West Pharmaceutical at KeyBanc Forum: Strategic Growth Amid Challenges

On Wednesday, 19 March 2025, West Pharmaceutical Services Inc (NYSE: WST) presented at the KeyBanc Annual Health Care Forum 2025. The company outlined its strategic plans amid ongoing challenges, such as destocking in generics, while highlighting growth opportunities in GLP-1 products and high-value offerings. CFO Bernard Birquette expressed cautious optimism, emphasizing proactive measures to maintain supply chain stability and capitalize on emerging market demands.

Key Takeaways

• West Pharmaceutical anticipates continued destocking in the generics segment into 2025.
• Capital expenditure will decrease significantly, targeting $275 million in 2025.
• The company is focusing on GLP-1 product expansion in Grand Rapids and Dublin.
• High-value products are expected to drive a 7-9% long-term revenue growth.
• The Corning joint venture’s first offering is set for 2026, with gradual impact expected.

Financial Results

West Pharmaceutical is navigating a complex financial landscape, with destocking in generics and biologics expected to persist into 2025. However, the pharmaceutical market units have emerged from destocking, showing signs of growth.

• Contract manufacturing is projected to grow at a low single-digit rate in 2025, with a rebound anticipated in the second half as Dublin’s capacity is utilized.
• Capital expenditure will drop to approximately $275 million in 2025, a notable decrease from previous levels, targeting 6-8% of revenues post-2025.
• High-value products, with margins ranging from 40% to 60%, are seen as key drivers for revenue growth and margin expansion.

Operational Updates

The company is ramping up its operations to meet future demands, particularly in the GLP-1 segment.

• The Grand Rapids facility is preparing for increased GLP-1 production, while Dublin will see a significant impact in the latter half of 2025.
• Over 200 projects are underway to comply with Annex I regulations, with expected growth in subsequent years.
• The Corning joint venture is progressing, with its first offering anticipated in 2026, though financial impacts will unfold gradually.
• Expansion efforts are ongoing in Jersey Shore and Alluvion, France.

Future Outlook

West Pharmaceutical is positioning itself for sustained growth, focusing on strategic areas such as GLP-1, Annex I compliance, and biologics.

• The company targets a long-term organic revenue growth of 7-9%, with capacity in place to exceed this if opportunities arise.
• The Dublin facility’s Building 3 is being evaluated for new opportunities, while Phoenix and Arizona sites are considered for drug handling projects.
• No major expansions are planned for the Waterford facility in the next 12-24 months, with a focus on efficiency improvements.

Q&A Highlights

During the Q&A session, several key issues were addressed:

• The unexpected length and depth of destocking prompted a review to improve future preparedness.
• Contract manufacturing agreements typically span 5-7 years, often extending due to significant infrastructure investments.
• Capital expenditure flexibility remains, with potential for increased investment based on growth projections.
• Strong participation rates in biologics, particularly in clinical Phase I and II, suggest a robust pipeline.
• The company is exploring how to support the cell and gene therapies market, given its lower volumes.

Readers are encouraged to refer to the full transcript for more detailed insights into West Pharmaceutical’s strategic plans and financial outlook.

Full transcript - KeyBanc Annual Health Care Forum 2025:

Paul Knight, Analyst, KeyBanc: Good morning, rather good afternoon. This is Paul Knight, the analyst covering life science technology at KeyBanc. Glad to have Bernard Birquette, CFO and John Sweeny, Investor Relations Head to talk about the business and the industry. With that, I guess, Bernard, I guess I would open it up with the destock situation in the world. How do you feel about that right now?

Bernard Birquette, CFO: Yes. Paul, thanks for the invite to talk here today. Appreciate it. Yes, on destocking, this has been a challenging one to predict over the last twelve to eighteen months. What we have been seeing as we went through the back end of 2024, we continue to see destocking in our generics business and also within our biologics market units.

That’s something that we called out, we said was going to take place, I think has materialized pretty much in line with our expectations. And what we’ve seen in 2024 is our pharma market units actually come out of destocking and we’re starting to see some growth there. It was the first one to experience destocking when all of this began. As we roll into 2025, we would expect to see continued destocking within our generics market units, and that’s really around a couple of specific customers and some of the larger ones. And we’re seeing some bleed into Q1 of biologics destocking.

But again, we have to see how that plays out. I think the more experience we’ve got with destocking over the last twelve to eighteen months, I think it’s kind of making us a little bit more cautious in how we approach this From my perspective, I think we’ve got to see how things play out over the next couple of quarters. We’ve got to see demands returning to normal and get a level of sustainability and consistency around that. But it is playing out, as I said, pretty close to what we have expected over the last number of quarters. But again, it has been hard to predict.

So hopefully, we’re getting closer to the end.

Paul Knight, Analyst, KeyBanc: Yes. I think a viable producer in this conference has said demand dropped 50%. So it was pretty harsh setback over two year period.

Bernard Birquette, CFO: Yes. It was. And I think for us and for the sector, I think the length of it and the depth of it has been a little bit surprising. And it encourages us to go back and we got to figure out, okay, why is that the case and understand what are the drivers of this so we can prepare better for the future. I know part of it for us was that our lead times had extended us so much during COVID and shortly with the aftermath of COVID and trying to respond to that, that it caused unusual things within the supply chain and how customers were ordering the quantities and the timing of that.

We are seeing that normalize now. We have greatly reduced our lead times across many different product offerings through layering in extra capacity through our HVP sites, also with customer demand normalizing and has allowed us to get back to pre-twenty ’20 lead times. And that will help us to respond to the market better and hopefully avoid something like this in the future or at least manage it in a different way. Yes.

Paul Knight, Analyst, KeyBanc: And then the positive wave coming seems to be GLP ones. Can you talk about where you are with the opening and progression in Michigan and also in Dublin?

Bernard Birquette, CFO: Yes. So there’s GLP-one is one of the three major drivers for our HPP component business. And it’s also one of the main contributors to the growth around contract manufacturing. So what we are seeing in 2025 is a step up in GLP one growth within our components or HVP component segment, which is very positive to see. We’ve layered in the capacity to be able to support that over the last number of years, and now we’re starting to see traction with that.

On the contract manufacturing side, Grand Rapids is ramping as we speak and we’ll see that continue as we get through 2025. And then in Dublin, we’re seeing the initial phases of the ramp of that facility that will continue through 2025, particularly around auto injectors and pens. And then as we get later into 2025, we will start to see some impact with drug handling and then see the full greater impact of that in 2026. So it is ramping those two facilities. Grand Rapids is a little bit more advanced than Dublin in that process at this stage.

And Dublin will see improve as we go through the

Paul Knight, Analyst, KeyBanc: year. But is Dublin will is Dublin recognizing revenue yet? I think or is that more like starting in 2H, Bernard?

Bernard Birquette, CFO: It will start, we’ll see a small amount in H1, but really the greater impact obviously as we ramp will be in 2H. And you can see that on the growth trajectory and the cadence within contract manufacturing. So we would see contract manufacturing growing low single digits for 2025. First half of the year, we would see revenues and profitability will be down and then that rebounding in the second half of the year as those as that doubling capacity starts to get utilized. And so you see an improvement in revenues and margin in H2.

I think in GLP one and components, probably a little bit more consistent throughout the year.

Paul Knight, Analyst, KeyBanc: Okay. And CapEx has been running at around $370,000,000 3 80 million dollars And is there to say maintenance is around $70,000,000 annually?

Bernard Birquette, CFO: Yes. So, CapEx in 2025, we’ve targeted to be around that $275,000,000 mark. So a pretty sizable step down from the investments that were made in 2024. And that’s primarily to finish off some of the larger projects some of the larger projects that are in flow at the moment. And then as we progress past 2025, we will be targeting to get back to CapEx spend of 6% to 8% of revenues where needed.

There may be some years where we may not need to do that given the capacity that we have installed at the moment and nor destocking, are lower than what we would typically experience. So we have room to grow. We have a number of growth drivers that we have to support over the next number of years. But with the CapEx investments that we’ve made pre-twenty twenty five, we reckon we’re in pretty good position to be able to support ANNEXONE GLP-one from a containment perspective and growth within biologics.

Paul Knight, Analyst, KeyBanc: And the Annex I regulations, those were really concluded, what, a year ago and it’s now you’re starting to see more and more impact from that? Yes.

Bernard Birquette, CFO: I believe it was mid-twenty twenty three, ’20 ’20 ’4. ’20 ’20 ’3. Yes, late twenty twenty three. And we are seeing a lot more traction around Annex 1. The number of projects we’re working on is greater than 200 projects at this point.

That number continues to grow. We’re seeing some revenue impact in twenty twenty five projects that it started a couple of years ago. Again, it’s going to be a small part of our revenue within ’twenty five, but again, expecting that to grow over the next number of years as customers make that transition. It’s predominantly affecting Europe at the moment. So we’ve kind of sized potentially the number of units that could potentially be impacted by that.

However, some customers will be looking at make, buy decisions, whether they do it themselves depending on scale or whether they’ll come to somebody like West to provide that uptick in taking a standard product, moving into HVP, which would typically encompass pharma wash, vision inspection, sterilization, some packaging and pour bags. So there are a number of elements that play into it. It’s like picking from a suite of products, you pick the ones you need that are offerings, they may not pick everything. But yes, now we’re starting to see more traction in that space. My sense is it’s going to take a number of years for it to build out given that today there’s no drop dead date as to when it has to be complied with.

So you have some customers who are more proactive in how they look at these things. They’ve been working on it for a number of years. They’re making the conversions. Then there are some who probably wait until much later in the process before they convert and then there’s some in the middle. So a big opportunity for us, again, the capacity has been put in place to be able to support this.

We have the right level of analytical testing, documentation and filing support to help our customers transition. And so we just have to see how that plays out over the next number of years. And then that feeds into the growth algorithm that we have out there for the long term construct.

Paul Knight, Analyst, KeyBanc: And obviously, it translates to more high value products and clearly the margin profile is what for HVP at this time?

Bernard Birquette, CFO: Yes. It could be like these are typically standard products and your margins are at 20% plus. When they transfer to HVP, the margins could be 40%, fifty %, sixty %. Again, it depends on the configuration that the cost chooses and how many of those HVP processes that they add. So again, from a revenue perspective, strong growth driver feeds into the 7% to 9% over the longer term and also supports that 100 basis points operating margin expansion over the next number of years.

And again, depending on where customers land, it could be stronger. But again, we have to see how it plays out. I think it’s early stages.

Paul Knight, Analyst, KeyBanc: Okay. And then in this era of GLP-1s, are contracts different? Meaning, are they contracting out and contract manufacturing for three years, one year? Do you discuss is there a time that you can talk to?

Bernard Birquette, CFO: On the contracts, regarding contract manufacturing, you’re typically looking at five to seven years. It would be very rare that somebody would enter into a contract in that business for a year given the infrastructure that has to be put in place, both by West as a contract manufacturer, by our customer who they put in a lot of automated all of the automation and assembly lines. So it it requires investment by both parties upfront. So typically, the contracts run five to seven years. In reality, a lot of our contracts run ten years plus and some we’ve had it run much longer than that.

So it’s not a short term investment.

Paul Knight, Analyst, KeyBanc: Yes. And the price escalators are based on what, just raw material costs, etcetera?

Bernard Birquette, CFO: Yes. So, it’s from a competitive perspective, I’m careful what I say, but there are escalators across the cost base as to what it takes to produce the product. So, you’ve in build protection if your costs are increasing within a certain within certain parameters.

Paul Knight, Analyst, KeyBanc: Okay. And Lilly has announced plans to invest $27,000,000,000 in four sites. I know you’ve mentioned that you’ve signed one of two GLP-one players. Will you need to maybe keep that CapEx at a little higher than the $2.75 run rate?

Bernard Birquette, CFO: Based on the capital that we have deployed over the last number of years and based on the level of automation we have around some of these high running products, I would be targeting still around that 6% to 8% of revenues. However, if something did happen where we had to flex and add in more capacity based on a pretty solid growth projection, yes, we have the ability to do that. But again, based on what we have in place today, we have the capacity to support both customers. So one, we have an agreement where we are the supplier. Second one, we’re the number one supplier.

And I know they are doing a second sourcing exercise, which is ongoing, but we do provide both GLT1 providers at this point. Okay.

Paul Knight, Analyst, KeyBanc: What’s the latest on the Corning joint venture?

Bernard Birquette, CFO: Yes. So we’re making a lot of progress with Integrated Systems. You can see from our step up in R and D in 2025 that we’re continuing to develop that product, develop that offering. We’re going to market in ’twenty six. ’26.

In ’twenty six, we’ll have the first offering. Yes. So we’re making a lot of progress. Project is on track. What I do think is it’s going to it’ll take time for it to become a material part of West.

It’ll be a number of years. Yes. We’ll be seeing numbers. However, it’s the next step in in that HVP offering to customers providing a full solution to them.

Paul Knight, Analyst, KeyBanc: We have a call with Samsung Biologics the other day and we also noticed that you’ve added to people in Korea as well. Are you able to win Samsung business or can you talk to that?

Bernard Birquette, CFO: We don’t talk specifically about specific customers. It’s not our practice to call them out. But we are working with the vast majority of the major players. Our operation in Korea is more sales and distribution based. We don’t have manufacturing there.

So our manufacturing for that region will be in Singapore.

Paul Knight, Analyst, KeyBanc: Okay. What other CapEx projects are going on in the world besides Dublin and Michigan?

Bernard Birquette, CFO: We’re finishing an expansion in Jersey Shore and we had some work that has to be done in our French site in the Alluvion. They will be the major ones at this point. And once we get through these larger projects, Dublin, specifically Grand Rapids is less and then there, Jersey Shore, we have to finish out some capital expansion there. And the rest are kind of mainly more regular type capital investments. The larger projects, I would expect to see those kind of slowdown over the next year or two based on what we’ve already done.

And I think it’s important in a lot of aspects to have the capacity in place before the demand comes. Because what we don’t want to find ourselves in a position like we did in COVID where it becomes so difficult to respond, we have to start prioritizing customers and our lead times go way out. And then we have this problem with stocking, destocking. That’s something that we’re actively trying to avoid. So in our business, because it takes twelve, twenty four months plus to put the capacity in place, we’ve learned a lot from the past that in certain areas, we do need to have that in place before the demand comes.

So maybe a time lag as to when it arrives. But for us to respond in the most efficient way possible, we have to be always looking ahead of that curve and have some level of investment going on.

Paul Knight, Analyst, KeyBanc: Do you think we’ve seen a record number of biologic approvals the last two years in ’twenty three, ’twenty four? Are you seeing that in your business?

Bernard Birquette, CFO: Yes. We’re still seeing very strong participation rates around biologics, clinical Phase I and II. And that funnel remains very strong for us. And that’s important because that feeds biologics over the next number of years. So we haven’t seen any shift in that from a negative perspective.

Again, participation rate is high. We’ll continue to support whoever comes to market with the drugs.

Paul Knight, Analyst, KeyBanc: Yes. One of the interesting things about a visit to your facilities where you are is getting an understanding of what’s being tested in stability trials like cell and gene therapies. I think cell therapies maybe were being tested when I was there years ago. But what are you seeing new? Is it antibody drug conjugates now that customers are starting to move more and more into?

Bernard Birquette, CFO: I think on the, in general on Celent Gene, when we look at us, it’s a different type of business model for us because Celent Gene has much lower volumes. So it’s really looking at how do we support that market and what services do we need to have in place to be able to further develop that because if it’s really low volume, it doesn’t really impact our business too much. So it’s we’re currently looking at how do we support that market in different ways. I think that’s where right now, we’re looking at biologics higher volumes, biosimilars higher volumes. Celentine is different.

How we approach that will be different. Okay.

Paul Knight, Analyst, KeyBanc: I would guess that antibody drug conjugates are being more I guess, the word tox is probably not the right word, but it seems to be a perfect fit for your high value products, right?

Bernard Birquette, CFO: Oh, yes. Any drug where there’s a high level of complexity fits the high value product portfolio and particularly at the higher end. So really targeting NovoPure for supporting anything like that coming to market.

Paul Knight, Analyst, KeyBanc: And then in contract manufacturing, obviously, you’ve got some of the runoff going on in glucose monitoring. We’ve been to those factories with you, that factory. How easy or difficult is it to convert to a different type of contract manufactured product, Bernard?

Bernard Birquette, CFO: Yes. So typically for contract manufacturing, what we supply is really the footprint, the injection molding machines and the resources to run those. And then our customer actually provides the automation lines that the products will be run through and then the packaging lines. So when a customer is exiting, they take out all of their equipment and they free up that space. Typically, the business that we’re competing for, we’re able to reuse the molding equipment that we have in house.

Now that the numbers may be slightly different, but they’re fungible. We can move those around our network. So there’s some work to be done given configuration and there may be some facility work, but it’s relatively quickly to get that can be done relatively quickly. The space in Dublin and given the track record of our Dublin facilities is premium space within contract manufacturing. We’re already having discussions about who would occupy that space, what we will put in there.

Again, it has to meet the return criteria that we have for us to participate in that business. But I think as you’ve seen that with the Building 3 that we put in place in Dublin, we had commitments for that footprint before the building was even finished. So there’s demand there for that footprint. And so we’re working through a number of different opportunities. And when we’re in a position to be able to communicate what we’ve done in that, yes, we’ll be clear on that.

But there is demand for that space. And then on the exit within our Phoenix and our Arizona facilities based on the CGM exit there, that’s an area where we’re looking at a number of drug handling projects with a number of customers. It’s not just one it’s not GLP-one related. So that’s an area of the business where we’re looking to expand and build on again as we look at how do we change the economic profiles of contract manufacturing and improve the returns in that business. And the expansion in Belvoir Building 3, do you what’s the size of that in terms of square meters or feet versus what was there already?

It’s probably about 160,000 square feet. It’s probably the largest facility we have of the three that we have in Dublin. I have to go back and check and see what the other ones were exactly, but it is probably our largest contract manufacturing facility.

Paul Knight, Analyst, KeyBanc: And then, I know Waterford finished construction quite a while ago. The factory was very busy a year ago. Do you need to put another footprint down in Waterford?

Bernard Birquette, CFO: I would love to say yes on many aspects. But as of today, I don’t see us doing a major expansion there in the next, say, twelve, twenty four months. We’re doing a lot of the activity within Waterford has increased considerably over the last number of years, But it’s really utilizing the space that we have, driving more efficiencies is what we’re targeting at the moment rather than adding more space. Again, if there’s a specific request and the growth is there and we have commitments around it, we can do it. But nothing in the next twelve to twenty four months.

Yes, yes. Okay. And

Paul Knight, Analyst, KeyBanc: I guess the last question would be regarding the growth rate that you’ve had historically, you’ve been targeting kind of a long term cost of, I believe, seven to eight, Bernard?

Bernard Birquette, CFO: Seven to nine. Seven to nine,

Paul Knight, Analyst, KeyBanc: sorry. With the advent of GLP-1s, why wouldn’t that be going higher?

Bernard Birquette, CFO: Yes. Well, I’ll just be open with it. People ask, well, why isn’t it higher with GLP-1s and Annex one and biologics? Yes. Yes.

And what I’d say on that is like we have to see these materials, these revenues materialize. And these markets are evolving. Annex one is evolving. We’re just starting to get early traction. We believe it’s going to be a strong growth driver.

But I would say, hey, that feeds into the 7% to 9% GLP-one feeds into 7% to 9% because you’re growing on those numbers every year. It’s not as if you don’t count those in your growth. And then strong growth without around biologics. So what I how I would frame it is that there’s a lot of support just for 7% to 9% of the construct. If the opportunities are greater than that, we have the capacity space to be able to deliver on those and to support them.

And I hope they are, but like seven to nine organically and to do it over year over year over year, we do need a number of growth drivers to support that. Yes. Again, we’ll have to hit together and you got to get the timing right. So that’s how I would frame it. And if we do better, great.

We’ll take it. And we have the ability to do that. But you’re we’re also growing 7% to 9% on a much bigger number. It’s not the same as it was five years ago. So that’s how it frames.

Paul Knight, Analyst, KeyBanc: Right. Good. Well, thank you so much for your time today. Good luck with these. I know you’re doing more meetings and appreciate that.

Bernard Birquette, CFO: Thank you. Thank you, Paul.

Paul Knight, Analyst, KeyBanc: Okay. Talk soon.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.