West Pharmaceutical Services Inc (WST) May 12, 2026 Conference Transcript

My name is Mike Riskin. I'm on the Bank of America Life Science Tools and Diagnostics team, and we're excited to be hosting West Pharmaceutical Services for our next chat, joined by Eric Green, President and CEO, and Bob McMahon, Chief Financial Officer. Eric, Bob, thanks so much for being here.

Great. Thanks for hosting us.

Of course. Thanks for being here. It'll be a fireside chat Q&A.

As usual, if you've got questions, feel free to raise your hand and we'll incorporate you in. um you know standard opening question but we're going to pivot a little bit just given the aka last night on the cyber security issue um kind of have to lead off with that just curious what's your response to that and sort of you know give us a quick rundown of the situation yeah let me start with this and if you want so last night we did issue an aka and what has happened is back last early last week we had noticed that intrusion into our systems uh we followed protocol quickly shut down all our systems across the globe so that we can better understand the situation that was at hand. On May 7th, which is last Thursday, we identified that it was identified the intruder, identified that they had access to some of our data and were able to extract a portion of the data. We want to, we obviously, before that period of time, we already secured external support around cybersecurity forensics. We brought in a well-known agency called Unit 42 Autopala Alto Networks, who have been working with us side by side to do the forensics to understand the situation. Since that time, so obviously we want to make sure we got an 8K out. In particular, to that reason alone is that we felt the data was, ensure that wasn't compromised. We know that the data was encrypted, a portion of it, and we were able to, at this time, de-encrypt the data and also ensure that there was no additional data loss to the organization. At this time, we're able to, all operating systems are up. We're able to do shipping and receiving for our customers. We're also able to, all our insularity systems are operating appropriately, and several of our sites are manufacturing and operating, including Eschweiler in our global network. There are several plants that we are currently working on to bring up, but it's a very methodical, systematic process to ensure that we harden our systems at the sites that we are bringing up, but we're making excellent progress. We believe that we have secure systems going forward as we are getting all our sites up across the globe as soon as possible. It's important for us because our number one focus is to be able to support our customers to ensure that we're able to get materials to them in a timely fashion. And therefore, we are prioritizing our sites accordingly.

Maybe just two other quick things. We made measures to ensure that the data that had been exfiltrated is not going to be disseminated. So we feel good about that. And then we're still finalizing the plans of when the sites are coming up. As Eric said, we've got a number of sites already up in manufacturing in addition to shipping and receiving. And, you know, we're not in a position right now to determine the financial impact, if in fact there is any impact. So we are making very good progress here. And you would expect to hear from us, you know, as the events unfold. and in your future.

Yeah, I mean, on that point, Bob, so May 4th, that means that some sites were down for a couple of days, up to a week. Some are now down for a week longer. As you said, you're bringing them back online. Can you talk about ability, for the time that things were down, ability to catch up some of that, either in the near term, meaning in the next month or two for 2Q, or over the course of the year, inventory on hand that can help offset some of that downtime. I know you can't, you know, finalize, put a number on it, but it's directional.

Yeah, so, you know, as you know, our facilities do have flex capacity, and we will be running 24-7 to be able to do that. You know, the demand is still there. I think one of the things that's important is, you know, and why it's so important for us to work with our customers is these are proprietary products that are associated with the drug. And so that demand is still going to be there. You know, those revenues will not go away. Um, and so we're, we, we've still got several weeks in the quarter as we're moving forward. And so, you know, um, we are going to be putting a full, uh, focus on, um, bringing back better our, our sites, you know, hardened and up and running to be able to support our, our And so, um, that's the work that we're doing right now. We do have the ability to actually, um, increase capacity, um, given that we don't run 24 seven across all of our sites and, uh, I'll, I'll leave it at that.

And when you talk about data being infiltrated, is that customer data? Is there any IP around that?

Yeah, all I would say is we're probably not at liberty to say what kind of data, but it was a material data breach, and we've taken measures to ensure that that data doesn't get out to the public.

And last question. I guess you said that you AKed this yesterday.

I'm assuming you now engage with all of your customers that were impacted one way or another. this uh which is a lot of them um sort of just any sense on how those conversations have gone any early feedback from them is it just what's the response been from the customer side yeah no that's an excellent question because that's our primary focus is the first uh area that we focused on reaching out immediately to our customers had engaging conversations we gave them uh an understanding of where we are what has occurred and what we are going to be doing and and also um give them assurance that we are we reached out to some of the best in the industry to support us on this process, and frankly, our customers have been very supportive. They understand, we understand with them the criticality of our products, and they understand that we are working diligently to get the site's up and running in the near term. Okay. All right.

Want to pivot to talk about everything else in the business, but glad we kind of got some time to touch on that. So let's start a little bit better news. First quarter result, how the quarter came in relative to expectations very strong beat um you know very uh very broad strength across the board um you know feel a lot more constructive about the year outlook um i mean very positive surprise frankly relative to what we were expecting to what a lot were expecting can you kind of just give us a quick rundown of how the quarter played out relative to your expectations um why was it so much stronger um so i'll start here on the spot uh it's it was a great start to 2026.

I'm very pleased on how the team has performed, but this is a continuation of the work that we're doing in 2025. We knew that the key area of growth that we knew the demand was there was around HVP non-GLP1 components. We have very strong double digits growth in that area. This is really driven by, fueled by biologics and biosimilars. Our position in that And that area continues to be very high. Participation rates greater than 90%. The second area we see continued success and growth in our Annex 1. This opportunity for West to be a critical partner with our customers to take existing molecules in market to support them on their strategy. Through the Annex initiative has been very positive. Our total number of projects that we're working out with our customers continues to grow. And as they convert to commercialization, that continues to grow also. And in the 30 areas, the underlying growth of the market continues to be attractive in the injectable medicine space. So very strong start to the year, particularly around the HVP components.

I think the one thing, just to add to what Eric is saying, one of the things we're really proud of is it was really a broad-based speak. Every one of our major product lines did better than what we anticipated, led, as Eric was saying, by our HVP, both GLP-1, which I'm sure we'll talk about, and non-GLP-1. So nice momentum going into the year. That continued through Q1. One of the things that we talked about was supply or demand outstripping supply at the end of the year. We were building an additional capacity in our Eschweiler plant. that really came online quite nicely, better than what we anticipated as they were ramping up the team, done a fantastic job there. And by the end of the quarter, you know, demand and supply were more in line. And so, and demand continues to be robust. So we feel good about kind of where we are from the year. That was probably one of the biggest areas, just better execution from us and continued robust demand in the marketplace.

Yeah, I want to touch on that a little bit. you called that out during the call a number of times was just being able to bring on additional capacity in line. When you typically think of CapEx expansion or capacity expansion in this field, it's multi-year project, multi-year investments. It's the heavy lifting. This seemed like a little bit more on the execution side than on the CapEx side. Can you talk about that, how meaningful it was, sort of how long that was in the works and how you were able to fine tune it to get that help with in 1Q?

Yeah, actually, the benefit we saw in Eshweather was really an expansion of number of team members being added to the organization. Over the years, we've added tremendous amount of capacity in our HVP plants, supply plants around the world, particularly on the HVP processing steps, such as washing, sterilization, envision inspection, as an example. And so throughout the end of 2025, we started to ramp up with a number of new team members into the site, the training, getting them prepared. So as you think about Q1 at that particular site, what we saw is a sequential improvement throughout the quarter. So we exited Q1 at a very strong output rate of productivity with the resources we have on site there that is now more in line with the supply and the demand equilibrium. I also would say that, Just to be clear that Eschweiler is also a site that feeds into Waterford. So we saw a net benefit with the more output supporting our Waterford plant. Again, another HVP finishing location to be able to support our customers. The third key initiative outside of just adding resources is around level loading our operations and working with customers to validate a secondary site for HVP on particular SKUs for particular drug molecules in market. And that is going well. And we want to continue to do that to open up free more capacity in Eshweather as we have the capacity already available in Jersey Shore and Kinston as an example.

Bob, maybe to a point you brought up in terms of sort of equalizing demand and supply, exiting the quarter, I just want to be clear. So, you know, you had demand outstripped supply last year. You're bringing this capacity online. So it expanded your ability to handle that. was 1Q a benefit of sort of just like a one-time burn through of that excess, or is this like the new run rate going forward? Just from like an arrhythmia.

Think about it. There wasn't any one time. There was, I'll talk about it, from an HPP standpoint, which we're talking about right now, you know, there wasn't any one time to pull forward or kind of bolus in the numbers. And I think if you looked at kind of how we're thinking about Q2, it's very consistent with that kind of measurement. And, you know, in full transparency, you know, the one area that we did outperform in HPP delivery devices, about half of that outperformance was a result of our partner for SmartDose 3.5 ordering more than what we anticipated in anticipation of the transaction. But even if you took that out, we still, you know, that was about $10 plus million greater than what we anticipated. So even if you took that out, very strong HVP, what we were talking about before, and then, you know, even the overall total company, very strong performance.

Yeah, I think you quantified that as like a 100 bps tailwind. So organic growth over in 14, 10, 10, 15. Okay, whoop-de-do. Okay, the other, I mean, the other question we had was, the other expectation for the quarter was, you know, oil, input cost, as far as it relates to resin, the Middle East conflict from late February through March. Could that have had an impact on numbers? Did you see that impact demand? Was there any stocking related to that? Was there any change in customer purchasing patterns? How have those conversations played out since then?

Yeah, we really didn't see anything. The conflict started late February. That's well within our manufacturing lead times. And so even if there was a bolus of demand, it wouldn't have shown up in revenue. And we didn't see anything like that. And so, you know, we're seeing just continued strength, but not any, you know, stocking in anticipation of that or in anticipation of trying to get ahead of, you know, potential price increases or cost increases associated with the price of oil.

Okay. And now that it's been, you know, it's been a couple of weeks since you reported earnings, it's been a couple of months since the conflict broke out. You know, in your 10K and your filings, you talk about, you know, you have a little bit of a buffer built in, in terms of your hedge on oil.

But, you know, remains elevated, right? Yeah, one of the things we did say in our Q1 earnings is we've forecasted in our updated guidance roughly a net impact of single-digit millions for the full year. So we do anticipate being able to recover a large majority of the cost increases. I can tell you we've already communicated that that is a potential going forward as part of what we would call a surcharge.

And so, yes, you've relayed that to your customers, sort of what's been the feedback. I mean, I guess it's expected and there's not really much to say about that, right? It's built into contracts to begin with, yeah.

This is over and above the normal contractual increase. I mean, we've seen this in the past, you know, when we had inflationary aspects back in a couple of years ago, same mechanism. So we're deploying that and we typically have good recovery from that standpoint. One of the things we're going to do is be very judicious about doing that, you know, working with our customers as opposed to trying to take advantage of the situation.

All right. And then let's talk about the implications of the first quarter beat and sort of how that flows through for the full year guide. So, you know, one Q, 15 percent organic growth. You're guiding about eight in the second quarter and yet the full year seven to nine. So the implied second half is more of in the mid single digit range. Just talk through the moving pieces there and sort of what are the underlying assumptions for that.

Yeah, I think, first of all, it's, you know, first quarter, there's an element of prudence in there as we think about going through the first quarter of the year. Now, that being said, we do have the CGM contract in our contract manufacturing or West Bandage business that ends the end of June. And so that's about a $40 million headwind in the second half of the year that's not showing up in the first half of this year. Partially offsetting that is what we've already talked about with this is drug handling. That's about a $20 million for the full year. That's probably about $15 million in the second half of the year to help offset that. That's one. And then I think we're well positioned kind of to continue to execute going forward.

But anything you can talk about in terms of degree of conservatism in the guide? Well, I would just say it's proven. We'll take that. um let's dive into some of the the sub-segment performance and the um the results that you've seen um eric you touched on um hvp components as being a big driver of the growth um really strong uh in the first quarter that and that given the size of the business and how important that is the company that was a big part of the beat um both um gop and non-gop um we've had a little bit of an easy comps dynamic there but still uh very very robust results um anything you can say in terms of what's driving that besides the capacity expansion and some of the other things we're talking about there?

Right. No, Bob covered that quite well in the capacity expansion where it allows us to be able to respond to our customers quickly and efficiently and also improve productivity. But I do think the number one driver of growth in that sector, the HVP area, is around the biologics and biosimilars. We continue to see a number of new launches that are occurring, not just in North America or Europe, but also outside the region that continues to leverage our products and services that enable them to launch and keep in the market for a long period of time. I think the second area that we see is around the Annex 1. What I'm really proud about there is that there's really a pull effect. Our customers are bringing us into the discussions real early when they start developing their contamination control strategies and leveraging WEST's experience and capabilities really around primary containment, which is what was the change in, I guess, August of 2023 that we're benefiting from. But there's a number of customers that are looking for us to provide those solutions. What's really unique about this opportunity is that as we take existing formulations that are on their molecules in the marketplace today, By providing that washing and vision and sterilization capability, we're able to help them support on their strategy going forward. That has given us at least 200 basis points of growth over the total business. We're also seeing drivers around that. Historically, it's been around the European Union as far as end consumption of those drug molecules. We're starting to have conversations with our customers where they're looking to simplify their supply chain to be able to support them in other parts of the world. So it's kind of a broadening effect. And we're also seeing more regulatory audits being done, particularly in the United States, that there's more observations around this area, around contamination control strategy. So those conversations are starting to build up and that we participate in with our customers. I guess when we started framing the opportunity, we talked about 6 billion components out of the 25 billion components we produce every year. We do believe that could enlarge over time as the expectations of the regulators and of our customers outside of Europe require the same type of solution. You talked about the GLP-1s a little bit earlier. It's another growth driver for us. And we're excited to be able to participate on all the GLP-1s in the marketplace. We're also excited about the new biosimilars that are being introduced in the market that we participate on and also the pipeline. And there's a number of new developments in works that we have visibility of, and we're very proud to be able to support them as they go through their clinicals and eventually into commercialization. So we feel really good about our position on GLP-1s. I think in the earlier in the year, we were cautious because of the oral introduction, but what we're seeing happen there is that it's expanding the market versus cannibalizing the injectable space. So we do believe there's growth opportunity both for oral and the injectable space where we play on GLP-1s, not just near term, but for long term. So, yes, many different excellent growth drivers in that part of the business.

Since you brought up GLPs, I'm going to bite and go after that for a little bit. We estimate you had about $150 million of GLP-1 revenue in the first quarter. You had $100 million a year ago. uh 4q was 137 so even quarter over quarter still grows nicely goes to your point um on orals um just as the quarter played out was there any change in conversation you imagine we you have very very close relationship with the major glp1 um drug manufacturers um as they saw oral uptake over the last five months has there been any change in those conversations in terms of future demand you know i imagine you have very long-term um conversations with those customers about future trajectory?

Yeah, I'll stay away from conveying on behalf of our customers, but I'll say that from our position, we are, as you know, we're involved with all the injectables within GLP-1's multiple customers, and we've built the capacity and capabilities to build support the growth we believe that will happen with injectables. I mean, we modeled long term that potentially the orals would be about 30% of the market. Now, if that plays out, the initial introduction of orals may not have taken on the same path to get to the 30%, but we still do believe there will be a portion of the overall market will be orals, but the injectable space is very still attractive on growth. We're very well positioned to be able to support them. What we're finding is that different products are growing faster than others, but the sum of the whole is still very attractive growth, which, again, we play on the whole.

Yeah, I think the only thing I would add to that, Mike, is if you look at, you know, the way we were modeling it and we went into depth about that at the end of the year, it's playing out exactly as we expected. You know, it's still early days, as Eric was mentioning, but, you know, when you look at the script, you can look at the scripts data, eight out of every 10 people who are on orals are new to market as opposed to being switched from an injectable, you know, and that is pretty consistent when you hear the others talk about kind of the expansion of that market opportunity. So we still see GLP-1s both in the near term. We haven't seen any, you know, in aggregate, very constructive, continues to be. We actually took our guidance up for the expectation for the full year to high teens in that from roughly the 10% that we had before. And I think there's opportunities to continue to grow beyond that. Not only this year, but if you think about all the other things that are coming in, in terms of increasing access here in the U.S., lowering price is actually really good for us because we're a volume play. And then you think about kind of the next generation opportunities around indications that are still in the clinical trial pipeline, and then the biosimilars and generics that are outside the U.S. right now. And so that's a very small piece of our business today, but holds a lot of promise. And we're taking, I would say, a muted view of that only because we want to make sure that we see that uptake going forward. We have a very strong participation in those products as well, and we're preparing for faster uptake than what we've built into our numbers.

Yeah, I mean, to that point, Bob, you just touched on it. And then when you were starting the year, you talked about about 10% GLP growth year-over-year in HVPCs. We'll back it into your guide. You took it up post-1Q, but your 1Q growth was so strong that it still feels relatively conservative. Is that the prudence you were talking about earlier?

Yeah, I think if you looked at – if the market continues to do what we're seeing it doing and expecting it to do, there's upside there. You know, there's an opportunity for beating that. Now, we've got to execute, and it's got to continue to go that way. Obviously, the second pill hadn't been launched, but, you know, again, early days, but it's tracking the way the first one in the market is as well.

I kind of want to take a step back and just think about how the year, your latest year of you is in the context of the longer-term algorithm, right? You know, where you raise the guy, you know, got into 7% to 9% organic. That's also the, you know, the LRP effectively, right? So for the last couple of years, it has been a story of, you know, getting back there, getting back there, getting back there. You know, after one quarter, you suddenly kind of jump back into it. There are a lot of moving pieces in terms of how this year is playing out. You know, you also talk about CGM headwinds. You've got divestments, things like that, the extra capacity coming online. But just from a high level, is there any reason to think that this isn't sustainable going forward or that there are any things that would be moving pieces as we head to next year and beyond?

Let me start on this, Bob. If you think about the market itself, the fastest-growing area of health care is injectable medicines. And then the subset of injectable medicines is biologics and biosilinders, and our participation rate is very high. So we feel really good about a long-term trajectory on this business around the core of the company. And when HVP components are growing, we saw this in Q1, we've seen it historically, we get tremendous margin expansion in our business, and we can reinvest that back into the capital investments, back into our facilities. So I'm feeling really good about it from a market perspective and position us very well. We do know that the market roughly in the injectable medicine space is 1% to 2% of the volume, just in general across the whole sector, we do see, if you kind of build it up from the base, 2% to 3% on price, and the balance is really the growth areas we talked about. It includes mix in there. So I think looking long-term, the tailwinds or the secular macro trends that we're seeing, particularly around the biologics, but also the annex one, the regulatory changes that are occurring, These are permanent, and they have multi-year events or event that will take place. And we're very well positioned for this because of our market share, but also, more importantly, because of the technology and capabilities we bring to the table. So we see that as a very long-term growth algorithm for us. And then you have the GLP-1 aspect there, too. So I'm feeling really good about, if you think about building from the back, what are the trends that are allowing us to get to that long-term financial construct? Those are the key drivers into that 7% to 9%.

The only thing I would add is if you think about where we are, we've got a very strong market share. And when you think about the participation in those areas of growth, our participation rate is even higher than our current market share. And so, you know, that's a very good leading indicator for us to continue to be able to take, you know, help drive the market ourselves and take advantage of those market tailwinds.

Okay. And then kind of the same question on 2026 margin expansion versus long-term construct margin expansion. You've got a lot of moving pieces this year in terms of the divestment, mixed shift, CGM headwinds, you know, oil price around more. But still seems to be, you know, very strong margin expansion year over year. Previously, you talked about at 7 to 9, you're getting 100 bps. Are you kind of like locked in into that?

Yeah, we feel very good about that. And actually, this year, obviously, when you look at it, we're guiding to higher than that. and volume really helps drive a significant amount of that volume and makeshift. And so when you think about the long term, at 7% to 9%, I feel very confident that we have several years of opportunity to drive 100 basis points or more expansion, not only in terms of being able to drive that makeshift that we've been talking about from a revenue perspective, But then if you add on the efficiency efforts that are ongoing in the plants, things like automation, the level loading that we were talking about before, getting back to our 6% to 8% CapEx construct will help drive incremental gross margin expansion. Pricing is a lever that I think we have an opportunity to continue to develop over time to really make sure that we're pricing for value across our portfolio. And then you look at it even longer term, things like procurement and other areas where we can kind of bundle our spending and drive efficiencies with fewer suppliers, increased quality, lower price, and so forth. So there's a number of think steps over the near and medium term that feel good about on a gross margin basis. And then with that 7% to 9%, you know, reducing our spend or not having our OPEX spend at that same level through AI and other efficiency opportunities will help drive, you know, addition margin expansion. I think the only other thing I would add is, and I know we're running up against time, is in Q1, we started driving below the line leverage as well, whether that be through improved tax rate as well as the capital deployment. And so I think those are two levers that hadn't been fully contemplated as we go forward, and certainly something that I'm very focused on.

I want to ask one last one for you, Eric. It's been a great run. Thanks for coming to our conference all this many years. It's been a pleasure covering you. Any updates you can give us on the CEO search or just maybe your plans post-retirement?

No, I'm excited actually to be here. So thank you again for the invitation for Wes. It's a great story. It's a great company. We're on track. I'm looking at the second half of this year to do a seamless transition. And the company is operating extremely well. The strategy is very clear. and we have a phenomenal executive team. So I'm very confident that there'll be a smooth transition and a lot more success ahead of us. Thank you. Thank you so much for your appreciation.

Thank you, everyone.