The operator introduces the conference call for West Pharmaceutical Services' third quarter 2023 earnings and hands it over to Quintin Lai, VP of Investor Relations. Lai provides a brief overview of the financial results, business update, and financial outlook for the year. He also mentions the accompanying slide presentation and Safe Harbor Statement, cautioning that forward-looking statements are subject to various factors beyond the company's control. Lai also mentions the use of non-GAAP financial measures during the call.

The CEO of a company is reporting on the company's third quarter performance, which was mainly driven by their market-led growth strategy and the strength of their team. Despite a decrease in COVID-19-related sales, the company saw solid organic net sales growth of 5.7%. The proprietary products segment had strong demand for HVP components and devices, with base business growth exceeding 20%. The Biologics market unit had very strong double-digit growth, excluding the impact of COVID-19-related sales.

The company has experienced accelerated growth due to restocking of long lead time components and capacity expansions. However, there has been a decrease in demand from certain large customers for standard products as they manage their inventory. As a result, the company has adjusted its fourth quarter organic sales growth to 2-3%. Despite this, the company expects double-digit overall organic sales growth and proprietary product sales growth for the quarter. The company also expects to meet its financial goals for 2024 and highlights the importance of its team of scientific thought leaders and technical experts in driving growth and addressing changing industry needs. Quintin will provide more details on the quarter.

In the fourth paragraph, Quintin Lai discusses the financial results for Q3 2023, including a mid-single-digit increase in organic net sales growth, an increase in diluted EPS, and a decline in operating profit. He also mentions the drivers impacting sales and margin, as well as an update to the 2023 guidance. The company saw growth in high-value products and market units, but a decline in COVID-related net revenues. The Contract Manufacturing segment experienced double-digit net sales growth. The adjusted operating profit margin decreased by 290 basis points compared to the same period last year.

In the third quarter, adjusted diluted EPS increased by 6.4% (excluding stock-based compensation and tax benefit), with a 1% increase compared to last year. Revenue growth was driven by sales price increases and foreign currency tailwinds, partially offset by a decline in demand for COVID-19 related products. Gross profit margin decreased slightly compared to last year, with a decline in Proprietary Products offset by an increase in Contract Manufacturing. The company also generated $537.4 million in operating cash flow for the first nine months of the year, a 9% increase from the same period last year.

The company's third quarter 2023 year-to-date capital spending was higher than the same period last year, and they are using it to increase their high-value product manufacturing capacity. Their working capital and cash balance have also increased. The company has updated their full year 2023 guidance, lowering their net sales and organic sales expectations but raising their adjusted diluted EPS guidance. They have also maintained their CapEx guidance and expect COVID-19 related sales to be higher than previously estimated. This is due to a slower restocking of inventory and increased inventory management by certain pharma and generic customers.

The paragraph provides an overview of the net sales guidance for the company, including a reduction of $8 million due to a divestiture of a European facility and a positive impact from foreign exchange rates. The adjusted diluted EPS range for 2023 is also mentioned, along with the exclusion of future tax benefits from stock-based compensation. The company has a strong base business and has consistently achieved annual organic revenue growth and operating margin expansion. A preliminary look at 2024 suggests that the company will continue to meet its long-term financial goals. The call is then turned back over to the CEO for questions.

Eric Green, the speaker, responds to a question about the stocking issue in the standard products category. He explains that the company is not capacity constrained in the high-value product category, specifically in the GLP-1 space. They serve this space through both their Proprietary Products and Contract Manufacturing divisions. The company is able to leverage their assets and global network to support customers and is currently expanding capacity in Dublin and Grand Rapids, Michigan. Green does not comment on the market size of GLP-1 and suggests focusing on customer expectations instead.

The speaker assures the audience that they are working with their partners to avoid being a bottleneck as they continue to grow. They mention that there has been a slowdown in proprietary products, but it is due to inventory management and not a loss of market share. The speaker also mentions that there may be a return to some seasonality in the industry and that larger customers are now able to better manage their inventory.

The company is seeing a delay in orders due to the timing of customer production schedules, not seasonality. They are investing in growth and have seen 20% organic growth in Q3. The demand for new molecules in the market continues to increase. They have installed new capacity for NovaPure plungers and expect to relieve backorders by the end of the year. The high solution segment continues to drive growth without any slowdown.

During the earnings call, a question was asked about the increase in revenue for the quarter, specifically in relation to NovaPure. The speaker, Quintin Lai, could not recall the exact percentage of NovaPure's contribution to revenue in the previous year, but estimated it to be around 70%. He also mentioned that the growth in NovaPure is a result of a combination of volume, mix, and price. The CEO, Eric Green, added that the growth in NovaPure requires about 100 basis points increase in volume for HVP, and the impact on the overall portfolio is significant due to the higher ASP margins. Another question was asked about the slowdown in restocking trends, and the speaker expressed surprise at this development.

The company is experiencing issues with restocking and customers not going for as high of safety stock as expected. There is also a destocking trend, but the company is still expecting growth next year. The issues are mainly due to lead time and capacity constraints, but as those are resolved, customers are now rescheduling their production lines.

The company has given an indication of a 7% to 9% growth in topline, led by HVP and Biologics, with COVID included. The Kinston capacity is expected to ramp up in 3Q and 4Q, catching up on back orders. The company is not the bottleneck for drug launches, and multiple customers are ramping up for 2024 campaigns. The company has made investments and is validated.

The speaker discusses the success of their Kinston facility in producing high-quality products for the biologics market, specifically in the areas of oncology, autoimmune, and immunology. They are well-positioned for future growth in these areas and have the capacity to support biologic launches. The speaker also mentions their role as a key manufacturer of elastomer components for auto-injectors and other modalities, and their ability to stay ahead of demand with their manufacturing capabilities. They do not comment on potential transitions to more oral products, deferring to their customers for that discussion.

The speaker encourages the listener to speak with customers about the effectiveness of oral medication. The company is seeing growth in the injectable space for GLP-1 and is making investments to support demand. They have a good visibility of the demand and have a high participation rate on the Proprietary side. They are positioned well on both sides of the business. The speaker also mentions that they have had strong pricing this year and are in discussions with customers for next year, taking into consideration inflationary pressures. They are still working on determining the exact pricing for next year.

During a recent earnings call, West's CEO Eric Green discussed the company's performance and future outlook. He mentioned that they have made progress in capturing more price and that the historic trend of sub-1% or 1-2% growth is behind them. Green also stated that they will no longer break out COVID-related numbers in their financials for the upcoming year, but it could potentially be a headwind or tailwind depending on how the pandemic evolves. He also noted that COVID has become a small portion of West's overall business and they plan to eliminate it from their reporting in the future.

The company is currently focused on GLP-1s and new delivery modalities, such as the SmartDose platform. They participate in injection delivery through contract manufacturing and their proprietary SmartDose platform. They have seen active uptake and have a pipeline of customers for the SmartDose platform. They are also considering adding capacity to their Waterford site in 2024.

Eric Green, CEO of West Pharmaceutical Services, discusses the company's investments in its network, particularly in Kinston, Jersey Shore, Waterford, and Eschweiler, as well as plans for expansion in Singapore. These investments are primarily focused on supporting the growth of the company's high-value products (HVP) and converting more customers to HVP. Additionally, Green mentions ongoing efforts to increase automation in order to improve efficiency, quality, and safety, as well as support the scale-up of products such as biologics, GLP-1, and others. He is pleased with the progress made and excited for the potential of these investments.

The speaker discusses the automation at West and explains that the main focus is on providing a higher-quality product that will differentiate the company in the marketplace. They also address a question about stocking and clarify that the destocking being seen is due to customers not reordering during the pandemic, rather than a deliberate effort by West to reduce inventory.

The company has been experiencing capacity constraints, which has led to a slower delivery of products. However, as they are able to restock, the base growth in generics and pharma has been strong. The company expects this growth to temper in the fourth quarter, but it is not a decline. This is due to the fact that they have cleared their backlog and some customers have requested delivery in the next year instead of the fourth quarter. In regards to the company's performance in 2024, the company believes they need to be prepared for whatever the customers need and have good communication with them.

The company is prepared for potential changes in customer demand and is confident in the growth of biologics. They are not including GLP-1s in their growth projections and are ready to support any scale-up in demand for those drugs. The company is investing in capital projects to increase their capacity and is positioned well for future growth. GLP-1s are not considered part of the biologics category.

The speaker is focused on the Biologics space and the company has a diverse portfolio of approved and soon-to-be approved drugs. They are fully prepared to support any GLP-1 launches and are confident in their ability to deliver, similar to their success with COVID. The speaker is excited about the potential for growth in the Biologics space, but clarifies that this growth is not solely dependent on GLP-1. In regards to the 2024 outlook, the company expects 7-9% organic growth, which includes the $68 million from COVID. The speaker also mentions that they have good visibility into this growth, with commitments from customers and ongoing project planning.

The company is expecting 7-9% top line growth and 100 basis point margin expansion, which includes the $68 million impact of COVID in 2023. They have good visibility into their business due to long-term contracts and repeat business, but there is some variability in the elastomer side. The margins in the current quarter were boosted by pricing adjustments in contracts.

The company predicts a gross margin of 16-17% in the long term, and a decline in the fourth quarter due to lower volumes and utilization. This will primarily affect the proprietary products margin, but the company will continue to manage costs. Plans for 2024 are currently being developed.

The speaker is discussing the company's forecast for the upcoming year, acknowledging that they historically perform better than their projected range. They mention factors such as pricing, demand, and orders that were pushed to the following year. The speaker also notes that they are aware of uncertainties in the market and will provide more information in February.

The speaker thanks the participants for joining the conference call and informs them that an online archive of the broadcast will be available on the company's website. They can also access a replay of the call for the next 30 days using the provided dial-in numbers and conference ID. The call is now concluded and the operator thanks the participants and invites them to disconnect.

This summary was generated with AI and may contain some inaccuracies.