Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter 2020 West Pharmaceutical Services Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today Mr. Quintin Lai, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Catherine. Good morning and welcome to West's fourth quarter and full year 2020 conference call. We issued our financial results this morning, and the release has been posted in the Investors section on the company's website located at westpharma.com. This morning CEO, Eric Green; and CFO, Bernard Birkett, will review our financial results, provide an update on our business and present our financial outlook for the full year of 2020. There is a slide presentation that accompanies today's call and a copy of that presentation is available on the Investors section of our website.

Thank you, Quintin, and good morning, everyone. Thank you for joining us today. West had an extraordinary year of success in the face of the biggest healthcare challenge of our generation, a record-setting year of sales and margins were driven by the base business demand of our components, devices and solutions as well as the accelerating demand for components associated with COVID-19 vaccines and therapeutics. This was accomplished by our dedicated team that was across the globe working tirelessly to show up each day at our facilities, our lab and remotely at their homes to make a meaningful difference to customers and patients. I want to begin by acknowledging these incredible effort and say thank you. Starting on Slide five of the presentation, the past year has truly brought to light the importance of our mission and values that guides our work each day at West. We remain steadfast in our purpose to serve society and lead by example for the communities in which we live and work. Importantly, we continue to manage through these unprecedented times by focus on two key priorities; one, keeping our team members safe and two, ensuring uninterrupted supply of high quality containment and delivery devices required by our customers and the patients we jointly serve. The criticality of our business today is shown in the character and the perseverance of our team members to deliver on our commitments as a trusted partner for our customers. The strength of our performance this past quarter and throughout 2020 demonstrates the forward momentum that we have built over time with our market-led strategy, globalization of our manufacturing network and one West team approach to satisfy market demand.

Thank you, Eric and good morning. Let's review the numbers in more detail. We'll first look at Q4 2020 revenues and profits where we saw continued strong sales and EPS growth and by strong revenue performance primarily in our biologics and generics market units and contract manufacturing. I will take you through the margin growth we saw in the quarter as well as some balance sheet takeaways and finally, we'll review our 2021 guidance. First up Q4, our financial results are summarized on Slide 11 and the reconciliation of non-US GAAP measures are described in Slide 20 to 23. We recorded net sales of $580 million representing organic sales growth of 19.8%. COVID-related net revenues are estimated to have been approximately $46 million in the quarter. These net revenues include our assessment of components associated with vaccines, treatment and diagnosis of COVID-19 patients offset by lower sales to customers affected by lower volume due to the pandemic. Looking at Slide 12, proprietary product sales grew organically by 25.1% in the quarter high-value products, which made up more than 65% of proprietary product sales in the quarter grew double digits and had solid momentum across all market units throughout Q4.

Great. Thank you, Bernard. To summarize on Slide 17, we have a critical role to support our customers as we work to resolve this global pandemic. The participation rate remains very high and our products are being used in this battle. We have strengths in the underlying core business and long-term growth. Our focus on execute, innovate and grow allows us to be more responsive to the changes in the industry. Our market-led strategy is delivering the right products and solutions to our customers. Our global operations network continues to flex and respond to increased demand and capacity requirements and our investments to fuel R&D innovation in digital technology will continue to keep us on the forefront of the industry. The future is promising, but most importantly, we remain grounded by our mission and values each day at West because every component has a patient's name on it. Catherine, we're ready to take questions. Thank you.

Our first question comes from Larry Solow with CJS Securities. Your line is open.

Great. Good morning, guys and congrats on great quarter and year in a tough environment and thanks for taking my questions as well. May be first question,, can you maybe just give us a little more color just on the COVID expectations I think did about $100 million of stake in 2020 maybe a little less, about $250 million or $260 million for this coming year. Can you just give us a breakout, is it -- are you seeing more on the vaccine side, you mentioned some customers are using, it sounds like most are using FluroTec on the vaccine side. Some are looking at NovaPure. Can you give us a higher level maybe just a mix and any color you can add to that will be great?

Thank you, Larry and I appreciate the question. When we started this journey I'd say in the end of Q1 early Q2 of 2020, the primary focus at that point from revenue was more around the diagnostics and a few therapeutics that are being approved for COVID-19 and if you look at the tail end of 2020, it started to flip more towards vaccines and as we move into 2021, you'll see most of -- going from as you said little less than $100 million of the revenues associated with COVID-19 in 2020, our guidance was $260 million approximately for 2021 majority of that will be vaccines related and our participation is very high and the types of solutions that we're bringing to the customers tend to be around FluroTec and in some cases the NovaPure in addition to products that it fills . So that's the transition that you'll see in the mix of type of revenues to support the COVID-19 solution and that aligns up very nicely to the investments we made with additional capital equipment and our facilities to support the increase in demand that we have visibility for several quarters ahead of us.

Okay. And it sounds like I know you said you've accelerated, you talked to us for a couple of quarters, the investment into NovaPure and Westar and FluroTec. Is that the acceleration or the continued acceleration that looks like going into 2020 -- 2021, excuse me, is that sort of ahead of where you thought you might have been even a quarter ago in terms of the outlook for this year spending wise?

Well no, we were actually slightly ahead of schedule of implementation and the teams has done a phenomenal job working with their suppliers and being innovative and getting the materials into our sites or the equipment and then obviously the validation process. So they've been working literally around the clock as many companies are doing to get these lines up and running and validated, but the reality is that the new equipment we installed, we didn’t have a lot of revenues associated to those in 2020 that started pickup in 2021. There is additional equipment that is scheduled in the first half of this year, which is on track and then also within line that we originally talked about prior to capital expenditures. So we're comfortable where we are and further conversation with customers gives us confidence that we're planning accordingly looking at current demand and potentially future demand.

And it looks like the back of the envelop it's about 10% growth excluding like we take our COVID from 2020 and 2021 and I guess that's excluding the current benefit I guess that sort of puts you in line with your sort of 6% to 8% organic growth targets excluding the COVID related sales and that's about in the ballpark.

That's correct Larry, so we still see a lot of strength within the core business and Eric kind of alluded to in his comments also, he felt that's throughout 2020 and we continue to see that as we move through 2021 and then you have the COVID vaccine on top of that.

You're in the ballpark there. So that continues to be pretty much in line with our long-term construct.

Thank you. Our next question comes from Juan Avendano with Bank of America. Your line is open.

Thank you and congrats on the quarter. According to my calculations or a mix there was any customer reclassifications among the customer segments, generics grew about 42% year-over-year and I'd suppose that all of this non-COVID related. Can you confirm with me whether or not this is correct and what drove this significant step up?

Generics was I think high single-digits already double-digits, some are already getting 42%.

I'll check my math on that. And then can you give us an idea about the backlog of committed orders as of the end of 2020?

When we look at the backlog, I'll say that it's stronger than it was in prior-year and the mix of it is more towards the high-value products. The other aspect of the order book is that we're having great success with customers having longer visibility so that we have better opportunities to plan accordingly in our manufacturing processes. So yes, it's a stronger order book, the mix is more towards our high-value product components and we do have longer outlook and obviously on top of that, that's our core business on top of that, you have the vaccines in addition to visibility of what we are responded to over the next several quarters.

Thank you. And I guess that there has been some evolving changes that could happen on the COVID vaccine packaging configurations. Pfizer is now squeezing six doses out of this five dose vial and Moderna might be considering putting 14 doses and supposed to 10 by doing some configurations. Have you taken to accomplish potential changes in the packaging configuration in your COVID-19 revenue guidance?

That's all been taken into consideration with our guidance and so there is two ways of looking at it and it's great that we're able to get more doses per vial to build to respond globally as quickly as possible. Whereas you think about long-term there's obviously future opportunities as you think about moving down to single used vial and/or prefilled syringe which potentially could become a preferred solution long-term. So we take all that into consideration. We feel good about where we are with our capacity and our capabilities and also we're engaged with a dialogue about what does this look like long-term.

Thank you. And then before I get back into the queue, I guess on the contract manufactured products, do you plan to add capacity in 2021 and is there a chance for that segment not to actually deliver double-digit growth in 2021 unless you add capacity?

We've been talking about the growth in contract manufacturing for a while. We've seen that -- we'll gravitate towards mid-single-digit growth and it wouldn't be at the double-digit growth where we've seen over the last number years, just given the nature of that business. We continue to invest and it's part of our CapEx forecast for 2021 and there is a number of growth initiatives in that area and what we have been communicating that the growth rate will become more in line with our overall construct. And I think if you look at Q4, the Q4 number, the absolute dollars was pretty consistent throughout the year with contract manufacturing. It just came up against a really big comp in Q4. So the percentage growth rate looked a little bit lighter than the previous quarters. But from a dollar perspective it's pretty much in line with where we have expected to be and where we have communicated it will be, but we continue to invest in that part of our business.

Thank you. Our next question comes from Paul Knight with KeyBanc. Your line is open.

Could you talk to I think Bernard, you mentioned that there is negative COVID effect. Could you qualify that and is it possible to even quantify how much headwind you had in your past results?

We haven’t really broken it, but we're concentrating on given the net impact to our business, but it's really been in animals health and some in dental, which those two areas are within our Pharma market unit. That's where we feel some slowing down. It wasn't overly material for us and then I think there was some elective surgeries as well that will impact us, but nothing drastic that I would have to call out.

Right and then Eric as you look at these capital expenditures, do you have flip trend that you can just turn around and done quickly or do you have to go from greenfield sites I guess ultimately, how quickly does this come online?

Very quickly, Paul. The work that has been done by the team over the last couple years for globalizing the operations and as you know we moved from 29 plants to 25 plants has enabled us to think about future growth, leverage our existing assets. So it's a very short turnaround. The longest part of the lead time is around getting the equipment built and then there's always validation process associated to that, but all these equipments being put into existing facilities.

Okay. And then lastly, Eric you in your progress on your goal of extreme if I call it that from when you started, are you halfway there, are you full way there or what's your view on what you wanted to accomplish when you arrived?

There's a lot more to do Paul. I honestly believe we're in a very good position to leverage not just what we built today, but what we can do tomorrow for our customers. We're holding the conversations or beyond our current portfolio. We have more work to do on globalization of the enterprise. We have great opportunity to move towards more digital. I am extremely pleased on how the team implemented as for Hana during this pandemic in a virtual environment globally and that's a quite a test and that was done with our internal digital technology center out of our Bangalore site. So you hear by my tone that I think there is a lot of opportunity for us to really have a more meaningful impact on patients and they will support our customers as they move towards new innovative solutions and particularly around the biologic space.

Thank you. Our next question comes from Jacob Johnson with Stephens. Your line is open.

Maybe first following up on Paul's headwind question, as things hopefully reopen kind of falling the vaccine, people return to the doctor and then I guess take their pets to the veterinarian, have elective surgeries. Could there be upside to your expectations around growth in 2021 kind of ex-COVID?

It's very open ended question, as those things happened, yeah ideally we would say there will be some level of upside where we're focused on delivering within the construct and the guidance that we've given now and making sure that we're able to deliver on that vaccine demand to get everything back to normal and then if other markets open up, we will have the capacity in place to be able to serve those also.

And then on COVID work, can you talk about where you're seeing demand from these COVID vaccines and therapeutics by geography? Is this largely focused on opportunity in the US and Europe or is this a situation where there could be opportunity in Asia-Pacific as well.

Global, so some of the firms, obviously the ones that are proven in the market right now for emergency use, they are not just in the United States but they are partners in other regions of the world and so we enforced because of our position and our assets are global, we're able to support them. So if they decided to do internally and go externally with a partner, we're there to support them with their primary containment solutions. So we're seeing, if you think about it, in Asia there's probably a little more prefilled syringe demand in the market particularly in China, in Europe and in Asia is pretty consistent on the vial configurations, and it's consistent product, that we provide throughout all these customers; the FluroTec coating is primarily the main driver.

Thank you. Our next question comes from John Kreger with William Blair. Your line is open.

I had a question obviously at the beginning of '20, you weren’t thinking about COVID demand. How have you been able to handle your non-COVID work? Have you had to sort of defer that underlying order flow or have you been generally able to keep up with the sort of typical non-COVID orders?

In general, we've been able to keep up however, I would say there are times where we had to engage with our customers to identify if we had to risk -- pivot respond to particular our COVID order, how we work with our customers since we're made to order and our customers have been very supportive, for the most part we've been able to respond. I just put it in context, just in our proprietary business, we do over 30 billion components a year. So when you think about the demand that we're putting on our operations with the additional demand for COVID solutions, it's meaningful, but it's not over taxing the global operations.

And then maybe corollary to that, as you work with clients kind of upstream and their pipeline work, are you getting the sense that some of that work has been back burn base as they strength to meet the COVID challenges or again has the normal flow of non-COVID work been pretty stable in terms of the development process?

It's interesting, we're finding if you look in the mirror a little bit, it was approved by the FDA in 2020 versus 1918 where you'll find is pretty -- somewhat consistent, which is interesting because we do work with certain customers that might be of particular delay in clinical trials and so forth but we're seeing a relatively stable, consistent pattern as we speak today. And on top of that, we look at our participation rate, it remains equal if not better if you just and that's taking the vaccines out of the equation. On the core business, we're seeing very strong participation rates. So we're not seeing too much of a deviation what we've seen in the last couple of years.

And then one last one, can you just remind us why generics tends to grow notably faster than pharma and as you look out 2021 or 2022, do you think you'll see the same trend or a little bit more of a normalization of those two buckets?

There is two comments and maybe Bernard if you want to add, but the first one is if you think about where we started with on this market led approach, it became apparent when we started a few years ago that the generics market unit was a lower market share amongst the three. So we had a greater opportunity to capture more share just by simply repositioning new portfolios like AccelTRA that are very attractive to that segment. And the other aspect just to remind of is the pharma business includes dental, includes that -- includes other ancillary segments outside of just branded small molecule and therefore, you'll see a little bit more of a softness in that business, but we're seeing the number of ANDAs continue to be very strong, which is what drives the generics business for West. I don’t know Bern if you want to add any comment to that.

It's been capsulated, it's our market share is different within those two market units and there's more room for us to grow within generics and they're essentially put the market units in place. It allows us to focus in on that area and start to grow our business within generics and that continue to be the case and there is still -- we still have a pathway forward to continue that accelerated growth and then we're introducing new products also to help us to get more entrenched with the generics market space.

Great. Thanks and maybe just one last one, the COVID contribution that you quantified for '21, as you think about longer-term planning, do you view that as sort of durable or more of a bolus that will likely decline in '22 and '23?

Well, one of the things that we've looked at is the mix of our COVID-related business and as Eric said earlier, it started out more on the diagnostics therapeutics, I guess we went through the first half and the first call it three quarters of 2020 and that more become larger within vaccines and we have been communicating that we felt the vaccine will be where West would see the biggest opportunity for us and that's reflected in our 2021 guidance. So it's really how does the vaccine play out over the next number of years, what sort of booster shots will be required. So that's how we're trying to frame us and believe that into our planning. So it is obviously how does that vaccine market develop over the next number of years and will boosters be required, but that's primarily what we're participating right now.

Thank you. Our next question comes from Dave Windley with Jefferies. Your line is open.

Thanks to your team as well, I hope to get the vaccine soon, so we're all one of the patient. So thanks for their hard work. I was hoping probably have a series of clarifications. So in your COVID vaccine or excuse me, your COVID contribution to '21 as I am listening to you describe how that has kind of evolved in the last quarter or so, should I interpret that the 100 million of kind of base in '20 stays in that same mix and the vaccine is the 160 contribution on top of that or does most of the 260 actually then become vaccine as we move into '21?

Yeah it's primarily the growth we see within the vaccine segments. As we said there was a lot on the therapeutics within 2020 and the early part where we try to figure out how to treat this thing and then that shift is the -- as we got into the latter part of the year until now more the focus is around vaccines for us and there is some within therapeutics, little bit in diagnostics, but it's primarily vaccine related.

And then to Jacob's question on global and your answer there, it sounds like your clients are making high-value product choices globally. Did I understand that correctly or are you seeing downshift to standard in say developing economies things like that?

We're seeing consistency Dave around our high-value products particularly on FluroTec and characteristics of the vaccine, their molecule itself. So we're not seen any reduction I guess if you want to call that from the high-value product portfolio. So it truly is HVP globally.

Sure that sounds great. In terms of then broadening out from COVID, is this experience is the last year and the ability to kind of I'm sure clients are familiar with these products, but your ability to respond quickly to clients to ramp up your capacity for these high-value products, is that stimulating higher adoption of high value in the non-COVID opportunities with these clients? I was just wondering what kind of knock-on effect that my create in your conversations with clients?

Yeah if you look at our biologic portfolios, we have a very high participation rate there. So that tends to be primarily a runner for FluroTec platform, but to your point, we are seeing an acceleration conversation around NovaPure because now -- because of scale and a greater understanding of the characteristics of the primary packaging containment. So as they look at vaccine that will spill over to more of a platform approach going forward, that's how we see it and that's why we're continuously building and pushing for helping our customers get to that NovaPure conclusion with our new molecules that they're working on.

Interesting so that kind of segues into my last question, which is can you give us some sense, I think two or three years ago and really throughout this period of time, we talked about high-value product as a percentage, but within high-value product you obviously have many tears NovaPure at the higher end, can you give us a sense of how the mix has shifted within high-value product from Westar at the entry level and NovaPure at the high level? How does that evolution look if we could see that detail?

Yeah we don't give up the exact numbers for each area, but what you would see if you look at -- if you recall that a while ago, we showed a spectrum of all the high-value products from whereas we said Westar all the way up to NovaPure. What you're seeing is the higher growth and now it's higher dealt on revenue is the upper right-hand side versus the lower right -- lower left side. So to your point, we are seeing that adoption, we certainly see the volume and as you know that our business, it takes a while to get that adoption and then build it into the platform of our customers. So the higher growth is in the upper hand side of that spectrum.

Thank you. And I am showing no further questions at this time. I'd like to turn the call back to Quintin Lai for any closing remarks.

Thank you, Catherine and thank all of you for joining us today -- on today's conference call. An online archive of the broadcast will be available on our website at westpharma.com in the Investors section. Additionally, you can get a replay through Thursday, February 25 by using the dial-in numbers and conference ID provided at the end of today's release. That concludes this call. Have a nice day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.