Ladies and gentlemen thank you for standing by. And welcome to the Q4 2021 West Pharmaceutical Services Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today conference call is being recorded. I would now like to hand the conference over to your speaker for today Quintin Lai, Vice President of Investor Relations. You may begin.

Thank you, Amanda. Good morning and welcome to West’s fourth quarter and full year 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. This morning, CEO, Eric Green; and CFO, Bernard Birkett, will review our financial results, provide an update on our business and present an update on our financial outlook for the full year 2022. 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. On Slide 4 is our safe harbor statement. Statements made by the management on this call and in the accompanying presentation contain forward-looking statements within the meaning of U.S. federal securities law. These statements are based on our beliefs and assumptions, current expectations, estimates and forecasts. The company’s future results are influenced by many factors beyond the control of the company. Actual results could differ materially from past results, as well as those expressed or implied in any forward-looking statement made here. Please refer to today’s press release, as well as any other disclosures made by the company regarding the risk to which it is subject, including our 10-K, 10-Q and 8-K 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. Reconciliations and limitations 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 West’s CEO and President, Eric Green.

Thank you, Quintin, and good morning. And thanks for joining us today. We are excited to discuss our 2021 results and outlook for 2022. We will start on slide 5. West delivered a remarkable year of success. As I reflect on the year three things stand out to me. First, our purpose. We serve to improve patient lives and we understand the criticality of our role in the containment and delivery of life saving and life changing medicines including the battle against COVID-19. Our team members have rallied together with great sense, strength and resolve to meet the accelerated customer demand. I want to acknowledge this incredible efforts and say thank you. Second, our proven market lead strategy, we have continued to meet shifting market and customer needs with unique value propositions across our business segments. This is evident in the continued strength of our financial performance in 2021. Lastly, trust. Customers trust West. As a global leader customers come to us knowing that we will deliver superior value through our high quality products and solutions. And we remain focused on delivering value to all our stakeholders on a sustainable basis and doing our part to support the healthcare industry. As highlighted on slide 6, 2021 was an exceptional year of sales and margin expansion driven by strong demand in our base business and accelerated demand for components associated with COVID-19 vaccines and therapeutics. We ended the year with 28% organic sales growth in the fourth quarter and adjusted for COVID related sales our based business grew by mid teens organically. Our proprietary product segment led the way with 37% organic sales growth. And all of this was fueled by high value products, resulting in impressive growth and operating margin expansion for the quarter. Looking ahead, we are well-positioned with…

Thank you, Eric, and good morning. So let’s review the numbers in more detail. We’ll first look at Q4, 2021 revenues and profits, where we saw continued strong sales and EPS growth led by strong revenue performance in each of our proprietary market units. I will take you through the margin growth we saw on the quarter, as well as some balance sheet takeaways. And finally, we will review our 2022 guidance. First up Q4, our financial results are summarized on slide 10 and the reconciliation of non-US GAAP measures are described in slides 19 to 22. We recorded net sales of $730.8 million in the quarter, representing organic sales growth 28.3%. COVID related net revenues are estimated to have been approximately $124 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. Looking at slide 11, proprietary product sales grew organically by 36.8% in the quarter. High value products, which made up approximately 74% of proprietary product sales in the quarter grew double digits and had solid momentum across all of our market units in Q4. Looking at the performance of the market units, the biologics market unit delivered strong double digit growth led by Novapure and Westar components. The generics and pharma market units also experienced double digit growth led by sales of FluroTec and Westar components. And contract manufacturing organic net sales declined by 2.1% in the fourth quarter, primarily driven by lower sales of healthcare related medical devices. We continue to see improvement in gross profits. We recorded $300.6 million in gross profits, 89.5 million or 42.4% above Q4 of last year, and our gross profit margin of 41.1% with…

Thank you, Bern. To summarize, in Slide 16, the excellent financial performance reported today continues to reaffirm that our strategy is working. We have a strong base business proven by our market led approach was delivering unique value to our customers. Our global operations team is efficiently manufacturing the delivery products in its complex environment with a focus on service and quality. And we’re continuing to accelerate capital spending across our operations to the current and anticipated future growth. We realize that our products are critical for healthcare across the globe which is why we’re so dedicated to support patient health today and well into the future. So Wanda, we’re ready to take questions. Thank you.

Thank you. Our first question comes from the line of Derik DeBruin with Bank of America. Your line is open.

Hi, good morning. Thank you for taking my question. Just a couple of points initially. So, can you remind us what the full-year COVID contribution number was for ‘21? And as you still look at the ‘22 guide, and just in general of the business, I mean are you capacity constrained on your non-COVID products. I’ve been paced to be this is a polite way of asking that is as COVID sort of rolls off or you can be able to backfill that with non-COVID business and then reach into the question of what does ‘23 look like?

So, good morning, Derik. And on the COVID number is 459 for 2021. And we would expect to see that grow in the mid-teen range and within 2022. And capacity, I’ll hand over to, yes?

Yes, thanks Derik. So, on the capacity, you’re right. And when we think about where we’re adding the capacity, it is really around HVP products prior to at NovaPure plungers and stoppers. And if you think about the two areas of high growth that we’re experiencing and we anticipate continued growth around the vaccines, but also in our biologics portfolio which would and is consuming the additional capacity that we’re putting in place as we speak today. So, we have plans that we’ve create investments in 2020 and that has been put in place and being ready for production as we speak. And we have additional capacity coming on throughout this year as in into early next year. So, it’s a combination of both, Derik.

But you do feel confident that you’ll be able to backfill. Is that, I mean, essentially every question I’m getting from investors is like are you and other companies that are supplying to the COVID vaccine market going to have this big gap in ‘23 as things roll off?

No. we will be able to utilize the existing equipment and future equipment we’re installing right now because the approach we took on bringing customers towards the highest part of our growth in the portfolio so we can absorb that as we go into 2023 and 2024 if trajectory is changed around vaccinations.

Yes. and this is something that we you know in communicating throughout 2020 and 2021, as we layer in this extra capacity, it’s not truly for COVID, it’s for both core and COVID and even if there was a slight lag, it would be for a very short time based on the order book and the forecast that we have. So, we’re relatively confident that we can use that capacity and pretty quickly as soon as it comes on board.

Great. I’ve got some more, but I’ll shut up and let somebody else ask. Thanks.

Thank you. Our next question comes from the line of Larry Solow with CJS Securities. Your line is open.

Great. Good morning, guys. Thanks for taking the question. Just some more topic, I’ll think maybe a different angle at it. Just to me it looks like I’m kind of encouraged by the CapEx expansion up to $380 million; it’s a pretty significant number and a good bump up from last year. So, to me that demonstrates some good confidence on your outlook and also I guess pumping up the long-term outlook by a 100 bips, I guess enough sort of from a current where we stand today, right, historically. So, I’m kind of confident and confident about that but I’m just trying to figure just this CapEx expansion. It sounds like it’s more non-COVID related base business stuff and is it also is there a big chunk of that related to Corning, can you give us a little more visibility on Corning and also how that ties in with you sort of mentioned expansion and in on R&D which has been like 2% running about 2% a year. Is that do we should we expect that to bump up significantly as a percent of revenue going forward?

Yes. So, a couple of things there. So, on the CapEx, some of that CapEx is still around COVID and a lot of which you write it around also supporting the base business and is particularly targeted as a high value product area. So, what we would say getting close to 70% of our CapEx is growth based at this point. And on Corning, yes we are making some investments around that. We expect that to be around $50 million CapEx in the year. We’ll go and laying our R&D, we will have a step-up in R&D also around Corning. And again, that’s all baked into the forecast.

In terms of COVID and I realize this still our question works. But it sounds like you certainly expect growth this year. Did you get any feel for what your customers see going out of the next few years, obviously there’s a lot of question marks but any feel for that? And second question there, is there been any as the therapeutics and we’re probably the vaccines have evolved and is there any been any changes in packaging from sort of initial stages, or they are your customers looking more-and-more for your services and products. Can you give us any color on that?

Well Larry, so what we’re seeing right now is that you’re right, we were initially providing solutions around the vials. And they were multiple doses per vial and we’re seeing this transition in lifecycle management as we speak. And starting in 2022, it’s the less doses per vial. So, it’s a different type of solution that we provide some more economics from a unit basis but it’s more of a transition less doses per vial which is a net positive for West. And the transition will take place, it is not perfectly in the calendar year but it’s been 2022 going into 2023. The next stage after that and that’s where Bernard was talking about some of the capital. It’s still pointing towards back scenes as more towards prefilled syringes and so that is a scenario where we’re so investing because that’s more of a one or two year our type of the start of a transition for our customers. So, I hope they kind of get you this kind of landscape and helping to evolve for the next several years to the lifecycle.

Yes. I appreciate that, that’s good call. Just last question if I may. Speaking of that, it’s just on the price increases you mentioned I think it was about just below 2% price, any favor this quarter. I just look at that in light of I think supply chain impacts inflationary pressures. Certainly you guys are probably built has good or better than most companies frankly probably that in the world, they’re not just in your industry. But obviously there is some inflation out there but particularly the oil and resin and stuff. So, deal price increases, should we expect these to maybe bump up a little bit over time, have you and then short term or have you been increasing prices a little bit to some customers to sort of offset some of these inflationary pressures?

Yes. We have the opportunity based on some of the contracts and agreements are in place to increase some of those price increases to cover some of these inflationary pressures. And so that that’s within our wheelhouse to do that. And that is something that we have been doing towards backend of 2021 and we would I’m going to see that here again in 2022.

Okay, great.

It’s also the opportunity for us to and apply surcharges and certain instances where we see some specific inflationary pressure.

Right. Okay, great. I appreciate, thank you guys.

Okay.

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

Hi, thanks very much. Eric, I appreciate the update on the long-term growth construct. Can you just talk about how you think about longer-term CapEx around that same construct? Should we be thinking that CapEx is sort of a percent of revenue around the sales perhaps declining after the big bullets in the last few years? Just how are you thinking about that number?

That John, we are looking at a once we get through this bullets that we’re currently managing through, we do want to get back to these 6% to 7% of sales and revenues. We do believe that is appropriate for that type of business, particularly we think about above 30% of our CapEx is around maintenance let’s call it 10% 15% around our digital and then balance of this is on growth. So, we do believe that construct -- last year this year is really around the growth sector. And making sure that we have installed capacity. I will tell you when I’m also very pleased in how the team has right sized facility network. As you know years ago, we had 29, we are at 25, and we’re able to leverage those facilities more efficiently. So, the capital we’re putting in is more around equipment and processes versus land and buildings. So, either teams done a very well very good job in that regard. And we’re able to leverage and we’re well-positioned for the future.

Yes, just on that, John. In previous year as it because we looked at the split of capital maintenance was 40% to 50% of the CapEx budgets. And so then obviously the remainder was on growth and IT. And now you’re seeing the growth portion close to 70% and the thing with that as well as Eric just said, as soon as that CapEx hits our facility, it’s straight into operations, we’re getting the return on a much quicker and some of the CapEx investments we would have made a number of years ago just given the nature of them. And so, it’s responding to demand, since you’re responding as fast as we can and with this no increase capital allocation over the 2020, 2021, and into 2022. It should normalize and be on that.

Got it, thank you. And then, a follow-up, Eric, I think you said at the beginning of the call, the order book was at a director level which sounds good. Can you just elaborate a little bit on that and I’m thinking kind of two things. As you think about biologics versus generics versus pharma, what is that order book sort of tell you in terms of growth trajectory there. And also with tight supply chains, has your order book duration sort of extended or is it pretty typical today versus a year or two ago?

So, it was two dynamics were happening. One is, I’ll take the latter one first because I think you’re right. What we’re seeing is well the number has increased. We don’t specifically spelt the number but its increase what we’re seeing it’s we have better visibility beyond the four or five quarters. So, it’s for almost a two year horizon now. And one of the levers that will work with customers on is working with the supply chains working together to get that visibility so we can level load our operations more efficiently and be more effective and supports our customers. And at the other area, when you think about what if you kind of break it out of the increase, it really comes down to three buckets really. One is increase on the demand on around vaccines, another increase which I’m very pleased about is quite different than it was let’s say three or four years ago particularly in biologics. Is really a success of various drug launches for our clients or customers, I won’t get into specifics and that’s not just one but it’s many. And then the third driver really is what I call the core growth in that is encompassing biologic results encompassing what we call pharma are small molecules and also generics. So, bottom line is all areas are growing nicely as for the more -- we waited for biologics, was a lot of drug successes we’re seeing. And but again if you look at our CapEx profile, what we’re putting into our facilities today it’s the higher end of the HVP switch squarely goes after the biologic space.

That’s helpful, I appreciate it.

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

Hi, thanks. This maybe a little bit repetitive based on that last answer but I’ll ask anyways. I mean, yes I’ve considerable participation rate. I’m just curious are you seeing a change in market share, your market share pre-imposed COVID. You are talking about mid-teens growth hedged over this year. You just bumped up your long-term growth outlook. Is this the market in biologics or are you taking share and is it kind of growth in those higher value products. Maybe it’s all debugged but just curious kind of on the robust growth you guys are pointing to in this next year and beyond?

Hi, Jacob. So, it’s actually all of the above. So, what we’re seeing as our participation rate is in biologics, we continue to be well north of 90%. And actually, I’m very pleased on our performance in 2021 particularly when you look at in particular VLA was approved that then really use our types of products, it was more in different configuration. So, we look at that as an opportunity. And in the small molecule area, and we see about ANDAs were equal or slightly better and we were pre-COVID. And I would argue that pre-COVID if you look in step couple of years before that or even stronger than that. So, it as you’ve seen a gradual improvement as we go forward. I’m really excited about this partnership and where we’re talking HVP to the next level because that again reinforces our leadership position and really bring in new technologies to the market that really de-risks our customer’s process in entering the market.

Got it, that’s helpful. And maybe following-up on de-risking the process. I think in December, the FDA put out some guidance on visible particular from this periods it effects something that could be a catalyst for you all or maybe it’s nothing. Just curious on that?

It helps us. Any time there is higher level quality requirements and our regulatory changes our direction that they would like to go. That puts us in a varied position, also our partner Daikyo in a very good position because we do have solutions that can rebuild standards and it could be adoption of existing molecules in the market but also the new pipeline. But to your point, the biggest catalyst of this relationship we built with Corning is all around regulatory changes towards combination devices and our systems versus individual components. So, it is very good for West as these regulatory changes become more stringent as we go forward.

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

Thank you.

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

Hi, Eric. On the commentary earlier regarding the trend toward pre-filled syringes, is this not where biotechnology industry wants to go, meaning the it’s not just COVID vaccines which I’m sure they want to do that as well but is that not kind of a primary driver for biotechnology customers right now and why I guess the other question.

Yes, absolutely. Paul, so there is a push towards pre-filled syringes in multiple dimensions, right, if think about the biologics space and also you think about the vaccines themselves for easier distribution administering patients is and et cetera. So, there is a push towards technology that supports advancements of pre-filled syringes. And I think again that’s the reason why we have a really good offer now between Crystal Zenith is an alternative for glass but also with working partnering with Corning. It does eliminate at the end of the day like you say it limits risk from going away from the vial.

And then, when we talk about capacity editions, from the initiation of spending, how long before projects are running and delivering revenue. Is it a year, is it two years, how long is it?

Yes. It’s a combination of two things. Let me try to frame that because it’s been so good point you’re raising. One point is once these equipment lands in our facility and we’re able to validate, we’re talking matter of weeks before we have an equipment up and running. And frankly, based on a digital connectivity to all our equipment across the globe, you will see that utilization go shoot up right up to the 80+% of range. But the point that will be conscious of is that when we talked about investments in 2020, is I think it’s two phases we spoke of, I would say a little over to three forces of over 75% of those already in place in producing finished product. And the rest of that delta is can be completed early on in 2022. The other investments we initiated in 2021 called Phase 3 and Phase 4, I would say today where we stand is about 15% complete or 20% installed and producing finished product And the balance of that is planned to be completed throughout 2022 and the early 2023. So, based on our commitments what we made and our customers future demand, that’s kind of the cadence we’re seeing with these investments and how long does it take for the equipment to be built to be delivered and then installed. And that could take anywhere between a few months to two or three quarters depending on the equipment.

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

Hi thanks, good morning. Thanks for taking my question. I wanted to ask a question I think John and Jacob have both asked slightly differently. Your long-term growth construct on revenue in particular, could you talk about contributors their expectations for growth between proprietary products and contract manufacturing. I was just asking because contract manufacturing has kind of fluctuated quite a bit. I’m wondering if your thoughts about the relative contributors to that 1% increase might be a little different than just 1%?

Yes. I will start and Bern if you want to add to it. You’re right. The driver behind that really is around our proprietary business more so than contract manufacturing. I think we look at contract manufacturing, you’re right we’re seeing as we indicated some volatility is based on contracts in timing to ramp up of new agreements. So, when we look at proprietary, we do believe that stronger or robust and you had historically and it’s really around the biologics is the main driver. We do still believe in the small molecule space roughly it’s called low-to-mid single, mid-single from the pharma side and then generics is meant to high single on the construct perspective. And then biologics is in the double digits. And now that biologics is the bigger piece of our business, approximately over 40% let’s say and it’s driven by high value products and higher end of that portfolio, that’s the reason why we have very strong confidence to our leads raised by that 100 basis points that we spoke of. Bern, do you want to add more color?

It ties in with the discussion we had on CapEx. So, you can see where we’re investing a lot of our capital around high value products and that is now the primarily primary growth driver in then the business and then specifically within biologics. But you could also see in what we’ve seen here in 2021 that we’re seeing HVP uptake in the other market units as well in generics and pharma. So, that’s now starting to permeate the rest of the business which is a positive info as well. So, when we then look at contract manufacturing and the growth there is probably mid-single digits and maybe at the lower end of our construct. And that’s what we’ve seen particularly over the last year and probably the back half of 2020. And so, from a mix perspective, it’s we get a much was a much better return on those investments we’re making, so that that way we can try off from it.

Excellent. So, if I then stick on a proprietary product, I mean you again probably touched on pieces of this but probably any one of those is -- any one of biologics been a higher portion of that pie and growing faster a higher adoption of the high end of your high value products, so kind of richer mix, maybe some underlying volume growth from a stronger pipeline in last several years. Any one of those seems like it’s probably might be worth 1% on its own. Is it a combination of all of those things or does one of those things stand out?

It’s a combination. And we’re seeing the very strong demand across all of the market units and you can see that’s reflected in the guidance how we get in for 2022 around our proprietary business. Now that we’re guiding in their mid-teens and so, it is a combination of different drivers that just doesn’t hang on one thing.

Yes. And then switching subjects a little bit on in Corning and Valor, certainly the system approach that you’re talking about makes some sense. My understanding is that maybe that’s been the case in the industry that you would source a variety of solution or parts of solutions and put those together in go-to market. Perhaps you could talk about the context there and then also what drove you to choose Corning and Valor in particular and how long do you think it takes to develop one of these solutions that you’re talking about to bring to market? Thanks.

Hi, Dave. So, there’s first of all we have a history of a really strong partnership with Daikyo. So, as we enter into this relationship with Corning, we’re very confident we can create a similar model. You’re right, the reason why we engage in those conversations is when we speak with our customers, the challenges they face usually try to find the right called the containment solution for the products. And what they find is it’s highly fragmented and is our patchwork environment of multiple suppliers. So, when we really think about it and you look at the elastomers and glass, there is several Drug Master Files solutions that need to be supplied with that particular drug molecule. And the release maybe after that has been able to develop a truly integrated system from ground up. So, when we looked at to think about ourselves and Daikyo, we do believe we put ourselves as the leading innovators around elastomers and primary packaging. And when you think about unparalleled glass science and the deep material science capability at Corning which is well known in multiple industries but in our industry in pharma. And they also have deep manufacturing and engineering capabilities which is truly unique. That’s why as we sat down and talked about the partnership, the focus is really to redefine the future of containment solutions and then really create naturally integrated system. That de-risks what I’ve said earlier about our customer’s drug development and manufacturing processes with a single product one DMF and end-to-end support for our customers by West. So, that’s the premise why we have embarked on this relationship. And this is utilizing glass technology between borosilicate which has been in the industry for decades. And the newly developed aluminosilicate that Corning has developed really to provide…

Great. That’s helpful perspective. Thank you.

Thanks, Dave.

Thank you. I’m showing no further questions in the queue. I will now like to turn the call back over to Quintin for closing remarks.

Thanks, Wanda. And thank you for joining us on today’s conference call. And online archive of the broadcast will be available on our website at westpharma.com in the investor section. Additionally you may access a replay through Thursday, February 24th, by using the dialing numbers and conference ID provided at the end of today’s earnings release. That concludes this call. Have a nice day.

Ladies and gentlemen that concludes today’s conference call. Thank you for your participation. You may not disconnect.