Earnings call transcript: West Pharmaceutical Q3 2025 beats forecasts, stock surges

West Pharmaceutical Services Inc., currently valued at $21.79 billion by market capitalization, reported its third-quarter earnings for 2025, exceeding market expectations with an adjusted earnings per share (EPS) of $1.96, surpassing the forecasted $1.69. This 15.98% earnings surprise, coupled with a revenue of $805 million against a predicted $786.33 million, led to a pre-market stock surge of 8.67%, with shares trading at $301.01. The company also raised its full-year revenue guidance, projecting between $3.06 billion and $3.07 billion.

InvestingPro analysis reveals that West Pharmaceutical trades at a premium multiple of 41.87x earnings, reflecting market confidence in its growth trajectory. Subscribers can access 14 additional ProTips and comprehensive valuation metrics to make more informed investment decisions.

Key Takeaways

• West Pharmaceutical’s Q3 earnings and revenue exceeded expectations.
• The company’s stock rose by 8.67% in pre-market trading.
• Full-year revenue guidance was increased, reflecting confidence in future performance.
• GLP-1 elastomers now contribute significantly to sales, indicating strong market demand.
• The company continues to expand its manufacturing capabilities and operational efficiency.

Company Performance

West Pharmaceutical Services demonstrated robust performance in Q3 2025, driven by a 5% organic revenue growth and a 6% year-over-year increase in adjusted EPS. The company’s strategic focus on high-value product components and biologics has positioned it well in the market, with over 90% participation in the biologics and biosimilars sectors. According to InvestingPro data, the company maintains strong financial health with a score of 2.86 (GOOD), operating with moderate debt levels and sufficient liquid assets to cover short-term obligations.

Financial Highlights

• Revenue: $805 million (+5% organic growth)
• Earnings per share: $1.96 (+6% year-over-year)
• Adjusted operating margins: 21.1%
• Full-year revenue guidance increased to $3.06-$3.07 billion
• Full-year adjusted EPS guidance: $7.06-$7.11

Earnings vs. Forecast

West Pharmaceutical delivered a notable earnings surprise with an EPS of $1.96, surpassing the forecasted $1.69 by 15.98%. This marks a significant achievement compared to previous quarters, reflecting the company’s strong operational execution and market position. Revenue also exceeded expectations, coming in at $805 million against a forecast of $786.33 million, a 2.32% surprise.

Market Reaction

Following the earnings announcement, West Pharmaceutical’s stock experienced a notable increase, rising 8.67% in pre-market trading to $301.01. This movement is a positive response from investors, reflecting confidence in the company’s ability to sustain growth and improve profitability. The stock is trading closer to its 52-week high of $352.33, indicating strong market sentiment.

Outlook & Guidance

The company has raised its full-year revenue guidance to a range of $3.06 billion to $3.07 billion, highlighting its optimistic outlook. Key strategic initiatives include the expansion of its high-value product components and the anticipated launch of SmartDose 3.5 automation in early 2026. Additionally, the Dublin facility is preparing for a significant role in the drug handling business. The company’s strong execution is reflected in its impressive five-year revenue CAGR of 9% and current gross profit margin of 35.27%, as reported by InvestingPro.

Executive Commentary

CEO Eric Green stated, "We believe the positive trends in our business are sustainable," emphasizing the company’s confidence in its strategic direction. CFO Bob McMahon highlighted, "Our HVP components business will lead the way," underscoring the importance of high-value products in driving future growth.

Risks and Challenges

• Regulatory changes, including Annex 1, may affect market dynamics.
• Potential exit from a CGM contract in mid-2026 could create a $40 million revenue headwind.
• The need for ongoing cost reduction and efficiency improvements to maintain profitability.
• Macroeconomic pressures and supply chain challenges may impact operations.

Q&A

During the earnings call, analysts focused on the company’s long-term growth potential, with executives expressing confidence in achieving a 7-9% growth rate. Discussions also covered the strong growth in the GLP-1 market and the potential for refining the company’s capital allocation strategy.

Full transcript - West Pharmaceutical Services Inc (WST) Q3 2025:

Conference Call Operator: Today, and welcome to West’s third quarter 2025 earnings conference call. At this time, all participants are in listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. To ask a question, please press star-11. To remove yourself from the queue, press star-11 again. We ask that you please limit yourselves to one question. As a reminder, this call may be recorded. I would like to turn the call over to John Sweeney, Vice President of Investor Relations. Please go ahead.

John Sweeney, Vice President of Investor Relations, West Pharmaceutical Services: Good morning, and welcome to West Pharmaceutical Services’ third quarter 2025 earnings conference call, which has been webcast live. With me today on the call are West Pharmaceutical Services’ CEO Eric Green 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 Investors section of the company’s website, located at investor.westpharma.com. Later today, a replay of the webcast will also be available in the Investors section of our website. On the call, we will review our financial results and provide an update to our business and outlook for FY25. Statements made by management on the call and the accompanying presentation contain forward-looking statements within the meaning of U.S. Federal Securities Law. These statements are based on our beliefs and assumptions, current expectations, estimates, and forecasts.

The company’s future results are influenced by many factors beyond the control of the company. Actual results could differ materially from past results, as well as those expressed or implied in any forward-looking statements made here. Please refer to today’s press release, as well as other disclosures made by the company regarding the risks to which it is subject, including our 10-K and 10-Q. During the call, management will make reference to non-GAAP financial measures, including organic sales growth, adjusted operating profit, adjusted operating profit margin, free cash flow, and adjusted diluted EPS. Limitations and reconciliations for non-GAAP financial measures to the most comparable financial results prepared in conformity to GAAP are provided in this morning’s earnings release. I’ll now turn the call over to our CEO, Eric Green. Eric.

Eric Green, CEO, West Pharmaceutical Services: Thank you, John, and good morning, everyone. Thanks for joining us today. I’m pleased to report we delivered solid third-quarter results with revenues, margins, and adjusted EPS coming in above our expectations. Revenues of $805 million were up 5% on an organic basis. The adjusted operating margins were 21.1%, and adjusted EPS of $1.96 was up 6% compared to prior year. As you will hear today, our business momentum is steadily improving, and we expect this trend to continue. As a result of the strong performance, we are increasing our guidance for 2025. I want to especially thank our West team members for their efforts and continued focus in achieving these results. Before getting into the details of our Q3 performance, I want to highlight two notable appointments, which further strengthen our executive leadership team. In August, our new CFO, Bob McMahon, joined West.

Many of you know Bob, and he has done an exceptional job transitioning into his role, already visiting several of our West sites and meeting with many of you. I’m excited to have Bob on board and partner together to lead the next phase of West’s growth. I’m also extremely pleased to welcome Devesh Mathur, our new Chief Technology Officer, who also joined West in August and is tasked with accelerating our innovation and new product introductions. Our team looks forward to benefiting from his industry experience and expertise. Now, back to the Q3 financial results. Let’s begin with a review of the proprietary product segment. Revenues of $648 million were up 5.1% on an organic basis. These results were driven by HVP components, our largest and most profitable business. We have a strong market position because of our trusted reputation for high quality, scale, and reliability.

This business has continued to strengthen each quarter, and revenues increased 13% organically in Q3. Several factors drove the strength of HVP components. First, elastomers for GLP-1s had strong growth and now account for 9% of total company sales. We benefit from our longstanding relationships as we partner with our customers in this market, supporting them as they expand their GLP-1 franchises. We’re also collaborating closely with customers who are launching a pipeline of new GLP-1 molecules and generics. We expect this market to continue to evolve as there are a number of new early-stage trials seeking to expand the range of indications and treatments using GLP-1s. Second is biologics. We’re encouraged for their underlying market demand as ordering trends are returning to normal. West’s participation rate for biologics and biosimilars is trending above our historical levels year to date of greater than 90%.

The third driver is HVP upgrades, including Annex 1. Given our strong market position with our elastomers portfolio, we are well positioned to benefit from what we believe is a long-term opportunity. We are tracking ahead of our expectations, and we currently have 375 ongoing Annex 1 upgrade projects. With a robust pipeline of new projects and our ability to partner with customers to convert current projects into commercial production, we anticipate Annex 1 and related HVP upgrades to deliver 200 basis points of growth this year, up from our previous expectation of 150 basis points. We expect Annex 1 to drive continuing demand for higher quality products as European regulators now require pharmaceutical companies to demonstrate their culture of continuous manufacturing improvement. West is well positioned to support our customers with HVP components and technical documentation to meet those requirements.

We continue to work through our constraint at our HVP manufacturing site in Germany. During the quarter, we made good progress hiring and training employees and installing new equipment to expand capacity. These efforts, in addition to product tech transfers, will allow us to further leverage our investments made in our global HVP components infrastructure and balance production across the network, enabling us to drive future growth. Moving to the HVP delivery device business, revenues declined compared to prior year as expected, driven mainly by the $19 million incentive payment we received last year. With respect to SmartDose 3.5, which is less than 4% of total company revenues, we’re improving profitability every quarter by driving down costs and remain on track to go live with automation in early 2026, even as we continue to evaluate options to maximize the value of this business.

Lastly, our standard products business increased 3.6% on an organic basis this quarter. Converting standard products to HVP components over time serves as an important funnel for our business by generating revenue and expanding margins. Turning to the contract manufacturing segment, this business performed well in the quarter, delivering revenues of $157 million, growing by 4.9% organically. Moving forward, we are now utilizing our Arizona CGM footprint to consolidate operations from less efficient locations. We continue to expect the second CGM contract to conclude at the end of Q2 2026. The future available space is in an attractive location with a strong operating team that is resulting in a number of promising discussions with multiple customers. Turning to our Dublin site, we continue to ramp production of delivery devices for the obesity market.

We are currently validating and testing the equipment installed for the commercialization of our drug handling business in early 2026. GLP-1s in the contract manufacturing segment account for 8% of total company sales. Overall, I’m very pleased with the performance of both the proprietary products and contract manufacturing segments, along with the trends that we are seeing in our business and in the markets. Now, I will turn the call over to Bob. Bob?

Bob McMahon, CFO, West Pharmaceutical Services: Thanks, Eric, and good morning, everyone. It’s great to be here, and I’m pleased to be part of the West team. West’s injectable solutions and services business is second to none, and I’m excited about the long-term growth potential of the company. Now, before getting into the details, I wanted to highlight that we have revamped our quarterly presentation to provide some supplemental segment information, which you may find useful going forward. Now, on to the quarterly results. In my remarks this morning, I’ll provide some additional details on revenue, as well as take you through the income statement and some other key financial metrics. I’ll then cover our updated full-year and fourth-quarter guidance. As Eric mentioned, third-quarter revenue was $805 million, above the top end of our revenue guidance, beating our expectations. On a reported basis, total revenues increased 7.7%.

Currency had a positive impact of 2.7 percentage points, resulting in organic growth of 5.0%. Of note, the incentive fee reduced organic growth by 280 basis points, so a solid result overall. I’ll now go through each of our businesses in more detail. Within the proprietary segment, HVP components, our largest business accounting for 48% of total company sales, was the standout. Revenues of $390 million increased 13.3% organically. This was driven by robust growth in GLP-1s, HVP upgrades, including Annex 1, improving performance in biologics, and a normalizing demand environment. We are very pleased with the continued momentum in this business this year. In our HVP delivery devices business, which accounted for 12% of the company’s net sales in the quarter, revenues were $99 million. This was down 16.7% year-on-year organically, but roughly flat sequentially, as we expected.

In standard products, revenues of $158 million increased 3.6% on an organic basis, even as we saw Annex 1 accelerate. Standard products accounted for 20% of total company net sales this quarter. Now, looking across our end markets for proprietary, biologics revenue was $329 million and up 8.3% on an organic basis. Growth in products using our laminated technology and strength in Westar and Envision offset the headwind from the incentive fee in the prior year. Pharma revenue rose 1.4% on an organic basis to $183 million, with growth in RU seals, stoppers, and plungers. Generics revenue increased 2.6% organically to $136 million, also driven by growth in seals and stoppers. Now, finishing up revenues, our contract manufacturing segment delivered $157 million, growing 4.9% on an organic basis.

Segment performance in the quarter was driven by an increase in sales of self-injected devices for obesity and diabetes, partially offset by a decrease in sales of healthcare diagnostic devices. Contract manufacturing accounted for 20% of total company net sales in the quarter. Pricing was a positive 1.7%, and we are tracking at roughly 2.4% for the first nine months of the year, right in line with our 2 to 3% expectation. Now, let’s take a closer look at the rest of the P&L. Gross margin was 36.6% in the quarter, up 120 basis points as compared to the prior year. This strong result is due to the positive mix of HVP components, as well as good execution in our supply network. Adjusted operating margins of 21.1%, while down 40 basis points compared to the prior year, were ahead of our expectations.

Below the line, our net interest income was $4.5 million. The tax rate came in at 19.8%, slightly better than expected, and we had 72.6 million diluted shares outstanding in the quarter. Now, putting it all together, Q3 adjusted earnings per share were $1.96, up 6% versus last year and $0.26 above top end of guidance. Moving on to a few cash flow metrics. Year-to-date operating cash flow is $504 million, up 9%, while free cash flow of $294 million is 54% higher than last year, as capital expenditures are down 23%. To date, we have invested $210 million in capital expenditures and remain on track for $275 million for the year. In summary, we had a very solid third quarter operationally that exceeded our expectations. As a result, we’re increasing our full-year guidance on both revenue and earnings per share.

For the full year, we are now anticipating our reported revenue to be in the range of $3.06 to $3.07 billion. This represents reported growth of 5.8 to 6.1% and organic growth of 3.75 to 4% for the full year. The foreign exchange environment has remained relatively stable since our last guide, and so currency is still expected to be a $59 million tailwind for the year. We are also increasing our full-year adjusted EPS range to $7.06 to $7.11, representing year-on-year growth of 4.6 to 5.3%. A few more items to help you modeling. This assumes flat other income and expense, a 21% tax rate in the fourth quarter, and 72.6 million diluted shares outstanding. In addition, we continue to anticipate $15 to $20 million in tariff-related costs this year and now expect to mitigate more than half of those costs in 2025.

For 2026, we expect to fully mitigate the impact based on the current tariff landscape. Our updated full-year guidance translates to fourth quarter revenue of $790 to $800 million. This is a reported increase of 5.5% to 6.8% and an organic increase of 1% to 2.3%. As a reminder, we also had a $25 million incentive fee in Q4 of last year, which we do not expect to repeat this year and is reducing our expected Q4 organic growth by roughly 360 basis points. Fourth quarter adjusted earnings per share are expected to be between $1.81 and $1.86. Before turning the call back over to Eric, and while we’re still going through our planning process, I did want to share a few thoughts on 2026. We are exiting 2025 at a good place.

We believe destocking is largely behind us, and demand will continue to improve for our key growth drivers. That said, our end markets remain dynamic, and we could see a range of outcomes, so we will be prudent with our planning. Our HVP components business will lead the way, given the multi-year growth drivers of GLP-1s and HVP upgrades, driving our biologics end market. We are anticipating the remaining CGM contract will continue to run at full capacity until exiting in mid-2026. This is roughly a $40 million headwind for the second half of 2026. We are actively working on refilling that space with higher margin business, with the expectation of the pacing and ramp, the pipeline coming in better view by the end of the year.

Lastly, we are building out drug handling in our Dublin facility, and this is expected to add roughly $20 million in revenue for next year, which will help offset the CGM contract. We will get back to expanding margins. While early, I believe 2026 is coming into better focus, and I look forward to giving specific guidance on the next earnings call. Now, I’d like to turn the call over to Eric for closing comments. Eric?

Eric Green, CEO, West Pharmaceutical Services: Great. Thanks, Bob. To summarize, we had a solid quarter resulting in an upward adjustment to our guidance. We believe the positive trends in our business are sustainable due to strong execution, improving market conditions, and our ability to respond to the evolving needs of our customers. Our reputation for high quality and service is paramount. West has key competitive advantages that allow us to protect our business model long term, especially in our highest margin HVP components franchise. We continue to make progress improving our margins. This is why I’m confident that we are well positioned for Q4 and into 2026. Operator, we’re ready to take questions. Thank you.

Conference Call Operator: Thank you. As a reminder, if you’d like to ask a question, please press star-11. If your question has been answered and you’d like to remove yourself from the queue, please press star-11 again. We ask that you please limit yourselves to one question. Our first question comes from Paul Knight with KeyBanc Capital Markets. Your line is open.

Hi, Eric. Hi, Bob. John, congrats on the quarter. As you think about your long-term construct of 7% to 9% growth, are we heading there in 2026, in your opinion, in terms of the momentum you’re citing here in 3Q?

Eric Green, CEO, West Pharmaceutical Services: Yeah. Hey, thanks for that, Paul. I’ll start and then maybe ask Bob to join us in the conversation. As we think about the key drivers to be able to deliver the long-range plan or long-term construct, the thesis is really around the HVP components and driving into double-digit growth consistently year over year. As you know, the key drivers of that for us are biologics and biosimilars. It’s also the driver on Annex 1 and also GLP-1s. We feel good that we have the foundation laid that allows us to drive in the right direction to get to that LRP long term. Bob, you want to give more cover?

Yeah. Hey, hey, Paul. Good morning, and thanks for the question. As Eric said, you know, the biggest growth driver, we’re seeing really nice momentum. As I mentioned on the call earlier, we’ve got some puts and takes here in 2026, but we feel good about the long-term growth of the business. We have to work through the puts and takes of, you know, some of the contracts that are coming in and out. Right now, I would say, you know, the street’s in a good space.

Conference Call Operator: Thank you. Our next question comes from Michael Ryskin with Bank of America. Your line is open.

Hey, thanks for taking the question, guys. Maybe just follow up on that. The HVP components, as you said, a big part of the story. Really good growth in 2Q, continued that in the third quarter. Obviously, you’re on GLP-1s and Annex 1 are part of that. Could you talk about the sustainability of that being over double, you know, being double digits? You talked about hitting that in the fourth quarter as well, going beyond, just confidence in that trajectory. If I could throw on just a quick second part or on the margin comment you made, Bob, about expanding margins next year, could you just talk about the moving pieces of that between gross margin, volume leverage, earning cost actions? Thanks.

Eric Green, CEO, West Pharmaceutical Services: Excellent. Thanks, Michael. You’re absolutely correct on the HVP components. The growth is starting to sequentially get stronger from the beginning of this year as we were looking at how the order patterns are becoming more normalized. We’re seeing the markets become more in line with what we would expect long term. We’re seeing that with the order trends through our discussions with our customers. Another precursor for us we keep a close eye on is the bioprocessing space. As you know, that’s a key indicator of what we should see and expect more near to midterm. We also are confident in our position in biologics and biosimilars, particularly of the products in market, but also new approvals that are in pipeline.

Annex 1 is another key driver that has a multi-year growth algorithm of conversion from standard to high-value products, which is a good opportunity for long-term growth to get us to that growth algorithm we talked about, double digits for high-value product components. Bob, you want to go?

Yeah. Hey, Mike. Thanks for the question. Maybe to add on the first question about HVP components, certainly, we’re feeling good about the momentum here. Actually built into our Q4 guidance is low to mid-teens. That momentum we’re expecting to continue. Obviously, as we get into next year, there’s some more challenging comps in the back half of the year. That being said, the long-term growth drivers of GLP-1s and Annex 1 and the HVP upgrades are there. That actually leads to your second question around the margin expansion. One of the things that I think we saw here in the quarter was just the beauty of that business being upgraded, the power of being able to drive more efficiency through the factories with the investments that we’ve made over time here, as well as being able to provide more value-added products to our customers.

I would expect that to continue next year. When we think about opportunities, I do expect gross margin to be an area of opportunity for us to expand margins. We’re also looking at how do we ensure that we’re also driving efficiencies kind of below the gross margin level as well. I would say it’s both, but certainly, as HVP drives the growth, we generate a mixed benefit as well. Very nice from that standpoint.

Conference Call Operator: Thank you. Our next question comes from Patrick Donnelly with Citi. Your line is open.

Hey, guys. Thanks for taking the questions. Maybe one quick one on the CGM contract. It sounds like kind of the exit in mid-2026. Appreciate the commentary there, Bob, on the $40 million headwind. I guess in terms of the visibility into filling that and with high-margin business, it sounds like, what are the conversations there? What would the timing look like in terms of the backfill? How big of a gap would there be? Maybe secondarily, just following up on Mike’s question there, Bob. I know you spent a lot of time thinking about the margin opportunity here, where there’s opportunities, whether it’s footprint, higher utilization.

When you dug into the company here and looked at the margin opportunity, can you just talk about some of that long-term stuff that you see and what opportunity you see on the margin, not only the mix to high value, but also just more efficient operations? Thank you, guys.

Eric Green, CEO, West Pharmaceutical Services: Yeah. No, that’s a great question. Good morning, Patrick. I’ll cover the first, and then Bob will address your second question. In regards to contract manufacturing, specifically the CGM manufacturing we have in Dublin, we have a number of customers we’re engaged with today that are in late-stage discussions to identify what would be the appropriate business to replace the CGM business that we will be exiting or finishing the current agreement until the end of June 2026. We feel good about the prospects. We do know that the economics of the future business, the expectations are to be stronger than what we currently have in that facility. There will be a transition period in the second half of 2026.

Usually, what you’ll find is, as we extract the equipment for our previous customer and install new equipment, there are engineering fees that we incorporate into our revenue for contract manufacturing. There will be revenues to replace the gap. I won’t say it’s going to be one-to-one, but it’s healthy revenues and margin. We expect to have commercial operations up towards the end of 2026 if it is a pretty straightforward process. Feeling good about the prospects. I know the conversations have been ongoing, and very, very attractive business that we could put into that location.

Yeah. Patrick, on your second element of the question around our supply network, I think one of the things that I would say, first off, is as we look at the footprint, our ability to be local for local is a big opportunity and advantage for us, for our customers. That being said, I think there’s an opportunity in the medium and longer term to really optimize our footprint. We’re actually going through that analysis right now, given the investments that we’ve made to not only level load and fill those factories with check transfers across, but also the ability to actually drive more efficiency within the existing footprint. I think that there probably is more opportunity to consolidate certain areas to drive even more efficiency as we go forward. That’s not a 2026 element timeframe.

That’s more of a longer term, which actually makes me feel good that there’s not only some near-term opportunities to drive cost efficiencies, but also longer-term opportunities.

Conference Call Operator: Thank you. Our next question comes from Daniel Markowitz with Evercore ISI. Your line is open.

Guys, congrats on the print and welcome Bob.

Bob McMahon, CFO, West Pharmaceutical Services: Thanks. Good to be here.

Awesome. Eric and Bob, I had a two-parter for you. First, I’m curious on high-level headwinds and tailwinds to high-value components in 2026 as you see it today. As I think about it, I see a few tailwinds. One is that you’re comping the destock, especially in the first half. Second, you have GLP-1s growing off of a larger base. Third, Annex 1 is accelerating following the uptick in project growth through 2025. Lastly, you have this unique one-off customer situation that I think was about 150 basis points headwind to 2025, but should benefit 2026. Wrapping up on this first one, is there anything else I should be thinking about as a headwind on the other side or anything I’m missing?

The second question, zooming in on one of those, on GLP-1 elastomer growth, it was mid-single-digit % of sales in 2024 and how it’s been climbing pretty steadily to now about 9% of total revs. That implies pretty healthy growth for GLP-1s in 2025. Is it right to think it’s more than 50% growth? If so, what’s causing that? Should we expect sustained over 20% growth over the next few years? Thank you, and sorry for being long-winded.

Yeah. I’ll verify your math, Dan. We’ve been very pleased with the growth in GLP-1s. I’ll turn it over to Eric to actually give some of the color commentary on what’s been driving that. I think it’s important to understand that we expect that GLP-1s, while they may not be growing at that level, given the law of large numbers coming into next year, we are expecting very healthy growth in GLP-1s next year, given the kind of underlying market dynamics there. Eric?

Eric Green, CEO, West Pharmaceutical Services: Yeah, that’s an excellent question. As we think about the key drivers for high-value product components, you’re absolutely correct that GLP-1s will continue to grow. We’re seeing even, you know, as we think of a long term with the potential introduction of orals into the equation, we do think the market itself will be a healthy blend of injectables and orals, with injectables continuing to be the larger portion, but the overall market continues to grow quite nicely based on what we are hearing from our customers, but also other sources. We’re very well positioned with GLP-1s. As you remember, this is leveraging our high-value product manufacturing plants. We have five across the globe, and we do have scale. We do have the portfolio that supports our customers in that area. You commented about the timing of potential headwinds.

I think the one area I would say is on Annex 1. While we have really good momentum in our contamination control strategy, working with our customers is really resonating. As you know, this is really converting our standard products that are on drug molecules in commercial today to high-value products, and the economics for us is very attractive. As you know, our averages for standard products are margins in the 20% to 30% range, while the HVP is 60+%. The timing on how these projects roll off into commercial revenues does vary from client to client. I won’t say it’s a headwind. It’s more of a timing from quarter to quarter. We’re really optimistic and confident in the pipeline that we’re currently working on, but also know that we’re only touching a fraction of the 6 billion components we believe is the market opportunity here.

I think the other area is just, again, timing of new drug molecules approved in market. If you kind of look last year to this year, the number of approvals by the FDA might be a little bit lower for various reasons. As we are planning with our customers of future launches, the timing might be a little bit, you know, uncertain on certain launches. Now, saying that, the growth that you mentioned earlier about biologics, biosimilars, GLP-1s, and Annex 1 are very favorable. Those are the tailwinds that we’re moving throughout the balance of this year and into next year.

Bob McMahon, CFO, West Pharmaceutical Services: Daniel, just maybe one other thing to follow up on your initial question around GLP-1s. Obviously, we watch that very closely and feel that our growth is largely in line with the growth that the end market is seeing as well.

Conference Call Operator: Thank you. Our next question comes from Dan Leonard with UBS. Your line is open.

Thank you very much. Bob, you might have addressed my question right there, but I have a follow-up on GLP-1s. It does seem like from the script data for Novo and Lilly that you’re growing a lot faster than the market is growing. I wonder if there’s a way to reconcile that. Could there be a compounder element here? Is it the clinical trial participation you alluded to? Any thoughts would be appreciated. Thank you.

Eric Green, CEO, West Pharmaceutical Services: Yeah, Dan, this is Eric. You’re touching on exactly the areas. If you think about what’s starting to see an increase of vials, therefore, our stoppers and seals are necessary. That’s a factor when you think about our volumes. Also, the pipeline of new molecules being looked at and going through clinical. There are other factors that we’re working with several customers. There’s a couple of geographies. There’s an element around generics that we’re also going to be able to support. Overall, I would say it’s a little bit broader than just the scripts data of our two customers.

Conference Call Operator: Thank you. Our next question comes from Justin Bowers with Deutsche Bank. Your line is open.

Hi. Good morning, everyone. First, I appreciate the increased detail and transparency on some of the disclosures this quarter. A two-parter for me. One, I just wanted to follow up on Annex 1. There were some updates earlier this year, and just curious how that’s impacting customer decision-making and some of the conversions, if that’s been a catalyst for some of the acceleration we’re seeing. Part two, earlier in the prepared remarks, you talked about liquid handling in Dublin being about a $20 million opportunity, plus or minus. Is that sort of the peak opportunity, or is there room for growth there in that facility beyond 2026?

Eric Green, CEO, West Pharmaceutical Services: Yeah, Justin, thank you for that. First, I’ll touch on the Dublin real quick. On the $20 million that we communicated, as we ramp up a new site, it does take time to get to full utilization. I would consider this as early stages. As we move into 2027 and a little bit beyond, that’s when we get into our peak volumes and revenues. The $20 million is really just kind of the ramp-up stage. As you move through efficiencies through a few quarters, you’ll start seeing the utilization significantly go up. I would not look at $20 million as the peak revenues of that site for the drug handling. On the Annex 1, there are different factors. We do know that there are more conversations with the EU regulators with our customers as they are auditing and discussing about the regulations.

Therefore, there is an interest to continue these projects at an accelerated pace. As I mentioned earlier, there’s a tremendous amount of opportunity of drug molecule that goes into Europe that we believe this is just really early stages. Out of the 6 billion components, it’s a small fraction that we are currently converted to commercial at this time.

Conference Call Operator: Thank you. Our next question comes from Larry Solow with CJS Securities. Your line is open.

Great. Thanks. Good morning. I echo the appreciation on the transparency, and I also welcome Bob. I just want to follow up on the gross margin, you know, really strong this quarter. Just curious if you guys are actually seeing, and I think this has been part of the themes too, just an improvement in mix within HVP and, you know, getting more towards the, you know, up and to the right into the NovaPure and higher margin HVP components. Are you seeing that dynamic continue as well?

Bob McMahon, CFO, West Pharmaceutical Services: Yeah. Hey, Larry. I appreciate the feedback. To your question on gross margin, yeah, that certainly is an element of it. When you look at our gross margin, despite the incentive fee, we were actually up year-on-year 120 basis points. That was up almost 300 basis points if you take that out kind of on a like-for-like basis. The proprietary business, our HVP component business, drove that. What we’re seeing is not only the investments that we made over the last couple of years being able to be filled in that capacity driving, and you can imagine with the fixed install base, the incremental margins are quite nice from that standpoint as it goes through the factory. As you’re having these higher value products there, you’re driving higher ASP products through the facilities. I think you see that that’s a very positive mix standpoint.

The team has also done a very good job of driving down costs and driving up efficiencies. If I think about scrap and our yields, those are also areas of focus that the teams are really driving. I think as we talked about earlier, we’ve got a multi-year opportunity from that standpoint. Also, one of the areas is around being much more focused on some of the raw material input costs. We’re building out capabilities in our sourcing organization, working closely with our supply chain, as well as streamlining some of the production traveling of some of our products before they get to customers. There are a number of elements, I think, that are in the next several years that I feel that we have an opportunity to continue to drive that gross margin opportunity.

Conference Call Operator: Thank you. Our next question comes from Doug Schenkel with Wolfe Research. Your line is open.

Good morning. Thank you for taking the questions. Two quick topics I want to touch on. One is just a question on Q4 guidance, and then one is on really visibility heading into next year. On the fourth quarter, I want to confirm that you essentially bumped up guidance by the magnitude of the revenue beat. If so, were there any timing dynamics in the third quarter that held you back from bumping up guidance more, or was this just trying to be conservative in a period of continued uncertainty? That’s the first topic. The second is risk and visibility as a topic. Part of the attraction for a long time, of West for investors has been that this has been a great sleep-at-night story, a steady compounder.

Last year, with that in mind, I think the company and certainly the investment community were surprised by the rolloff of the incentive payments and drug delivery and also the changes in contract manufacturing. How would you characterize anything resembling that category of risk heading into year-end? I would guess you feel pretty good about it, but I just want to give you an opportunity to tell us where we should all feel better about this getting back to being the old West again.

Bob McMahon, CFO, West Pharmaceutical Services: I’ll start, Doug. On the Q4 guidance, don’t read anything into that. We don’t believe that there was any material pull forward. When we look at it, actually, if you look at it on a two-year stack basis, Q4 is actually an acceleration. There’s also an element of prudence, given the market dynamics outside, that we want to make sure that we feel good about that, and we do. We’ve got some good momentum there. I’ll just leave it at that. Maybe I’ll start with the second piece and then turn it over to Eric as well. I think this is an area that I’m focused on intently. I don’t want to declare victory just yet, in terms of that. We do feel good about some of the trends.

I would say we have, in our, we’re committed to improving and providing more transparency, which we’ll continue to do over time. The market is still dynamic. I think we are improving our visibility, but the market still has some variables that we’re working through our business planning process right now. That’s why we wanted to provide some puts and takes to what we know today for next year. I think the long-term trends are positive. It’s the pace of when we get back there. I’ll turn it over to Eric to maybe add anything.

Eric Green, CEO, West Pharmaceutical Services: Yeah. No, thanks, Bob. Doug, it’s a great question because that is critical for historically, West has been consistently, from a demand profile perspective, pretty consistent of the market, the injectable market space. We believe, based on the work that we have been doing, and Bob did touch on this, is that going deeper into different segments with clear accountability and ownership has given us a better line of sight of our markets. Obviously, engage with our customers, getting closer to them, which we observed during the pandemic period, we needed to do more of. I’m confident we’re making good headway and traction in that direction. The airline market conditions continue to improve, considering where we were a while back. Your point is we are laser-focused on making sure we are reducing those risks and increasing visibility and also providing more of that lens, as we engage in these conversations.

Conference Call Operator: Thank you. Our next question comes from Matt Etoch with Stephens. Your line is open.

Hey, good morning. Appreciate you taking the questions. Maybe just one on delivery devices. You know, relatively flat year-over-year, excluding the incentive fee. I think you highlighted some improving economics ahead of the automated line coming on in 2026. Can you just highlight some of the various aspects driving performance during the quarter, and the variables that you’re seeing on the top line of margins as well? Thank you.

Eric Green, CEO, West Pharmaceutical Services: Yeah. No, absolutely. Thanks for the question. When we look at the drug delivery device business, the area, looking at it holistically, the entire portfolio, we have administration systems in that category. We have Crystal Zenith and, obviously, injectable devices like SmartDose. I’m really pleased with the progress we’re going to have throughout the year for our Crystal Zenith and also our admin systems. The area of focus has been on SmartDose to drive two levers with urgency. One is to drive down costs and improve efficiencies. The progress the team has made is on track with our expectations for this year, and we’re seeing improved margin performance or profitability quarter over quarter. There’s more to come with the automation that we are going to be commercializing in early 2026.

We’re just going through the validation process as we speak, and we’re confident that we’ll be able to drive even more cost out of the product itself. The second area is to continue to look at alternative options to create even more value with that product. We will communicate once we can, of the final decision. We’re making progress in both areas.

Bob McMahon, CFO, West Pharmaceutical Services: Yeah. I would just add, Mac, on that, you know, if you look at it on a quarterly basis sequentially, it hit where we expected it to. I feel good about that. That work that Eric just talked about, you know, we’re looking at both of those paths with urgency and focus. I feel good that, you know, each quarter, the economics have improved in delivery devices, as we said in our prepared remarks, and there’s more room to go. We’re also making sure that we’re looking at this for the long term and evaluating what’s the best value for shareholders.

Conference Call Operator: Thank you. Our next question comes from Matthew Larew with William Blair. Your line is open.

Hi. Good morning. Kind of a two-part question around your manufacturing network. After a couple of years of pressure on free cash flow and obviously an elevated CapEx spend for you, you’ve had a significant improvement in free cash this year as CapEx has normalized down to around 9%. Bob, you referenced a couple of times the opportunity for network optimization, but there’s then the balance of obviously customers thinking about regionalization of manufacturing, some of the policy dynamics, and obviously still significant investment in HVP. Just as you think about maybe that balance of network optimization versus making sure you have capacity available for customers, how are you thinking about the levels of CapEx needed to support growth? That’d be the first part. The second part is there’s been a number of recent headlines around pharma tariffs and MFN.

I realize your business is tied to commercial volumes, not necessarily earlier-stage R&D. How tuned in are your customers to those headlines in terms of influencing investment decisions versus sort of the train has left the station in terms of regionalization of their manufacturing? Thanks for the question.

Eric Green, CEO, West Pharmaceutical Services: Yeah, Matt. Thanks for the question. Let me start with the capital, the CapEx that we have spent. You’re absolutely correct. Our focus really is on the high-value product components with our five centers of excellence that we have, obviously in Asia, Europe, and the U.S. Fortunately, over time, we have built the capacity and the capabilities to support our global customers from multiple sites. As you think about being more regionalized to be able to support our customers in all markets, we’re very well positioned from an infrastructure perspective. You’re correct. As volumes increase, we will need to layer in additional capital. We do feel comfortable that we’re going to be back to the 6% to 8% of sales corridor for CapEx, but heavily weighted towards the high-value product components part of our business.

Again, the concept of the center of excellence has given us that network capability, but also more of a campus site perspective versus doing more greenfield. I’ll talk briefly on the second question you posed, and I’ll turn it over to Bob to add any comments. You’re right. That conversation is active with our customers in the sense of what can we do to support our customers, to drive down costs, to support them. One is continue to leverage our global network. There are a few cases where we could do tech transfers to move from one location to another geography to be more co-located with their end market. That’s one opportunity that we are working with. Those do take around 12 to 18 months to complete and then to commercialize.

I also just want to comment, the products that we provide, the elastomer components that we provide are critical to the drug molecule, and they are less than 1% of the COGS of the drug. Therefore, our focus is how can we help our customers drive better yields in efficiencies of their fill-finish process by providing more of the HVP services. In essence, we are working with our customers to provide additional services to improve the yield output for our customers. It’s an active dialogue. For us, we’re seeing less discussion about price, but more about making sure we’re balanced from a global manufacturing perspective.

Bob McMahon, CFO, West Pharmaceutical Services: Yeah, Matt. I’ll just add a couple of things. Obviously, that’s one of the areas that’s pretty dynamic when we talk about kind of the MFN here in the U.S. just recently. We haven’t seen any change in our customer buying behavior. That’s something that we’ll continue to watch. On the other side, I actually think that that’s a potential lift of an overhang so that they can now move forward. The investments here that we’re seeing in the U.S., we are seeing that we believe that’s real. That’s a multi-year kind of investment. As we think about where we’re talking about kind of level loading, we’ve made a lot of investment in the U.S. for the COVID capabilities and capacity a couple of years ago. We’re working very closely with those customers as they are building out additional capacity in the U.S.

about this tech transfer that Eric was just talking about. I think we’ve got good relationships with those customers, and I think we’re well placed to be able to continue to invest. I’ll just want to reiterate what Eric said. We do think that we’re going to continue to drive down our capital spend as a % of revenue, but disproportionately invest behind our highest growth opportunities, which is in HVP.

Conference Call Operator: Thank you. Our next question comes from Tucker Remmers with Jefferies. Your line is open.

Good morning. Thanks for taking my question. I had another question on Annex 1. You talk about 2% contribution this year from Annex 1 projects. Can you break down how that splits between those projects that are in a development or validation phase versus switches that have already been put in place and sort of hitting what I would call commercial production? Thank you.

Eric Green, CEO, West Pharmaceutical Services: Yeah, no, great question. I would say if we look at the entire, at the end of Q3, the number of open projects that we’re currently working on and the number of projects that converted to revenues are less than 40% would have been converted since the duration of this project or this move towards Annex 1. That kind of gives you a feel of, you know, as we ramp more new projects in, they’re rolling off. We did mention earlier that some projects could be three to four quarters, and a few others could be six to eight quarters. It does depend on the scale of the project and the speed our customers want to convert.

Conference Call Operator: Thank you. Our next question comes from Luke Surgaat with Barclays. Your line is open.

Great. Thanks, guys. Just wanted to ask here about the capital allocation. The first one, a hat tip to the transparency on the deck, is beautiful. Given that you guys have a pristine balance sheet right now, producing a lot of cash, margins going the right way, free cash flow seems to be picking back up. Update us on your capital allocation priorities, favoritism towards maybe a repo versus a more bolt-on M&A.

Bob McMahon, CFO, West Pharmaceutical Services: Yeah. Hey, Luke. I appreciate the feedback, and this is Bob. You’re hitting on one of the key priorities that I’ve got in talking with Eric and the rest of the team. I actually just spoke with our board about this. I think there’s an opportunity for us to better define and establish a capital policy. To your point, with being blessed with such a strong balance sheet and our cash flows, we can be more active in using those cash flows to really drive the business. What I would say is stay tuned, but it is high on the list of opportunities that will help continue to grow the business over time.

Conference Call Operator: Thank you. I’m showing no further questions at this time. I’d like to turn the call back over to John Sweeney for any further remarks.

John Sweeney, Vice President of Investor Relations, West Pharmaceutical Services: Thank you all very much for joining us today on the call. An online archive is available at our website at westpharma.com in the investor relations section. That concludes the call. Thank you very much, everybody, and have a great day.

Conference Call Operator: Thank you for your participation. You may now disconnect.

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