West Pharmaceutical Services, Inc. Price & Performance (WST)

Please refer to today's press release as well as other disclosures made by the subject, including our 10 ks, 10 Q and eight ks reports. During today's call, management will make reference to non GAAP financial measures including organic sales growth, adjusted operating profit, adjusted operating profit margin, and adjusted diluted EPS Limitations and reconciliations of the 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, Please go ahead, Eric.

Thank you, John, and good morning, everyone. I would like to begin with some comments on the fiscal year and fourth quarter twenty twenty four followed by Bernard's detailed financial review and 2025 guidance. Then I'll close with some final thoughts on our business outlook. Starting on Slide five, looking back at 2024 West, West executed on several key strategic initiatives.

First, we capitalize on opportunities with the fast growing GLP-one market.

And continued our strong win rate on newly approved molecules, particularly in biologics. Second, we made a great strides to reduce our manufacturing lead times in some case below pre COVID levels. And we believe that industry wide destocking is now close to the end. As customers are generally returning to more normalized ordering patterns, Third, we returned over $560,000,000 to our shareholders through our share repurchase program during the year. And finally, we made strategic investments in additional HVP capacity, which we expect will drive incremental growth for years to come. Shifting to fourth quarter on Slide six. There were several notable achievements. Results were above our expectations as revenues increased 3.3% on an organic basis. And the quarter marked a return to quarterly revenue growth.

Proprietary EpiCotic organic revenues decreased 4.5% in the fourth quarter this represents a continued improving trend as proprietary products organic revenues declined year over year in each of the three quarters of twenty twenty four largely driven by destocking. Finally, adjusted operating profit margin was 21.7% West, roughly in line with prior year. Moving to Slide seven. West Proprietary Products segment can be broken down into three categories: HVP components, HVP delivery devices, and standard products.

I'm pleased to report that HVP Components the most important contributor to less long term growth is starting to show signs of strengthening. And we expect this positive momentum to continue. Our current expectation that HVP component revenues will grow mid to high single digits in 2025 West we anticipate that we will see a continued mix shift to HVP in 2025 and beyond. A key performance driver is the biologics market. We expect this end market to continue to grow high single digit to low double digits. And we have a consistently strong win rate participating on approximately 90% of new molecules entering this market. Our HBP GLP-one elastomer business is performing well. And we expect an acceleration in growth due to the continued market expansion of this category, I would note that we have just agreed to terms for a multiyear contract with one of the largest manufacturers for all of their GLP-one primary packaging elastomer needs. We remain particularly encouraged with the progress from our customers adopting Annex One. For those unfamiliar with the EU GMP Annex one, it is the set of regulations that govern manufacturing of sterile drugs in the European Union. Annex one requires companies filling sterile medicines contamination control strategy that assesses risk in their facilities and defines action plans prevent the contamination of the sterile products.

Currently, we have over 200 Annex One projects in various stages with our customers. While the regulation went into effect in August of twenty twenty three, some customers early adopters in a shift towards HVP and we now have additional customers in the pipeline. It generally takes about eighteen months for customers to shift from standard to HVP products as they address Annex one. Moving to Slide eight, high value delivery devices. The biggest growth driver for this business in 2024 is our wearable On Body Injectors SmartDose. We are working to optimize our manufacturing process with our new automation line coming on stream later in 2025 West. Which will more than double our SmartDose capacity and drive efficiencies. While we categorize and view SmartDose as an HVP product, we expect that in 2025 West, it will be margin dilutive. We are taking steps to improve our delivery device economics and all options are on the table. Moving to the Standard Products, These are the bulk products that we produce across our global manufacturing network. These products tend to be on the lower end of price and margin. The standard components are mainly used by our pharma and generic customers.

Turning to Slide nine, in contract manufacturing, we have made significant investments to build out our GLP-one device business. The business is growing strongly and now accounts for approximately 40% of our total contract manufacturing. We anticipate the GLP-one growth to continue as our investments in Dublin, Ireland and Grand Rapids, Michigan There are two large continuous glucose monitoring customers [indiscernible] In both cases, these customers develop next generation devices. We have made the decision to not participate going forward as our financial thresholds cannot be achieved.

One of these customers has started to exit and the other has let us know their intention to exit in mid-twenty twenty six. We're actively pursuing opportunities in Centimeters that more closely align with our margin and capital return requirements. Taken all into account all these factors, we expect a return to organic growth driven by the strength of our HVP components business We have a highly profitable core business that will bridge West through these temporary impacts we will be taking steps in the coming years to address these areas where we want to improve returns and we 2025 was solid momentum. Now I'll turn the call over to Bernard. Bernard? Thank you, Eric, and good morning. I will take you through the drivers impacting sales and margin in the quarter, well as some balance sheet takeaways. And finally, we will review our first quarter and full year 2025 guidance.

First up, Q4. Our financial results are summarized on Slide 10. We recorded net sales of $748,800,000 in the quarter, representing organic sales growth of 3.3% Looking at Slide 11, Proprietary Products organic net sales increased by 4.5% This was a function of generally improving demand and strong sales of delivery devices in the quarter. Fourth quarter revenues included a $25,000,000 benefit from a delivery device incentive. High value products, which met up approximately 74% of 4Q proprietary product sales, generated mid single digit growth led by customer demand for self injection device platforms. Looking at the performance by market, Biologics experienced high single digit organic net sales growth driven by increases in sales of self injection device platforms. Pharma saw mid single digit organic net sales growth driven by an increase in sales of Weststar products and administrative systems Generics had a mid single digit organic net sales decline. Driven by lower volumes of Fluorotech products Our Contract Manufacturing segment declined by low single digits recorded $273,600,000 in gross profit and gross profit margin was 36.5% one hundred and fifty basis points year over year. Adjusted operating profit increased to $162,800,000 this quarter. And adjusted operating profit margin of 21.7% was consistent with the same period last year.

Finally, adjusted diluted EPS declined 0.5% for Q4 The stock based compensation tax benefit had no impact on EPS West year. Now let's review the drivers in both revenue and profit performance. On Slide 12, we show the contributions to sales growth in the quarter. Sales price increases contributed $39,300,000 or 5.4 percentage points.

Included in sales price is a $25,000,000 customer incentive associated with achieving volume levels. The pricing benefit was partially offset by a negative mix impact of $15,300,000 driven by lower sales volume of HPP components and a higher proportion of lower margin drug delivery device In addition, we faced a foreign currency headwind of approximately $7,200,000 in the quarter. Looking at margin performance on Slide 13. Proprietary Products fourth quarter gross profit margin of 40.8% one hundred and ninety basis points lower than the margin achieved in the fourth quarter of twenty twenty three. The key driver for the decline was product mix. Contract manufacturing fourth quarter gross profit margin 17% was 90 basis points lower than the margin achieved in the fourth quarter twenty twenty three. On Slide 14, we have listed some key cash flow metrics. Operating cash flow was $653,400,000 in 2024, a decline of $123,100,000 primarily due to a decline in operating results. In 2024 West, we spent $377,000,000 on capital expenditures, a 4.1% increase over 2023 West. We continue to leverage our CapEx to increase our high value product contract manufacturing capacity. Working capital of approximately $988,000,000 decreased by $277,000,000 from 2023 mainly due to a reduction in our cash balance.

Our cash balance at 12/31/2024 of $484,600,000 $369,300,000 lower than our December 2023 balance, The decrease in cash is primarily due to 5 and $60,900,000 of share repurchases and our capital expenditures offset by cash from operations. Turning to guidance. Slide 15 provides a high level summary. Full year 2025 net sales guidance is expected to be in a range of $2,875,000,000 and $2,905,000,000 There is an estimated headwind of $75,000,000 based on current foreign exchange rates, We expect organic sales growth to be approximately 2% to 3%. This guidance assumes acceleration in HBP, organic growth and that HVP components margins will expand, driven by a Biologics, GLP-1s and Annex one. We anticipate organic revenues in our Proprietary Products segment to increase as the impact of destocking continues to abate. Proprietary Products gross margins are expected to be up slightly as compared to prior year. Driven by improving HVP components performance. Contract manufacturing revenue is expected to be up low single digits as compared to FY 'twenty West. Decreased revenue in continuous glucose monitoring business offsets expected growth in self injection devices for obesity and diabetes. Contract manufacturing margins are expected to decline 200 basis points year over year in FY West five due to lower utilization.

Just to note on the ramp up of our two Centimeters sites, In Dublin, the building is now up and running.

Auto injector production has commenced and will continue to ramp we move through the third and fourth quarters. Late in 2025 and into 2026 West, we expect both revenues and margins to benefit from the ramp up in the pain and drug handling portion of the business. The Grand Rapids expansion is also operational. And we have our first revenues in the third quarter of twenty twenty four. These revenues will increase as we achieve scale in mid-twenty twenty five. Our experience with new installations is that they take up to to eighteen months to achieve close to full capacity. Moving on to Slide 16, For 2025, our EPS guidance is now anticipated to be in a range of $6 to West Please note, we have several exciting incremental opportunities not incorporated in this guidance and we will update you on these in 2025 should they materialize. Slide 16 breaks down the progression 2024 EPS of $6.75 to the 2025 guidance range. The guidance anticipates that proprietary products revenues Excluding the impact of our drug delivery device 2024 incentive, Center compensation, plus the tax benefit on stock based compensation which is not incorporated in our guidance. And the currency headwind total to about $0.77 The drug delivery device incentive headwinds and glucose monitoring transition reduced 2025 EPS by about $0.43 and incremental investments in R and D and and A in 2025 are $0.22 In total, these factors get us to our 0.25 guidance range of $6 to West For CapEx, we are on a glide path back down to our traditional 6% to 8% of revenues to support our long range plan.

We now anticipate 2025 CapEx of $275,000,000 down $100,000,000 from 2024 We expect that 2024 will be the peak investment year for our growth initiatives over the next several years. Finally, today we are introducing first quarter twenty twenty five guidance and anticipated revenues in the range of $680,000,000 to $690,000,000 which translates into 1% to February organic revenue growth and first quarter twenty twenty five adjusted EPS is expected to be in the range of $1.2 to 1.25 I'd now like to turn the call back over to Eric. Thank you, Bernard. To summarize on Slide 17, we are pleased with the strong finish to the year. And with the opportunities ahead, I'm confident we will deliver on a successful 2025 for West, Our performance in HVP components is encouraging and we are seeing a return to growth in our proprietary business because of our continued success in biologics, GLP-1s and the adoption of ANX-one. We anticipate that 2025 will be an important year that positions the company for the future success. We intend to capitalize on our strengths and continue to address areas that require additional attention. In closing, would like to thank our team members across the globe for their unwavering dedication as they continue to make a difference in improving patients' lives, With that, operator, we are ready for our first question.

Thank you. Our first question comes from the line of Michael Ryskin of B. A. Global Research. Your question please, Michael. Thanks for taking the question guys. A lot to unpack here. I'm going to ask it's going to be one West, but I'm going to ask a big one. So if I just look at the fiscal year West EPS guide, obviously, it's well below expectations. I appreciate the color on the bridge, the progression from twenty fourtwenty five, the moving pieces. I want to get at is sort of like what's a one time versus a reset to a new base? So if I look at R and D, SG and A investments, that seems like that's sort of part of the model, right? We can debate tax, FX, incentive comp. It fair to say that everything outside of the contract manufacturing CGM issue is sort of the new base and that $6.06 West guide is the new models for West that we're moving from And if so, anything additional color you can give us on that contract manufacturing in Air Pocket? I think you just said in the prepared remarks about a 200 bps margin impact sort of what's your outlook for being able to patch that hole to bring something else in and West sort of regain some of that EPS out of pocket that you're getting?

Thanks. Yes. Thanks for the question, Michael. So when we look when we look at the guide, a lot of these impacts are impacting 2025 particularly and if you look at drug delivery device, that is a mix impact in 2025, but we have a number of initiatives ongoing to expand the profitability in that business We're looking at automation looking at scale, we're looking at more medium turn term adding more customers. So we would expect that to improve over time. It will take a little bit of time for us to do that. So again, we would expect the mix impact to improve. And as the mix improves, over time, EPS also improves with that. And that's what we talked about, I think, and towards the back half of last year and the second half really about the mix impact that we were seeing in our business. As Eric called out in his script, there are areas that we are addressing. If I look at the growth in HVP, we're seeing mid to high single growth, digit growth in HBP with expanding margins, which driving our business are slightly offset in 2025 West. But again, we would expect that to be corrected.

The CGM impact on contract manufacturing again, that's here in the short term. We would expect to replace that business business that has margins more in line with with what our return on investment thresholds would be. And again, so over time, we would see those margins improving. Okay. I mean, any additional color you can provide on the CGM issue. I mean, the way I'm reading it is sort of a it was your decision to walk away from those contracts because of the financial metrics. Just [indiscernible] how bad was that given these were existing customers and we know the CGM marketplace is pretty concentrated in just two, maybe three players So if you've got two customers, doesn't seem like that's something you can replace there. Is that something you can flex to another product line outside of CGM. Yes, Michael, good question. And that's exactly what we're focused on. We've had the ability to support our customers with CGM for the past ten plus years. In particular, the technologies that were introduced Early on, in the ramp up of CGM in the marketplace. So we've had a strong position as new technologies were developed by our customers We did take the decision based on the economics that West did not meet our financial thresholds.

And That is that decision was not taken lightly. But we wanted to make sure that we preserve the financial construct we believe is appropriate for that business that we provide in our contract manufacturing space. So therefore, we're doing a really well scheduled ramp down as they can move into the next generation through whether they're in sourcing some of it In fact, many cases, they're in sourcing So that was the decision we made. And that is we will reuse let me state it clearly though there is space that would be available which is being looked at and worked on with other customers to build support future launches and future product portfolios that we'll put into contract manufacturing going forward. So the impact will be in 2025 West we'll move through it. It's offsetting us on the GLP-one growth. And other Centimeters business that we're bringing in. Thank you. Thank you. Our next question comes from the line of Larry Solow of CJS Securities. Please go ahead, Larry. Great. Good morning, gentlemen. I guess first West, just on proprietary product side. And again, I know you don't guide to segments, but it sounds like just the general outlook there is positive, and does that scale up as we go through the year?

Or obviously that gets Q1 sequentially or seasonal usually a little bit slower. But is there any inventory issues on that continue to wane as we move forward? And then the second part of the question West, so it sounds like the core HVP is doing okay, but there will be a little bit of transition on SmartDose and lower margins. Maybe you can give us a little more color on that side of the equation too?

Thank you, Larry, and thanks for the question. So, Nue, you're absolutely correct.

Let's take a look at proprietary as a whole. The key drivers of that business we'll start with is the HVP components. That has been the thesis of growth for West for a number of years. And we really West still very feel strong about our prospects and the current pipeline that we have in place. What's driving it? Number one, biologics. As we think about our continued strong position in that We mentioned that we're still just looking at the past year, past quarter, we still have a very high participation rate of all new launches that have been approved.

Around 90% plus. And I just want to be clear on that. We do put by value proposition to our customers and the economics are are the same for us. We are in the top 50 biologics And when you think about the pipeline of biologics that are being developed, it's quite robust. And so we feel really good about this space. That growth will continue in the near term of 2025, but well beyond that. The second lever is GLP-one's. And our position in GLP-one's is not just in contract manufacturing, but we have a very strong foothold in the proprietary HVP elastomers.

Primarily providing plungers for the largest players in this space. We did comment in our prepared remarks that we have secured a long term contract with one of the customers provide all of their proprietary elastomers needs in the GLP-one space.

And we are working with the another customer to continue to have majority of their needs going forward.

So that is the GLP-1s. And to give you a little context there, it's about mid single digit from a in 2024, West size of the business against all the proprietary The third area is the Annex One.

And we talked about it, but we're starting to see the instead of talking about the pipeline, actual projects that will turn into revenues in 2025 We're actually quite encouraged. We had an increase of interest in projects we've launched well over 200 more than double digits from the last quarter I mentioned, And roughly around 50% of those projects will turn into some sort of revenues throughout the duration of 2025 West.

We believe that's going to give us about 100,000,000 to 150 basis point growth expansion West in that particular area. So HEP Components very strong going forward. You asked about the destocking It's consistent to what we said on previous quarters. We believe pharmaceutical or pharma customers have normalized biologics is becoming more normalized as we where we are today. And then we believe generics will become more normalized throughout the duration of 2025. So consistent to what we have said, before and that's all based on the more consistent ordering patterns of our customers going forward. I do want to touch on SmartDose because you asked about that topic. SmartDose, we have been in the wrap up mode in 2024 West.

We onboarded Phoenix site in the later part of first half of twenty twenty four. As you know, it takes time to get to full efficiencies of a particular site It was another expansion of manual processes So when Bernard talked about we're going to drive automation that's in house. It will take pretty much 2025 West we can bring them forward. We will. But we will be driving more towards automation to take costs down. We are looking at scale as the volumes are increasing significantly for us for our customers. And in addition, more midterm, we're looking customers. But I will say it is we are looking at the the portfolio specifically around this device and determining the best actions forward to ultimately increase shareholder value. So that's our focus. On here while maintaining and supporting our customers and their patients. So those are the key topics. I believe I covered the yes. Any other Larry, any other No, that was really good color. I guess West to follow-up, anything you can add, just maybe a little tease on where the the incremental opportunities not included in guidance? Any is that just a bunch of different things across the P and L or is there anything specific we could point to there?

Thanks.

Yes, Larry, I don't want to create a wider range here. I just want to say that I do believe the way we look at our guidance is business that we have very clear visibility of and very confident that we can execute against I'm confident in our team I do believe HVP Components is a growth driver for this business. It's showing up very strongly early on in 2025 West we expect that to drive. I mentioned the three areas Biologics, GLP-one and Annex one. These are very discrete projects, initiatives that we have our hands around. And then we have to fix Devices, particularly one part of that portfolio and that is a focus of the team and we need to improve the profitability and we do not have a lot of time to get that done. So that's the pending. And I expect the teams to over deliver. But I'll leave it to that. [indiscernible] follow-up on that, Larry, number of these opportunities, some are more in the short term and then more some are medium term. Opportunities. And we'll update as we go through the year as to how they're transpiring. But just to put it in context that we have the ability to respond quicker than we probably have in the past based on the particularly in our HPP sites over the last number of years.

So we have that ability or our lead times have come down considerably. So we're in a better position to take advantage of those opportunities. When they present themselves.

Great. I appreciate all that. Thank you, guys. Thank you. Our next question comes from the line of Patrick Donnelly of Citi. Your line is open, Patrick.

Hey, guys. Thank you for taking the questions.

Maybe another one on the GLP side, just diving in a little bit there. Can you talk about the growth you're seeing from that market, particularly [indiscernible] we did get a decent amount of questions just on the oral side. There's going to be a few readouts here in the relative near term. Maybe just frame up how you think about the impact of orals, what that means to the market and how you guys see that playing out? Yes, Patrick, good morning. Thanks for the question. We do believe that from our lens and speaking with our customers that there will be an oral impact in the market We do believe, however, majority of the delivery will be injectable. [indiscernible] and our models are built around a shared portion of the two. So that's how we kind of looked at our investments.

We make sure that we safeguard the capital we put in to build support GLP-one and particularly around Centimeters, where we have very clear levels of demand or volume requirements that need to be take or pay type environments for a number of years. So we're protecting that area. And as you know, in the proprietary side, the elastomers lot of those resources are fungible. But we feel really good about GLP-one. Right now, as I mentioned, proprietary elastomers is roughly mid single from the whole portfolio perspective of proprietary Centimeters is 40%. If I think about the ramp up a lot of the ramp up has been around Centimeters with our infrastructure expansions particularly in Grand Rapids and Dublin, more to come. As we get the capabilities online. And more exciting is that in Centimeters, we're going to have drug handling capabilities the end of twenty twenty five, early twenty twenty six.

Which is an expansion of our capabilities, but better better margin profile for for West. On the proprietary side, that's going to be the fastest growth area in 2025 for us. Actually, it's think about a two third versus one third between the two units. And that is in line with our customers' expectations and our position with both of them from a from a, what do you call it, penetration rate of success win rate with both customers. [indiscernible] Then maybe Bernard, just to build on Mike's question earlier on the margins. Can you just talk about, I guess, the build as we work our way through the year? I'm just trying to think about the right exit rates, the right way to build into 2026 West. And again, there's West product mix driven manufacturing ramp, just talk about those moving pieces and again maybe the progression as we go through this year would be helpful. You, guys. [indiscernible] on the guide we put out, Q1 is the most challenged from a margin perspective. We still see a little bit of destocking, particularly impacting generics, maybe a little bit on the biologics side. And that is we progress through the year to get to our guide, we would expect to see improvement on the margin front.

And that's coupled with the growth in high value products, particularly around the containment the areas that Eric talked about GLP-one, Annex one and Biologics. And then the return to growth of HBP. And as we progress through the year. That helped. West question West from the line of Doug, your line is open, Doug.

I'm doing well. Good morning. Thank you for taking my questions. I think three quick ones. I'll just rattle through them all at once. First, you have three facilities in Mexico.

I just want to see how you're capturing any potential tariff impact in your guidance. So that's one. The second is, I think based on some of the disclosures in the slide deck, it looks like the math would lead us to conclude that clip one is as a percentage of sales are about 10%. I just want to make sure that's right. And then the third is you talked about several exciting incremental opportunities.

Not included in guidance. And as you talked about things in your prepared remarks, Any chance you would be willing to size up how impactful those could be?

Yes. Excellent, Doug. Thank you.

So the first question about Mexico, we do have a relationship with a company in Mexico's fifty year relationship. Actually, yes, about close to fifty years. We are the minority stakeholder in that business. So The materials that we support them to be able to support the local market but a lot of it's local for local.

On the GLP-one, you're accurate. It's ballpark about 10%. With the GLP-1s of the overall business, But in Centimeters, it's, as I mentioned, about 40% and proprietary is about 5% The growth of that is mid single digits. The growth of that is very attractive We'll look at a couple basis points expansion from 24 to 25 West.

On the GOP one, I I think it's like where your GOPs and proprietary GLPs are above mid single digits for total revenue And then the contract manufacturing GLPs represent about 40% of the contract manufacturing revenues and not our total revenue. And then if we look at GLPs in total, it's really like mid teens of our overall revenues. And obviously, then the economics around those businesses are a little bit different. And what we see most growth, I think back to Eric's comments, two minutes ago, is really around the elastomer side. We're seeing a lot of traction with both well, with the primary GLP-one providers.

The third question around growth opportunities, I mean, obviously, continue to focus on expansion within HVP components. If we can help our customer accelerate some of the launches that they have planned and also the some of the regulatory work that we're partnering with them on with AmexOne. And obviously, we will respond accordingly with GLP-one growth. So those but I think at this point in time, that's probably as much we'll provide on the potential additional growth levers as we think about throughout 2025. West, we'll update and stay we get closer to them having an impact on our numbers. So if kind of hard to give you a sense of what they are now.

Understood. Thank you. Thank you. Our next question comes from the line of Paul Knight of KeyBanc Capital Markets.

Please go ahead, Paul.

Hi, Eric. You've had you've had a long term guide of our construct of 7% to 9% organic growth as we leave 2025 with capacity additions in place and the GLP-one elastomer business in place.

What do you feel about that 7% to nine construct I believe hi, Paul. Good morning. I believe long term if you think about the 7% to 9% of build very strong that we will be able to return to those type of top line performance metrics. And particularly, I think in 2025 West, we'll see ourselves transition into that direction. And to your point, the key thesis of the growth is going to be around HVP components. And proprietary. And so the early signs for 2025 are very strong.

It's not one particular area, it's multiple areas multiple customers, multiple drugs and categories in the marketplace. So we feel that we're getting to more normalized environment which will allow us to get back to that growth algorithm that we had historically.

And then maybe I think Bernard you were commenting on the Dublin GLP-one new site You're expecting what utilization in maybe your excuse me 2025, is it at half of capacity for the year? What's your kind of view on what it's going to be producing relative to potential revenue.

Yes, Paul, I think where it becomes more material is in the back half of the year. We're at the early stages of ramping as we get into the back half of the year, we started to see the ramping around particularly around the auto injector element of the business. And then we get into the later part of 2025 and into early twenty twenty six, that's when we would see drug handling coming on board. So it does take time. We've seen Grand Rapids starting to ramp at a start as we go through the back end of 2024 West we'll see that continuing to 2025 West. Dublin, we won't really see a lot from that facility, I think, the first half of this year.

And you last question, it would be you've signed the drug handling. Does this mean your doing complete component assembly is not fill finish, is it?

No, it's not fill finish. It's final drug packaging. So but we're not doing filfiniti Okay. Thanks.

Thank you. Our next question comes from the line of Matthew LeRue of William Blair and Company. Please go ahead, Matthew.

I'm going to start on the device side. Obviously, that's been a big theme over the last couple of years. There's been investment in space and I know you've been excited about the future there.

You referenced today some of the challenges you've had in terms financial profile as well as converted to an automated line.

Eric, do you use the word maximizing shareholder value as you think about options, which sounds like I guess the question is, is there existential question as to whether that should be a core competency of the company long term or more about operational decisions that would need to be made in the near term to maximize. Profitability?

Yes, Matthew, there's two points to that. One is more near term what we have in our hands, we'll be able to produce consistently high quality product for our customers as we scale because the demand is increasing. And be flawless in the execution of the automation. So we can go from a manual to a automated fully automated process, which will drive efficiencies. And there's other operational excellence drivers that we're going to we are focused on in that area to deliver on. As we scale, we will get better economics But beyond that, we do have to just continue to pressure test what's the future look like for that device, that particular device, because the drug delivery device for us is beyond just one product. We do have a pretty attractive portfolio around admin systems. We do have what we call self dose and also our crystal xenophlines. So if you think about the drug delivery device area, this particular product is one that we're really focused right now to determine what is the long term West option for West.

Okay, understood. And then just on the the multiyear [indiscernible] GLP contract you mentioned. Could you frame what your like how that participation rate and duration of contract would compare to your prior just via a sense for what really is incremental there?

Well, in that particular case, we were on and have his historically been on all the provide all the elastomer components for our customer. And so what this does, it secures that position for multi years. We have not articulated exactly the duration, but it is quite lengthy. And so it isn't a drastic departure of our And as you know, it takes a long time to build that report of credibility in that supply chain. So we feel really comfortable It was a natural progression of our relationship just to secure it. And ensure that we're both aligned on future expectations. That we can help them and support one another and make sure that they they can support their end patients at the end of the day with the drug launches. So it is long in duration. We haven't articulated exactly number of years, but it is very long. And it is a continuation of our participation, which is majority basically all their needs in that market. And that would that come I think, Matt, it's also very important to it supports the growth in the GLP-one market and feeds into The long term construct that we talked about is one of the key drivers there.

Now we've ring fenced that. And so it was very important for us to get that done And again, so it's really supporting that. Growth around HVP over the long term.

Okay. Thank you.

Thank you.

Our next question comes from the line of Justin Bowers of Deutsche Bank.

Please go ahead, Justin.

Thank you. Good morning, everyone. Just a couple of clarifications here to kick it off. Eric, on the 100 basis points of growth expansion from NX1, is that referring to 2025 specifically? Or is that sort of like a a longer term contribution And then on the device part of the business, you said that there's a mandate there And is that related to the contract manufacturing side of the business or also And and prop products as well.

Yes. No, thanks for the question. The 100 West splints I referenced, the 100 to 150 is really 2025 West.

So these are projects that we were sharing with you last year and just want to give visibility that now they're converting into actual revenues for 2025. West takes about fourteen to eighteen months to do the transition, sometimes a little bit longer with our so that's why I wanted to mention it enough to realize that it's starting to becoming impactful for us near term. And we do believe that there's long term [indiscernible] trajectory on this, but we really haven't framed that as of as we speak, but it's been contemplated in our long term growth algorithm for high value products. On the device side, that is specifically my comment was specifically around the proprietary devices. And to be very clear, it's around our SmartDose platform. Okay.

And then a follow-up to that. With the in the prepared remarks, you talked about price and incentive headwinds. And you called out $44,000,000 in the second half of twenty twenty four. Is that Is that ring fence there or is there more to that? And then [indiscernible] HVP mid single digit back in mid single digit growth in this year and then Biologics, high single to low double. Is there any anticipated restock there or are those back to run rate levels?

I'll start with the last one first, if you don't mind. We believe that it's more of a natural back to the growth algorithm that we expect with Biologics and HCP, as we progress through 2025 So we don't see this as a restock since we do believe becomes more normalized. As you know that once you're on the molecule, you tend to be on it for the duration of that drug in the market. And so it's really starting to harmonize with their supply chain needs going forward. On the first question on the I think we mentioned the $0.44 on EPS Not all of it is related to the device but majority is. So a good portion of it is. A little bit some of it the smaller portion is related to the transition that we're seeing of on the CGM business transitioning out this year and then also towards the tail end of last year. I'm sorry, next year. So that that the impact, but we'll obviously use that asset, those that will locations to fill with new contracts new customers that meet our financial construct. So that's kind of how you would look at that $0.44 headwind this year.

Thanks for all the questions. I'll jump back in queue. Thank you. Our next question comes from the line of David Windley of Jefferies.

Your line is open, David.

Hi.

Good morning. Thanks for taking my questions. I have a few. I hope I can squeeze them in. So the first one kind of on the last on Justin's West, I believe that your messaging in the second half of last year as you were seeing the ramp of your on body wearable production and supply to the one key client that you ramping was that you hope to get some of this incentive fee value kind of converted into base price. I gather from the guidance that you're giving around this that you didn't my math suggests that that the incentive fee would have been worth $0.46 or so And so I'm wondering, can you be a little more specific? Did you get some of it baked into into base price, but not all? Or how does that play out if you don't mind?

Yes. The way I would respond to that David, well, first of all, good morning, is that the incentives [indiscernible] the base of the price that we have established so far in 2025 West. So I won't dimension any further, but it is the incentives in latter part of 2024 as we ramped did exceed the going forward [indiscernible] We're also seeing better production efficiencies and yield on that line. So we're improving on the cost side as well as the price. So when we're looking at how do we improve the economics around this device, it's looking at a from both a price perspective and also from a cost perspective. So we're working a couple of different areas on that.

So that gets us to that 33 Got it.

I probably should have started with this one so not to jump around. But the investments in SG and A and R and D what are those specifically and maybe talk to the timely the timing of those, like why do those need to be made now?

Yes. So in the R and D area, specifically the largest incremental that we're making in 2025 is to build out and be prepared for the launch at the end of this year or early next year. Of our integrated system. So this is the for human use prefilled syringe system. That we have been working on with our customers And we actually did launch not for human use, pre filled systems with borosilicate earlier this year, the receptivity was very high. The engagement of customers is very strong. And therefore, we felt really comfortable to continue the planned path that we were on to execute and make sure we hit the timetables that we've established the couple of years ago with this product launch. It's new, it's early, but the adoption is quite exciting. And more to come as we get to that point. But that is probably the largest incremental piece of our R and D from last year to this year. Clearly.

Okay. And on the SG and A side?

Yes. On the SG and A side, Dave, a lot of the incremental costs there is the annualization of costs that were being added as we were getting towards getting through 2024. West when they get fully annualized, it have a little bit of a step up there. And there's some your normal merit increases, but we're not adding any additional resources from an SG and A perspective. So there are really costs that are carrying through and then you're West our annual merit increase Got it. Okay. So then coming back a little bit kind of bringing the device question back in, and this is a little bit of Matt LaRue's question.

So if I I believe covered the company for a long time. I think the Tech Group acquisition dating back to the 2000s in fact is the is the basis of your your kind of foundation of your contract manufacturing business. And I believe the strategic import of that for you is to have the capability to to parlay, so to speak, into some of the injection molded proprietary devices like the On Body that you're bringing to market So I guess it gets back to [indiscernible] The contract manufacturing business is proving to be lumpy. You're moving out of CGM, but into what is now going to be a very high client concentration in the contract manufacturing business And I can understand where you would want to tolerate that for the contribution that could make on the proprietary product side, but the on body wearable devices margins are just not attractive enough to justify pursuing, it doesn't seem. And so I guess I come back [indiscernible] is that pursuit worth it, I guess is the basic question Because if I understand correctly, based on your answer on the on the on body wearable, those margins are probably the lowest in your portfolio at something like 10%.

So sorry for the very direct question, but just really wanting to understand why this makes strategic sense to continue to pursue given the margins, the lumpiness and the CapEx requirement?

Yes, David, as we look at it, let's separate the two on the on box [indiscernible] for the proprietary side, That technology is making an impact but the economics on the scale up has not met our expectations. And so therefore, we have to as Bernard mentioned, we are driving ways to improve efficiencies through operational through automation, and through scale, However, to your question, we are looking at all options right now about of this part of the portfolio long term. On the contract manufacturing side, while some of the skills and resources come out of that group to build support the buildup of that portfolio a while back. It is still a it's independent and it actually does support us when we think about diversifying our top line.

It also allows us to have a larger, more robust relationship with some of the largest drug companies because they're used they're looking to West to support them both on the contract manufacturing side also on the proprietary side. So on a collective basis, that does positions very well in our conversations, in our customer engagements, with some of the largest drug companies across the globe. So while we they do have different economics, CNDA does have different different economics to to our proprietary we expect those investments to have robust returns for that business. And when they don't, we have to make those decisions like we did with So I do believe for diversification of our top line, but same customer segment and spirit of being really focused on injectable that's assets, we are positioned well strategically at this point with both of the businesses.

Got it. I appreciate your patience on the West. Thank you for the elimination.

Thank you, David.

Thank you. Our final question comes from the line of Jacob Johnson of Stephens Inc. Your question please. Jacob West?

Hey, thanks. Good morning. Maybe sticking with Dave's kind of strategic question and following up on comment you just made there, Eric. On contract manufacturing, it seems like a bit of shift in strategy for this segment has historically kind of a lower margin, lower growth business. Seems you're now going after higher growth, higher return projects that maybe are more synergistic with proprietary products. Was this kind of a deliberate change in strategy could happen at some point? Or is this just opportunistic given what's going on in the GLP-one market and maybe related to that? Historically, this has been a low single digit grower. Could it be something more than that as we look out over a multiyear period?

Excellent question. I see two things here. One is in the contract manufacturing space, we think with our position, you're probably looking at mid single digit type growth plus or minus for long term. And you are correct, our focus has been and we started shifting towards conversations with customers to go a little bit further downstream West start to think about drug device assembly and packaging. Which is a higher value capability. And we're we're proving it out while it's early stage. As we talked about, Bernard gave details about the Dublin expansion where we expect to be online with the drug handling These are active conversations we're having with existing customers that have asked us to do manufacturing and assembly of their devices, but now can you bring the drug delivery into the equation? So yes, to answer your question, we're looking at shifting this business to be more differentiated and actually bring incremental value to West as a whole and still while leveraging the global relationships that we have with these large drug companies from an enterprise perspective.

Thank you. I would now like to turn the call back to John Sweeney for closing remarks. Thank you very much for joining us today on the call. An online archive of the broadcast is available on our West site at wespharma.com the Investors section. Additionally, you may access a replay for thirty days following the presentation by using the dial in numbers and conference ID provided at the end of the date earnings release. That concludes the call. Thank you and have a great day. [indiscernible]