West Pharmaceutical at Barclays Healthcare: Strategic Growth Amid Challenges

On Wednesday, 12 March 2025, West Pharmaceutical Services Inc. (NYSE: WST) presented at the Barclays 27th Annual Global Healthcare Conference. The company outlined its performance for 2024 and its outlook for 2025, highlighting both opportunities and challenges. While the company is optimistic about growth in its High-Value Products (HVP) portfolio, it faces headwinds in its SmartDose device business.

Key Takeaways

• West ended 2024 as expected, despite destocking effects in biologics and generics.
• HVP portfolio growth is anticipated in the mid-to-high single digits, driven by biologics and regulatory changes.
• Automation and customer negotiations aim to address SmartDose device margin challenges.
• Contract manufacturing is set to grow, with focus on GLP-1 capacity expansion in the US and Dublin.
• Over 200 Annex 1 projects are in progress, with significant revenue expected in 2025.

Financial Results

• 2024 Performance: Concluded in line with expectations despite industry-wide destocking.

• 2025 Guidance:

- Organic growth projected at 2% to 3%.

- HVP components expected to grow in the mid-to-high single digits.

- Contract manufacturing growth anticipated in the low-to-mid single digits, mainly in the first half of the year.

• Margin Impact: HVP component growth is offset by SmartDose device challenges.

Operational Updates

• SmartDose Device:

- Automation is set to transition the process from manual to automated by 2025.

- Engaging in customer negotiations to improve pricing and margins.

• Contract Manufacturing:

- Expansion of GLP-1 capacity in Grand Rapids and Dublin.

- Repurposing capacity from exited CGM contracts for higher-margin opportunities.

- Dublin facility enhancing drug handling capabilities.

• Annex 1 Implementation:

- Over 200 projects in progress; half expected to generate revenue in 2025.

- Focus on converting standard product volumes to HVP processes.

• Elastomer Components:

- Maintaining leadership in biologics and biosimilar approvals with a focus on quality and service.

Future Outlook

• HVP Components: Continued growth expected, driven by biologics, GLP-1s, and Annex 1 projects.
• Contract Manufacturing: Diversification beyond CGM, focusing on drug delivery devices like auto-injectors.
• Elastomer Components: Commitment to market leadership through technology and service improvements.

Q&A Highlights

• SmartDose Device Pricing: Initial pricing was not favorable; improvements expected through automation and negotiations.
• Inventory Destocking: Biologics destocking to persist into Q1 2025; generics throughout the year.
• Annex 1 Conversion: Projects are customer-specific and multi-year.
• CGM Contracts: Exited due to economic considerations; focus on higher-margin opportunities.
• GLP-1 Market: Well-positioned to support with elastomer components, targeting a smaller market share.

For a detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - Barclays 27th Annual Global Healthcare Conference:

Unidentified speaker, Host, Barclays: Our pharmaceutical services, sorry. And Bernard Birkett, the CFO and Chief Operating Officer. So thanks again for making it. It’s just the CFO. Just the CFO.

Okay. Anyway, we have it on the title. Why not take more titles, man? Anyway, so let’s walk through, go through the quarter and kind of the dynamics that you guys saw, readjusting to the guide. You had some issues on the proprietary product side on the some of the products there.

So walk through the dynamics and really what caused the reset.

Eric Green, CEO, West Pharmaceutical Services: Okay. Well, let me first of all say thank you for inviting us to the Barclays Health Care Conference. It’s a very productive day and I appreciate that. We ended 2024 in line with our expectations. As we think about the 2024 is the year of a lot of in our industry, a lot of destocking effect that occurred.

We saw that persist in our biologic space, generics and we saw the in the pharmaceutical area started to dissipate as we went through 2020 to 2024. So we ended the year in line with our expectations. The starting to see a stronger contribution of our HVP components, which is the thesis of the growth for Westin. And so as we moved into 2025, as we think about the growth algorithm, we guided about 2% to 3% organic growth on the top. And the key driver of that growth is our HVP components going back to the mid to high single digits, primarily driven by really three factors.

One is biologics. Second one is GLP-one expansion. And number three is the regulatory changes in Europe with the Annex one, which we are supporting a number of customers on molecules that are commercialized in the market to help them move up in HVP. So that will be elements to give us the mid to high single digits of HVP. And we’re very pleased to see that it will probably gradually increase throughout the year.

We believe it will get us well positioned as we move in the following year behind that. We also guided that our contract manufacturing business was looking at about low to mid single digit growth, primarily driven by the expansion that we made in our GLP-one space, the investments made in 2025. We start seeing some of the lines coming online in the second half of twenty twenty four. But basically in Grand Rapids, Michigan and also in Dublin, we’ll see the growth start to start coming in line in 2025 and throughout 2025 as we scale. We do have a customer that is we’re going to be reducing or no longer produce an older generation of a continuous glucose monitoring device product that will have some headwind to that business.

But we will manage through that in the space, the location facility and team that we have in place will be repurposed for other business with other clients to be able to support future growth as we go forward. The one area that actually was probably the most created the most headwind for us when we started creating the guidance and I’ll let Werner speak to us a little bit further is around a product in our wearables within drug delivery devices. It’s what we call wearable smart dose that we just simply are scaling up

Unidentified speaker, Host, Barclays: in a manual process. We put additional capacity in 2024

Eric Green, CEO, West Pharmaceutical Services: as we go into And we’re we have a three And we have a three point plan, really two key areas we’re focused on. We have a cut down journey on that product as we scale and continue to scale. There’s many areas that we can leverage. One area will take a little more time throughout 2025 is moving from a fully manual process to an automated process. We have a full line that has been commissioned will be commissioned in 2025, which allow us to get better efficiencies, throughput and better margins.

The other areas continue to dialogue with our customer as they ramp to support them on their growth, but also get better economics with our customer. And those conversations are ongoing. There’s urgency to get this rectified, so we can update the community on where we are going forward. But those are the two drivers that we have around that product that created a headwind. When you think about margin, all the good margin that we’re the operating margin expansion with HVP components been negated by a device area is what we’re going to focus and fix.

I don’t know if you want to add any comments. Yes.

Bernard Birkett, CFO, West Pharmaceutical Services: I just think the important point is that we are seeing that growth in our HVP like mid single, high single digit growth that we talked about on our last call that that is starting to return. We’re starting to see the margin expansion come along with that as we bridge back to our LRP. So that is really positive. We do have this short term lower growth rate in our contract manufacturing business, which will be kind of low single digit growth for 2025. And again, that’s primarily in the first half of the year.

But again, as Eric said, we’re working to fill that capacity that’s being vacated by one of our customers. And this is a normal transition that we would see in that type of business within contract manufacturing. And it’s really resolving the issues that we have around SmartDose and the economics that we get from that platform and the drag that it’s we’re experiencing here in 2025 with that.

Unidentified speaker, Host, Barclays: Okay. And let’s talk a little bit about the SmartDose and the device there. How’s the pricing from among those key customers? There’s only a few of them. And then I kind of want to talk about from the margin profile on that business.

I mean, this is HVP that was a whole part of your mix dynamic. Like why is the what is the margin? How much lower is this than your overall HBP margin from a gross margin? And like why is it why does it start so low?

Eric Green, CEO, West Pharmaceutical Services: And Yes. I’ll set this up is that when we started this development agreement years ago with our client, our customer, we had at this point, we didn’t have the ability, we didn’t have skill at that point in time. And therefore, the way that we set the agreement up was basically, I would say, wrong footed in regards to our price and our cost structure. And again, like I said, we are correct in this, but that’s how it was a new area for us to get into and to scale and it takes multiple years to get to where we are. The fortunate part is that we have product that is very well received by the end patients that we’re being informed of.

It is very important for our customer to continue to see the growth of their particular drug molecule in the market. And we’re able to support them on not just in The U. S. Market, but in multiple geographies. So we are partnering with them, enable them to be able to grow.

But we again, we needed to address the price and also the cost structure, which I laid out earlier that we will address.

Unidentified speaker, Host, Barclays: Okay. And then as we think about that ramping, what are some levers that you can pull as that as capacity ramps in general as value?

Eric Green, CEO, West Pharmaceutical Services: The biggest area, I mean, obviously, as we scale, we’ll have better leverage on materials, but it really comes down to labor and it comes down to instead of having one facility, we have two facilities that are doing manual manufacturing of these components of these products of this product. And by putting automation, it will allow us to fully automated process, allows us to reduce costs considerably by getting higher throughput, again maintaining the high quality and also efficiencies to support the margin expansion.

Unidentified speaker, Host, Barclays: And the automation wasn’t put in place at the initial start of the product ramp just because of the development contract that you guys had?

Eric Green, CEO, West Pharmaceutical Services: We started off as a manual process in one facility and you’re right, the volumes were very much lower. And the acceleration of the demand of the product for a customer required us to move quickly to double the capacity by in another facility. But we were not and then we started commissioning and planning out the fully automated line knowing that the ramp is going to continue to probably accelerate. But that does take time to get installed, commissioned and validated before we can run finished product through there.

Unidentified speaker, Host, Barclays: Yes, it makes sense. Amount of timing. Got you. I’m going to turn the page here and go to the inventory destocking that has plagued the entire bioprocessing and supply chain for the last few years. It seems like it’s almost should be finished for you guys and be a little bit more.

You talked a little bit about there’s still some effects that you’re seeing there on the generic side. Give us any type of visibility you have, update there on how you think about that kind of rolling off?

Eric Green, CEO, West Pharmaceutical Services: Yes, I think it’s contemplated when we talk about the high value really a lot of this concentrated on the high value product components. We think about the biologic continues to persist in the first quarter of twenty twenty five. And then the generics is pretty much we think believe are planned throughout 2025, it might be sooner. And as you know in biologics, the components used in that space is their HPP portfolio and generics is roughly a little over half of our products or HPP in that area. That’s contemplated when we say HPP components will grow mid to high single digits in 2025, which is a material improvement from last year.

So we’re seeing the destocking starting to play through and visibility of orders, visibility of future demand planning over the next multiple quarters with our customers gives us that lens that we’ll be building throughout the year and going into 2026. And our position in HVP components continues to be extremely strong. When we look at the new approvals, particularly in the biologics and biosimilars, our participation is extremely high, hasn’t changed. It’s roughly around 90%. And that’s one big driver of this growth that we’re going to see coming through.

And obviously, after the destocking effect, the other two key drivers we talked about earlier was around GLP-one and ANX-one, Annex-one, but all three are cumulative that allows us to get to strong growth as we have. Just a real recap, if you look at the last five years of HPP components, it’s very strong in taking out devices and anything else. It’s very it’s strong in double digits, close to double digit growth. And that is the thesis of WES growth. And we think about the drivers for future growth are consistent,

Unidentified speaker, Host, Barclays: but what has been added to this, not incremental, but added

Eric Green, CEO, West Pharmaceutical Services: to consistent, but what has been added to this, not incremental, but added to ensure that we get to the back to our financial construct is this regulatory change that’s occurring in Europe. And we’re seeing the projects and it will be materializing in 2025 will get us that assurance that type of growth of for HPP components for to hit our financial construct.

Unidentified speaker, Host, Barclays: Yes. And on an excellent, we were sitting here last year, we were talking about the benefits and the tailwinds here. Talk about the conversion that you’re seeing and kind of the momentum that you started to build now and talking about it kind of continuing through 2025. What’s taken so long for this to kind of play out because it’s not a relatively new regulation?

Eric Green, CEO, West Pharmaceutical Services: Yes. So in our within primary containment, the sterility of ensuring sterility of the primary containment that has been written in late or in 2023. A number of these projects that we have with our customers commenced, let’s say, in 2024. And it takes we’re seeing on average between twelve to twenty four months to really bring it into commercialization. So we’re supporting our customers to take in standard material components within our elastomer business that has readily historically been provided in bulk format.

And now with our customers, they’re making a decision of do they build the infrastructure on the pharmaceutical washing, sterilization, envision inspection and potentially the finished packaging process. As we think about this, they’re looking at the investments they have to make and then they look at working with us saying at West, we can provide that service for them, which we have been doing and that’s been the thesis of HPP for a number of years. So these projects are very specific on certain molecules in market that might have a legacy formula with WES that we’re now putting in through these different processes and we have to do the analytical testing, the documentation and the filing to support them to make this transition. So it does take time. We do believe this is a long journey.

It’s going to be multi year impact for West and continue to drive conversion of current volume in our standard components in bulk format into some part of our HVP portfolio. And so it’s incrementally positive from ASP and also from a margin perspective, but also supporting our customers and ensuring that they’re meeting the regulatory requirements in Europe. The last driver of this is that a lot of our customers are not just looking at for product going into Europe, but looking at how do you standardize across the globe. And so we see this as a net benefit with a considerable amount of our customers and products in the market today.

Unidentified speaker, Host, Barclays: They’ll eventually convert as well. Yes. I guess from like where are we in the documentation portion, getting things ready and starting to actually drive that conversion of the product? Where are we in that step of the cycle? Is it something where you have to do this for each category or is it just something you can do bulk upfront and then we’ll

Eric Green, CEO, West Pharmaceutical Services: hit the switch? Each, unfortunately, we have to do one at a time. We can do a parallel process obviously with multiple customers. We have over we mentioned we have over 200 projects in flight as we speak. A lot of them started in 2024 that continues to build and we see roughly about half of them start materializing into some type of revenue contribution in 2025.

So again, it does take time, but as we layer on these projects and move them to completion, we’ll see the revenues start pulling through. We did say that we’ll see incremental benefit in 2025 of this transition that’s occurring with Annex one, which we did not really see all that much in 2024. Right. And so I think

Bernard Birkett, CFO, West Pharmaceutical Services: one thing is important to understand. One, it’s customer specific that it is each customer has a project. It’s not us running projects and then going to a customer. We’re working in partnership with our customers and they really decide on when they convert and what they convert to. And so that is something we manage with them.

So I remember back as we were talking about it here last year, again, we were saying it is a multi year process and it is going to build over time. So it’s we don’t believe it’s like a J curve or a hockey stick or anything like that. You are you have customers who are early adopters of changes and then some take longer to make that change. And again, as to what extent they want to change as well, we’ll be down to the customer. So there are many different permutations as to what can be offered here.

And it really feeds into that or LRP growth over a number of years. It’s not just a one and done.

Unidentified speaker, Host, Barclays: Got it. And is it something with the customer specific? Is it something where they have I imagine if they have existing products, they’re going to be there’s a lot more inertia to switching than if you have like new products coming on?

Bernard Birkett, CFO, West Pharmaceutical Services: So essentially what they’re doing is converting existing business we have with them through that we’re providing standard products. So it’s really converting existing volumes. So we don’t need volume growth essentially off that. It’s existing business that we’re adding HBP processes to. And then as Eric said that increases the ASP and increases the margin and the return tools.

Unidentified speaker, Host, Barclays: Yes. Got you. Let’s jump into contract manufacturing in the last third of the talk. You guys exited two CGM contracts. There’s not a lot of CGM players out there.

Just kind of walk through the decision to do this. And how fungible is this kind of kind of how fungible is this capacity within that Centimeters business?

Eric Green, CEO, West Pharmaceutical Services: Yes. So in both cases, we’ve been working with a couple of customers over ten plus years on older generation of CGM. The model that we have in contract manufacturing is that while we provide the facility, the infrastructure, the engineering, the talent to be able to install and scale and do mass manufacturing, Our customers are paying capital with their proprietary or their IPs of technology or automation that does the assembly of the product. And it is specific for a product. And in this case, we have a customer that has been we’ve been working with for a number of years obviously, and they’ve been looking to the next generation or two generations to adopt in the marketplace.

We will continue to support them on an older generation and that demand has kind of persisted for a little bit longer than we anticipated. So we typically see seven to ten years and potentially longer with these agreements, these contracts with have our customers on contract manufacturing. So the asset’s fungible in the sense that when they pull their technology out, when they decide they no longer need that product for the market or they have a next generation that we’re not going to participate on, they will pull the asset the lines out of the facility. We’ll repurpose the facility for the next business that we bring in. That’s also going to be the case and later in 2026, we received information of another customer that has decided to bring a lot of the production in house of the next generation.

We saw it in both cases, there’s an element of both in sourcing versus outsourcing. So in that case, that space will be repurposed later in 2026 going into 2027 for other customers that are highly interested in that space. The target customers that we have today are around pharmaceutical drug delivery. If you think about auto injectors, if you think about pens, pharmaceutical drug delivery. If you think about auto injectors, if you think about pens, that’s a space that we’re really focused on.

And if you think about why did West not participate in the next generations, we just look at the economics and said that part is actually dilutive to the overall Centimeters and we want to stay where we are with our margin profile, with our returns and that’s why we’ve repurposed that space for higher profitable business that will be coming down the road. Centimeters business, while this is occurring, we are also ramping up on long term agreements with the customers on GLP-one’s auto injectors, particularly in The United States and our Grand Rapids facility, but also in Dublin. What’s unique about Dublin is not only will we be doing the injection molding and the assembly of the auto injectors, but we’re also been asked by our customer to do the drug handling in this dedicated facility, which allows us to actually move downstream. This is not Phil Fisch, but this is the drug handling, bringing the product the drug material with contact with the auto injector then going into the market. This is obviously to support our customers on their growth.

We’re creating value. We have know how because we have a couple of projects that we have been working on with other clients on a smaller scale. But we’re really excited about this opportunity because the customer is pulling us into this direction and we could have further expansions in other parts such as The United States to support our customers on drug handling. Better margin profile, it doesn’t mean that we’re going to flip the contract manufacturing business overnight, but it does reinforce our focus on margin value creation and see the margin expansion and also healthy returns on our investments.

Unidentified speaker, Host, Barclays: So you talk about the GLP-1s and the CN business being route like 40 of the overall business. So you’re talking about building out capacity in the Dublin Grand Rapids, the CGM contracts, you’re repurposing those into higher margin and higher growth businesses arguably opportunity more for GLP-one. So fast forward like two, three, five years depending on assuming that GLP-1s are panacea of drugs that everybody expects them to be like is this going to be majority of your business probably as we kind of train that out? No, I think what you’re going to

Eric Green, CEO, West Pharmaceutical Services: see in contract manufacturers because we’re obviously we have several other type of delivery devices for other drug categories that we support in that business. We’ll continue to diversify that portfolio as such. We will support in certain cases of further GLP-one, but I wouldn’t say it would be taking on majority of Centimeters long term. On the proprietary side, it’s different. Yes.

So we are in very well positioned to be able to support all the GLP-one drugs in the marketplace through our elacomeric components. And we have been entrenched with our customers for decades. We feel really comfortable where we are in that space. And it’s very, very high market share in the proprietary side. In contract manufacturing, I think the way to think about that is they derisk by having one of four, one of five different suppliers using their technology to manufacture.

So we would be in the neighborhood of 20%, twenty five % type of market share for a client, which is pretty typical. But in the proprietary area, it’s very different and better economics.

Unidentified speaker, Host, Barclays: And on the proprietary side and elastomer especially, there’s been a fear that other competitors can come in lower costs. Talk about what you’re seeing from that part of the market, new entrants or even just the pricing dynamic around there. I mean, you guys are assuming like spec day and like how hard is that for them to switch?

Eric Green, CEO, West Pharmaceutical Services: It’s difficult, but we’re cognizant of the fact every day we continue to look at how do we improve the technology, how do we improve quality, how do we improve service. We have scale. And there’s no doubt that WES is the largest player in elastomer components in the industry by far. And our win rate or participation rate on new molecules supports that we are continuing to be at that high level of participation, particularly in biologics still in small molecules and also in the generic space. What we are also cognizant of is that in the supply chain with COVID, a drive to make sure that they’re not solely dependent on a player.

So as you think about new approvals, the question is how do you primary and secondary? And we continue to be the primary like we have historically. But I think we have to be cognizant of the fact that competition wants to get in. And we don’t believe in a cosplay or a price play. We are still think about a percent or less of the cost of the drug molecule with our customers.

We have to drive the service. We have to drive the quality and the technology. And as we stay in the forefront, we will we believe we can continue to be the leader in that particular space.

Unidentified speaker, Host, Barclays: Quality and reliability is still the biggest driver.

Eric Green, CEO, West Pharmaceutical Services: It’s the biggest driver. And you think about it, it’s as I said, it’s about 1% or less of the cost of drug molecule. But if we’re not able to provide product that caused a major issue on drug availability in the marketplace. And we pride ourselves on even during COVID, we’re able to deliver product to our customers on the core business basis is why we supported the COVID fight with vaccines. So we have the scale, we have the capacity.

There is a push towards HVP and this catalyst of not just some biologics and GLP-1s, but there is a catalyst around Annex one. And the capacity we installed for COVID is fungible for these initiatives and these growth drivers. So we’ll be able to repurpose, get better leverage and build support the growth for a number of years ahead, particularly around proprietary HVP components.

Unidentified speaker, Host, Barclays: It feels like a transition here.

Eric Green, CEO, West Pharmaceutical Services: I appreciate it. Thank you. I appreciate your time.

Unidentified speaker, Host, Barclays: Yes. Thank you, Eric.

Eric Green, CEO, West Pharmaceutical Services: All the best.

Unidentified speaker, Host, Barclays: Thank you.

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