we're still very early innings in our view, not only here in the U.S., but around the globe, particularly when we think about kind of the next generation, the biosimilars that are coming along, as well as the continued penetration of the existing products that are on market.

So a little impact from the cyber incident on the GLP-1 business in Q2, and that comes back in the back half of the year. It's really helpful. So just on that implied GLP-HVP guide for the rest of the year, does imply a pretty sharp deceleration, despite the demand drivers being very resilient. Should we just attribute that to conservatism, or are there stocking or pricing factors we should be keeping in mind?

Yeah, as we've done all year, we've got an upside bias to our forecast for GLP-1s. So I would say there's nothing fundamentally that we see in the market that has changed and feel good about the rest of the year for GLP-1s.

And we'll soon be seeing those next-gen GLP-1s enter the market, arguably more biologically complex than the molecules we saw earlier on. Should that be viewed as a positive mix shift for the higher-end HBPs, kind of like the Novapure and Asthma range? And then, you know, we'd run some maps on that premiumization, felt like it could be maybe 100 to 150 BIPs added to that CAGR out to 2030. But what's your just early impression of those next-gen GLP-1s?

Yeah, you know, I think one of the things that we are really excited about is not only the continued indications of the existing products that are on our market, which is going to continue to expand just the number of patients that are eligible for these products, but to your point, the next-generation products are more biologically complex. And what does that mean for us? That means typically that they would have a higher HPP product, could have a barrier code on them, which would actually increase the economics of a more sensitive molecule that creates either a fluorotech barrier code, which the current products don't have, or a Novapure, which both of those would be higher than the current economics. And so when we think about that, not only is it good for patients, it's good economics for us and good economics for our customers. So we're very excited about that.

And I know you don't disclose this, so no issue if you can't provide the info. But any just rough sense of how premium those premium ASPs are versus perhaps the existing range?

Yeah, given competitive dynamics, we typically wouldn't provide that. But I would say that those are on the higher end of our HVP portfolio pricing.

And the oral debate for GLP-1s was pretty significant earlier this year. I think that now seems better understood as, you know, it seems more of a TAM expansionary element. We've obviously seen strong uptake as well of these multi-dose pens as the coverage expands. So, you know, you have pretty good visibility into those trends because of the West Vantage business. So maybe just talk us through what you're seeing on the ground and how we should be thinking about the economics for West if a customer switches from, you know, single to multi-dose pens.

Yeah. If we think about the markets, I would probably characterize them in two. So if we think about Europe, it's already primarily multi-dose pens. And so really what we're talking about is the U.S. market where we're currently injectors and vials and now with the addition of not only the oral products but then the multi-dose pens. And what we're actually seeing today, very similar to what we saw with the launch of the orals, is it's actually expanding the market. And we don't see a whole lot of switching. If you look at, based on the data that we see within the scripts from multi-dose or from pens to, excuse me, auto-injectors to multi-dose pens. So we, and our view is that there will be multiple delivery mechanisms here in the U.S. It's actually playing out kind of just exactly as we expected. To your point, our expectation based on the view that we have through our West Vantage that produces both types of formats, that there will be plenty of opportunity for both of those here in the U.S. To the economics point, the auto injectors do have a better economics. It's basically for a monthly dose you would have four plungers versus a pen that would have a plunger and a line seal. So it's not a quarter of the economics, but it is. But I would think about that more in terms of an opportunity to actually expand the market. And so when you think about that, here we are with the Medicare expansion here and just starting in the U.S. in July. that opens up a whole opportunity beyond the current existing number of patients that could be covered by insurance. And when you also think about in the U.S., less than or about 50 percent of all employers are covering GLP-1s for obesity. And so as that continues to grow, I think that will expand and create more and more market access, particularly as the price is coming down. which is going to be good for patients and for West. And then you think about, I'm sure we'll talk about the international opportunity, and particularly in the areas of biosimilars and generics, which are just really getting started, but I think have a long one-way of opportunity for us.

And these biosimilars typically stick with the same components, correct?

Yeah, they do. They typically have the same primary containment for a couple of reasons. One is speed to market, so they don't want to have to do additional testing. It also is additional cost to prove equivalency if you do change that out. And for a relatively small piece of the COGS, you typically don't see that. And we also see very high participation rate from West in the biosimilar. So if we're on the innovator drug, it's a very high likelihood that we will also be on the biosimilar.

So I trust my pharma team's modeling of GLP-1s much more than my own modeling. They have volume growth for the broad category accelerating next year versus this year, given the drivers we spoke to. I'm sure that won't be the message you'll be giving out of the gate, but is that totally off the cards in your view for West? And if so, why? Is there some volume-based pricing discounts we should be thinking about? Maybe just, again, level set.

Yeah, what I would say is we're very optimistic about the long-term growth of GLP-1s going forward. There are multiple tailwinds behind it, many of the things that you just talked about. But we'll talk about 27 when 27 comes.

And just sticking with HBP, non-GLP growth has been really strong through the first half of the year. You know, it's a clear acceleration from the growth rates we saw last year. Commentary a little bit more ambiguous here, just given your high participation rate across a lot of drug categories. But what's stood out to you the most from the non-GLP HBP business?

Yeah, what we're really pleased about is it isn't just one category. We're really seeing it across multiple therapeutic modalities. And when you think about kind of the pipelines, injectable drugs are the fastest-growing modality within pharma. And to your point around the biologics, we have a very high participation rate there. We ended 2025 with greater than 90%, almost 95% of all drugs that were launched have a West product on them, and halfway through the year here, we're continuing to drive that very strong growth. So you're seeing a number of tailwinds, not only across multiple therapeutic areas like immunology, oncology, respiratory, and so forth, But also what you're seeing is actually some of the drugs that are currently on market also moving downstream to doing sub-Q and other more patient-friendly mechanisms of drug delivery, which actually, on a long-term basis, really, I think, bodes well for our business going forward. and obviously we've benefited I'm sure we'll talk about it primarily in Europe with Annex One which is the upgrade of products that are currently on market from basically a standard or a core product which is 1 to 3 cents up to a HVP product which can be anywhere from 10 to 25 cents and so forth and so we're very excited about that opportunity So in Europe specifically Annex One where are we in that version and I guess how big is the pipeline and how long can that growth be boosted for? Yeah, we think this is a multi-year tailwind. In Europe, we've sized the opportunity of roughly 600, or excuse me, 6 billion components that are currently eligible or potentially have the ability to be upgraded. We're just over a billion today. And so we've talked about a 200 basis point incremental tailwind associated with Annex 1 as upgrading. And actually what we're starting to see now is more and more conversations in the U.S. for the same Annex 1-like upgrades. And so let me get back to a couple other data points. When we think about the number of projects that we have, at the end of Q2, we had almost 800 projects between both projects that had been completed as well as projects that are ongoing. That's a 50% increase versus Q2 of last year. So you can see, actually, a very strong, nice pipeline. And what we're seeing in the U.S. is if that continues those kind of conversations, that 6 billion units will certainly grow. And so we think that just provides additional durability for the Annex 1 upgrade opportunity that we're uniquely positioned for.

And I know Annex 1 relates to drugs sold into Europe irrespective of where the manufacturing side is. So how much overlap is there between kind of European GLP-1, European Annex 1 versus kind of U.S. Annex 1?

Yeah, it's increasingly, the Venn diagram is increasingly overlapping right now, and there's really a couple of reasons. One is while there aren't any formal regulations in the U.S., FDA is starting to, when they're doing their inspections, inspect at a higher level for good manufacturing practices. And so if you look at observations that are happening, you're starting to see more and more observations in this area around particle containment, contamination control, et cetera. And so what that is doing is facilitating conversations about the potential to upgrade. And so regulatory scrutiny is probably the primary reason where we're actually starting to see more and more conversations happening in the U.S. and actually projects starting. But also, to your point around the pharmaceutical supply chains, you talk about kind of reshoring, which I know we're kind of towards the back end of that, but having those conversations, bringing those products into the U.S. does a couple of things. One is, in order to move that product and get it up and running, they want to use the same protocols and procedures that they have in Europe, as an example, in the U.S., So they will take those high-value products already and move them over into the U.S. And then that provides also flexibility in the pharmaceutical supply chain. So if you have a plunger or a stopper that's being produced for a product that is identified in a, let's say, a European facility, if you're using that same process in the U.S. now, they have much more flexibility around their supply chain, which is good for us. We've actually been helping with that with our tech transfers, moving products out of, let's say, Europe into the U.S. to help level load. And so we're actually seeing kind of a confluence of opportunities here that we do think will have a multi-year kind of benefit for us going forward.

And just similar to the question on next-gen GLP-1s, can you maybe just unpack mix-wise what you're seeing in the kind of core HVP business, like which products specifically you've been seeing good traction for across drug categories?

Yeah, we're really seeing it across our business. We talked a little bit in Q2 about Novapure as well as West Tiner Line Seals. Obviously, moving up that chain, the Annex one is primarily finishing. So when we think about that, that's Envision, inspection, pharmaceutical-grade washing, sterilization, those types of activities, which help come right off our manufacturing line and are really value-added, not only for our customers, but also improve the outcomes of the manufacturing sites. So we're actually seeing very nice growth and positive mix from that standpoint, and that's really helping, and you can see it in our margins. As HVP continues to grow, that helps lift our overall gross margin business, because If you think about on a standard basis, our standard products or our core products, gross margins in the 20%, 25% range, our HVP business is 50% to 60%, sometimes even higher than that.

So, you know, clearly a lot of top-line drivers are playing demand in a really strong place. Are you comfortable now that you have the production footprint and the supply chain sophistication to service that demand? Like any bottlenecks we should be considering, maybe just talk about that footprint you have today.

Yeah, we've been really focused on the HPP footprint, and we've got two plants in Europe, two plants in the U.S., and then one in Singapore. So from a footprint standpoint, we actually kind of mirror the way that the pharmaceutical supply chain works, which is really helpful for our customers. As you know, last year we had supply outstripping demand, and we've put a lot of effort into adding some additional labor, primarily in the molding of the units over the last, I would say, six months, and I feel like we're in a much better place from demand meeting supply or supply meeting demand, excuse me. And one of the areas that we're continuing to focus on is continuing to invest for growth in our CapEx. We've talked about while CapEx has come down to about 6% to 8% of revenue this year, we're disproportionately investing behind our HPP business to ensure that we do have the capacity going forward. So particularly in that finishing area, we do believe that we have enough molding capacity across our footprint to handle. Sometimes we'll have to add some additional labor to get utilization there. But we do feel like we have the ability to flex capacity, and we kind of showed that through our cybersecurity incident that we were able to recover quite quickly.

One of the interesting things from the disclosures across the quarters, APAC's been really strong here today. I think nearly 30% growth there. What's driving that uptick? And how do you feel positioned competitively there versus kind of your U.S. and European footprint?

Yeah, we feel really good about the performance there, to your point. I think we grew 29% organically in Q1, grew 27% in Q2. So it certainly is driving a lot of nice growth. And when you think about our revenue just overall, it's about 10% of the total company. So I think we have a lot of opportunity to actually increase our penetration there. And I would say competitively, we feel very good, particularly at the high end. What's driving that today is a couple of things. One is GLP-1, the generic opportunities, our fastest-growing markets are China and India to capture that. and we feel we have a very good participation rate on those GLP-1 opportunities, not only in those markets, but also many of those companies are actually selling products outside of those two markets as well. So we're seeing very nice growth there. And then I think on the biologic side, particularly in China, what you're seeing is an explosion of innovation happening, and so novel molecules. And so we have a very good, and that's where we focus really is at the high end, within China, which is where that plays. These would be barrier-coded products. And what you're seeing is those new products that are being developed or those new molecules that are being developed, they're not just having eyes for selling those products in country or in China. They're actually looking to multinationals to partner with and bring those products into places like Europe and the U.S. And one of the ways they want to lower risk is actually having the same primary containment mechanisms that you would see in the U.S. And so that's where we think we're really well positioned to be able to continue to take advantage of that. This is one of the areas where I think we're just kind of scratching the surface as we think about the business going forward. And, you know, my prior, my predecessing company had a big business in Asia, as did Michel Lagarde's business before. And so I think we've got some experience about how to make sure that we stay on top of that and actually maybe accelerate it even further.

And maybe for those investors new to the story, maybe just level set the participation rate that West has in Europe, U.S., and that market share, because I think it's perhaps underappreciated at times.

Yeah, if we look at our overall market share, I'll start there and then look at participation rate. We have roughly 70%, 75% of all elastomers in the world. And that participation rate is strongest in the U.S. and Europe, so it's slightly higher than that. But in Asia, maybe a little lower, but still very solid. And particularly on the high end around the biologics, our biologics, as I mentioned before, our participation rate, which is really how many products that just got launched or approved have a West product on them. And we know this because they ask for access to our drug master file. It was greater than 95% or it was 95% in the U.S. in 2025. So if you think about our participation rate in the fastest growing areas of medicine, right, is actually higher than our overall market share. And that participation rate is pretty consistent across the globe. So it's a huge opportunity for us, big responsibility also to continue to drive that, but we feel very good about that. And it's one of the things that I think is perhaps underappreciated is the interaction and the technical expertise that our teams have. When a pharmaceutical company, a biotech startup, is looking for packaging. You know, West is kind of viewed as the gold standard in that technical expertise of the interaction between the drug, the delivery mechanism, and how to ensure the safety and efficacy of that. That's a really important element. And many of these startups, they don't really have a whole lot of packaging expertise. So they'll look to companies like West to help them solve those important problems. And then as they move up the value chain or, excuse me, throughout the development, once you are locked in, you're specced into the regulatory dossier, it's very unlikely that people will change primary containment. So that creates a very strong competitive moat and very sticky business. And so getting that participation rate up front is really important for long-term growth opportunities.

And, you know, it gets a lot less attention just given what's going on in the core business. But West Vantage, the mixed shift here, you know, away from those CGMs, in with more drug handling, you also added a lot of, you know, capacity through 23 and 24 there. So how does that capacity utilization look across the footprint today?

So for those who may not know, West Vantage is our contract manufacturing business, and it's roughly about 20%, about 17% in Q2 of our revenues. and we've had a long history of producing pens as well as auto-injectors across that business. One of the things that we have been looking to do is move up the value chain here in what we call drug handling, and so taking the manufacturing or the assembly of those pens and then bringing in the cartridge that is already filled with drug substance, testing it to ensure it's the right drug substance, and then putting it into a pen or an auto-injector for a finished good. We had built a facility in Dublin, and that is ramping very nicely. It is about a $20 million opportunity here this year. Most of that actually in Q3 and Q4, about $15 million of it. But it's a $60-plus million program when fully ramped, which is probably in 2028. We're looking for more opportunities around that. So one of the things, if we look across our factory footprint in West Vantage, the utilization of the equipment is fairly high because you're kind of geared towards the units that are produced. but we do have opportunities to expand and add more additional programs not only in Dublin with the exit of our ADC business which was a med tech business that we're wanting to move to get out of and move into higher value pharmaceutical products as well as here in the U.S. And so what drug handling also does to give you a perspective Our gross margins for our overall business today for West Vantage are mid to high teens. West Vantage drug handling has the opportunity to be above 30% gross margin, so you can see the improvement expectations that we would have at that business ramps.

Any rough sense of how much of the West Vantage mix drug handling could become with time? Any rough numbers there?

Yeah, certainly that it's our key strategy going forward. And, you know, what I would say is so that that is the strategic intent to expand that. I am not, you know, we've got to have more than one program to to to really drive that. But it would it will be a more and more significant portion going forward.

And then just on the gross margin more specifically and stand out, I think, for Q2, how much of that came from, you know, structural changes like price and mix relative to, you know, timing or broader volume leverage?

Yeah, I'm glad you brought that up. You know, one of the things that we really do have an opportunity is, you know, given our fixed base, when we actually drive volume through our plants, we do get a lot of volume And so most of it has been volume leverage, particularly in our HVP plants, given the strong performance that we have. But we have seen better efficiency as well. So one of the things that we may mention here is the opportunities to expand our margins beyond just mix and volume leverage is just starting to show up. And then certainly price plays a role as well. We're slightly ahead of our price realization expectations through the first half of the year, which is helping that across the board.

And maybe just a little more kind of on that midterm margin construct and how you're thinking about that. Just given, you know, the mix seems to be in a really good spot, that volume leverage coming through, I think those investments are starting to pay off now. So maybe just paint us a picture over the midterm here.

Yeah, you know, one of the things I think is probably maybe underappreciated a little bit about the opportunities that we have, particularly in our cost of sales, is the margin expansion opportunities beyond the mixed shift and the pricing opportunities. And if we think about it, I kind of bucket it into kind of three buckets. One is kind of midterm, near-term, midterm, long-term. And in the near term, we're already actioning this with some of the activities that we did at the beginning of the year with the expansion, you know, capacity utilization in Eshweiler, taking some of the lessons learned there to improve our yields, taking it throughout the network to really drive capacity. That's driving, you know, margin expansion as well. In addition, we think we have an opportunity to be better at procurement and logistics to really drive down our raw material costs going forward. and that's probably in the one-to-three kind of year timeframe based on the way the contracts work and so forth, and that'll help drive that. And then in the medium term, we also have, I think, a big opportunity to kind of leverage automation in our factories, and so we've still got a fair amount of manual processes in factories, and by increasing automation, that will drive not only reliability but increased output, and that will continue to drive. And then longer term, I do think there's an opportunity for network optimization. When you think about it, we have 26 sites. Five sites make up half of our revenue, so the other 21 sites are the other half. And so I think over time, there's an opportunity to better leverage that. So when you think about the 100 basis points that we talked about, we get a good head start just on mix. this has an opportunity from an aspirational standpoint to even be better than that.

And, you know, it clearly didn't impact anything earlier in the year, but we saw energy prices again recently rise up. So, you know, I think you have offsets within contracts to help there. So maybe just give us a little more color on what high energy prices mean for West.

Yeah, obviously we are impacted by oil in two ways. One is logistics. The other is kind of some of the raw materials. on the rubber side and so forth. And we do have seen increased costs. We do have the ability to pass those through via surcharge where we are able to kind of offset those costs, not at a margin base. You know, it's not margin accretive or anything like that, but be able to offset that. We've talked about a roughly, you know, mid-single-digit impact for the year, and it's really just timing the way that the costs come in through the system, but we're well positioned to be able to pass on the majority of that cost going forward. And then we're continuing to work on some of these other areas to help offset as well in terms of better yields and so forth. So we think we're well positioned there to be able to manage that on a go-forward basis.

Maybe on capital allocation, we had the smart dose 3.5 divestiture earlier this year. Zooming out, just how comfortable are you with the existing portfolio and how should we think about appetite to expand inorganically over the coming years? I perhaps sense maybe a bit more of a bullish M&A tone from you recently, but maybe just level set up.

Yeah, when you look at our balance sheet, first of all, when you look at our cash flows, we've got very good cash flows. We're continuing to drive more and more free cash flow conversion and have a very good balance sheet right now. And I would argue that there's an opportunity to be more efficient with our balance sheet going forward. Smart Dose is a perfect example. We had a product that was diluted to our overall margins. It's in a better, you know, we made a transaction, and it's in better hands today than what we can do. And so that's actually benefiting our margins for the full year this year by 50 basis points. That's been built into our guidance. It's another 50 basis points next year because we just closed that in July. And, you know, we'll continue to be objective about our portfolio. We feel good about it where it is right now. But to your point, I do think that there's an opportunity to kind of leverage our strong balance sheet to look for ways to continue to expand our business. Certainly, we have a lot of opportunities organically, but I think inorganic opportunities will continue to be evaluated as we look forward. could be a bigger and bigger role for the company.

Do you think packaging is the focus here, or perhaps looking beyond that?

You know, I think what we would want to do is to ensure that we leverage our core strengths, which is around the elastomer, the opportunity to provide more solutions or products to our customers. If you think about kind of the supply chain, the pharmaceutical supply chain, there's a number of different players, a number of different touch points. It's very complex, and it's only getting more complex with the number of new therapeutic modalities that are happening and so forth. And so I think we've got a unique position because the elastomer touching the drug is a critical component to ensuring safe and efficacious drugs going forward. So we think that there could be an opportunity to solve more customer pain points going forward. I do think that that would be an area of opportunity. I don't think, you know, on the flip side, getting more into kind of the West Bandage inorganically is something that we would be interested in. We want to do that more organically.

Got it. And then Michel obviously joined the CEO a couple of weeks back. Any early sense of where his priorities will be sitting near a term and how those discussions have been together thus far?

Yeah, you know, I'll let him speak for himself. But what I can tell you is he's hitting the ground running. He obviously comes from a great company, great experience, knows our business very well, was a customer of Wes, so knows the market inside and out. And I think one of the areas that he'll want to impress upon the company is certainly ensuring that we're delivering the best we can to customers. It kind of gets back to that comment that I was just talking about before in terms of helping solve customer pain points. And so I would expect that to continue to be a focus. He's out on a listening tour himself, talking to customers, talking to our employees over in Europe, looking at some of our key sites and so forth. So I'm super excited to have him as part of the team. He's coming in at a great time. And I think with his experience and global scale, that will only accelerate the things that we've been doing here at West.

Amazing. I think that's all we have time for, Bob. Thank you so much.