Good day and thank you for standing by. Welcome to the Q1 2021 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 would now like to hand today's conference over to your speaker Quintin Lai, Vice President of Investor Relations. Please go ahead.

Thank you, Stephanie. Good morning and welcome to West's first quarter 2021 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.

Great. Thank you, Quintin, and good morning, everyone, and thank you for joining us today. Starting on slide 5. I am pleased to report that we had an exceptional first quarter. This was driven by strong organic sales growth in both our base business and the accelerating demand for products associated with COVID-19. Our high-value products continue to fuel increased gross and operating margins. Together this has resulted in record EPS for the first quarter. The strength of our performance is demonstrated in our ability to execute the market-led strategy, leverage the power of our global manufacturing network and rally as a one West team to meet the increased market demand. I am proud of how our team members have focused on our priorities and emphasize the importance of our purpose and values during these times. Turning to slide 6. We have highlighted the key drivers of growth in Q1. We continue to see strong uptake of HVP components, including Westar, FluroTec, Envision and NovaPure offerings as well as Daikyo's Crystal Zenith.

Thank you Eric, and good morning. Let's review the numbers in more detail. We'll first look at Q1 2021 revenues and profits where we saw continued strong sales and EPS growth led by strong revenue performance primarily in our biologics pharma and generic market units. I will take you through the margin growth we saw in the quarter as well as some balance sheet takeaways. And finally, we will provide an update to our 2021 guidance. First up Q1. Our financial results are summarized on slide 9 and the reconciliation of non-US GAAP measures are described in slides 17 to 20. We recorded net sales of $670.7 million, representing organic sales growth of 31.1%. COVID-related net revenues are estimated to have been approximately $102.9 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 volumes due to the pandemic.

Thank you. And your first question is from the line of Juan Avendano of Bank of America.

Hi, hello good morning. Congratulations on the quarter. I guess my first question was…

Thank you Juan.

Thank you. My first question was as we think about the pediatric and then potentially the booster opportunity one of the most significant comments that you made on the call, which confirms one of our ideas was the ratio of packaging components to dosages perhaps being a little bit more on one-to-one than versus the initial roll out. And so can you elaborate on the visibility on perhaps -- that you have on the packaging configuration for boosters in the future and how you see that opportunity evolving?

Yeah. Juan you're absolutely correct when you state that there's -- we're in discussions with our customers as they look at the various forms of delivery. And there is a -- obviously we're involved with discussions about smaller units of doses per vial and/or moving towards the prefilled syringe, which in our business that would have an impact on the volume that we would produce and support our customers, hence the -- some of the investments that we're currently making. The second thing I'll -- and that will evolve Juan over the -- if you think about over the next several quarters is there's a lot -- there's still a lot of moving parts. I think secondarily to that we do have visibility of demand around the vaccines that's pushing into the 2022 time line. So we feel really good about where we are, but we know that we need to continue to see -- pivot if necessary as the number of doses per unit changes because it will require a slightly different product configuration.

Thanks. I appreciate that. And how would you characterize the inventory management trends across your COVID-19 vaccine customers specifically. Do you have any concerns about customers stocking up on inventory of packaging components any pull-forwards that you see, or would you say that your current sales are pretty well-aligned with the pace of vaccine distribution?

Yes. Juan, within the vaccine distribution our pace is well in line. In fact, we are engaged with the companies that have vaccines in the market, but also the firms that are working on development of gaining the approvals to be into the market shortly and those are on a regular basis, so we can stage our demand whether it's weekly or monthly as we go forward. But, I'm pleased on the team's response and we're able to keep up with the demand where we sit today.

All right. Thank you. I’ll get back in the queue. I’ll leave it there for now. Appreciate, you come back again.

Thank you.

Your next question is from the line of Paul Knight with KeyBanc. Paul, your line is open. If you mute, please unmute.

Hi. Can you hear me?

Yes. Hi, Paul.

Hey. How are you? Question on -- are you seeing orders on COVID-related products into 2022 yet? I mean what's their duration they want to look into at this point, Eric?

Yes. Paul, when we look at our order book, roughly one-third of it is COVID-related and it is extended into 2022. So obviously of what we're doing today, but the visibility we have is going into the following year.

Okay. And then, how are you running on capacity at facilities globally? Are you hitting any ceilings yet, Eric?

Well, that's -- we are -- in certain areas, we're getting close to that capacity level. Obviously, as you know, we're running 24/7 multiple facilities, particularly around our high-value products. However, we're layering in various capital investments. The first wave is -- will be completed in the next number of months. And that is -- gives us significant lift around our HPP, and we have another wave coming in over the next six to 12 months. So, we're keeping up but it does require the installation, validation and moving to commercial production immediately with this new equipment we have online.

And then lastly, on the core biologics demand, ex COVID, obviously seems to be accelerating. Could you talk to that and what your outlook is there?

Well, that's an area of excitement. I mean obviously a lot of areas within our company. But in the biologics area, it's a combination of two things. One is the number of new molecular entities being approved and our participation rate continues to be very, very strong. And I'm pleased on how our teams are responding and supporting our customers, particularly in this time of -- during the pandemic. Also we're starting to see a -- the volume increase on a number of the biologics that have been recently introduced in the marketplace ramping up, and therefore, the volume component on existing molecules in the marketplace, we're seeing additional growth there. One last comment I'll add, just because we're seeing really good strong growth in biosimilars in our Asia Pacific region. So it's a combination of multiple aspects, Paul. And this is a very bright spot for us outside of the COVID conversation of our core base business.

Great. Okay. Thank you.

Your next question is from the line of John Kreger with William Blair. John, your line is open. If you mute, please unmute. John, your line is open.

Good morning, John, you there? No.

We’ll move to the next question. Our next question is from the line of Jacob Johnson with Stephens.

Hey. Good morning, guys. Congrats on the quarter. I guess my first question is just on guidance. If I annualize your first quarter revenues, I get to something above your guidance for the year. What puts or takes could there be in the future quarters that would result in revenues being below this first quarter or maybe more simply just any seasonality you'd call out this year as we think about modeling?

Yes. So we called out in the prepared comments there was a one-timer in there approximately -- just close to about $12 million, which related to some cancellations that we had in there. And that was a one-time fee that we were able to recognize. So, that -- and that was primarily around COVID. So you got to back that out, when you're putting the run rate together. And I think that gets you pretty close to our guidance.

Got it. That makes sense, Bernard. Thank you. And then, a question, it seems like a lot of these COVID vaccines are using FluroTec or NovaPure. Is the decision there just based on customer preference, or are there any particular types of vaccines that require NovaPure versus FluroTec?

Yes, the types of vaccines that are in the market right now do require that barrier coat which is -- which we and our partner Daikyo, are very well known for in the industry with the -- what we call the FluroTec, so fluoropolymer barrier. And that -- so that has become the standard in the industry. And therefore, we're seeing that adoption obviously with the types of vaccines that are in the marketplace and/or the ones that are being developed as we speak. In some cases, we're leveraging our NovaPure offering, because our customers want that assurance of the highest quality product in the marketplace. So those are the key drivers of that decision. It's around the science and the technology than anything else.

Got it. Thanks for taking the questions. I’ll leave it there.

Great. Thank you.

Your next question is from the line Dave Windley with Jefferies.

Hi. Good morning. More than thank you for the work you're doing -- your organization is doing to get vaccines in arms, on more recipient. And Eric, congrats on the ESG focus that you've put on we noticed in our work that you're very, very highly rated in ESG, despite what I would think would be some business model headwinds to overcome in that regard, so congrats on that. My question is around your HVP, I appreciate you guys always give the market unit growth. It makes me smile to hear, Bernard emphasize strong double-digits in the context of a 30% top line growth. I suspect it, it's very strong. I wondered -- I may strike out on this, but I wondered if you guys would be willing to give maybe a little bit more precision about what strong double-digits means. Again, with 30% top line growth, could be a three-handle, four-handle, five-handle, I'm just wondering if you might give us a little bit more precision about where those growth numbers are landing by market unit?

Yeah. I'll start Dave, if you don't mind. And then -- so first of all, thanks for the comments. It takes the entire organization value behind the ESG. But that's part of the DNA of West for many, many years. In regards to HVP, you're absolutely correct, majority of the incremental growth that we're experiencing here at West, particularly in the last quarters, but as we look forward is within the HVP portfolio. We tried to highlight that, we're excited and encouraged by the uptake of the higher end of that range. And as you know has a more attractive economic profile for West. And not to say, it has a phenomenal performance for our customers, from a value proposition. But we're seeing over -- about over two-thirds of our growth coming in the high-end of our HVP. And so if you can kind of think about -- do the math from there you get to that number you referenced of 30%. It's a very, very strong growth. In the walls of West, we don't really talk about the percentages in these two lines like, NovaPure. We talk about the number of units and how can you double or triple that portfolio, in a very short period of time. So, it's about as much context I can give on this. Bernard, if you have any...

Yeah. I'd rather keep it the way, we've been reporting today, but you can produce that a lot of -- we're seeing a lot of strong growth in biologics. And biologics is primarily high-value growth product. And -- but we're also seeing this in generics and pharma, but not to the same extent, but primarily all of biologics is high-value product growth.

Got it. So maybe that was a foul ball. I didn't completely miss the ball. But In terms of your – Eric, your commentary on the high-end, just to be specific, you're talking NovaPure the very highest one, or are you talking about a couple?

I'm talking about -- that's a good point, Dave. So I'm talking about from FluroTec vision all the way…

Okay.

… up to NovaPure.

Got it, got it. And then, maybe another way to come at this is on the margin front. So going back years, we've talked about high value, as an overall bucket being -- generating gross margins probably north of 50% versus standard maybe 30% or lower. Would you be willing to comment on, kind of the overall gross margin in high value and how that evolves as the product demand moves up into the higher-end of your high-value product portfolio?

Yeah. So going back to your last comment as well, if you look at where we're investing and where a lot of our CapEx -- the incremental CapEx is going. It's going to products like around FluroTec and NovaPure. So it is tracking to the higher end of high-value products and to support that. And that -- now you're starting to see that come through. And you can even see it in the margin expansion that we experienced here in Q1 with proprietary, I think over 40% gross margin, that's probably for the first time, that we've seen that, it helps a little bit by that one-timer. And that we called out on those COVID-related agreements that we had to account for. But you're getting north of 50% on the margins now. And it -- as we progress, based on the investments that we've made and the growth that we see that that should continue. This all feeds into the long-term construct that we've rolled out there. And that's why we continue to have confidence in that that, we are able to continuously expand gross margins and operating margins and all of this feeds in. So that has been part of the narrative for a long-time. And now, you're seeing it come to fruition on a continuous -- on a more sustainable basis, Stephanie, go ahead.

Thank you. I will drop back in queue again. But thanks for the answers. I appreciate it.

Thanks, Dave.

And at this time, we have no further questions. I'll turn the call back over to Quintin.

Thank you, Stephanie. And we apologize to John Kreger at William Blair for his technical -- having technical issues. And we'll sort that out later. Thank you for joining us 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 may access a replay through Thursday, May 6 by using the dial-in numbers and conference ID provided at the end of, today's earnings release. That concludes this call. Have a nice day.

Thank you. This does conclude today's conference call. You may now disconnect.