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West Pharmaceutical Services, Inc. (WST) Q4 2022 Earnings Call Transcript

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West Pharmaceutical Services, Inc. (NYSE:WST) Q4 2022 Earnings Conference Call February 16, 2023 9:00 AM ET

Company Participants

Quintin Lai - VP, Strategy & IR

Eric Green - Chair, President & CEO

Bernard Birkett - SVP and Chief Financial & Operations Officer

Conference Call Participants

Lawrence Solow - CJS Securities

Matthew Larew - William Blair & Company

Jacob Johnson - Stephens Inc.

John Sourbeer - UBS

Derik De Bruin - Bank of America Merrill Lynch

Paul Knight - KeyBanc Capital Markets

David Windley - Jefferies

Justin Bowers - Deutsche Bank

Operator

Good day, and convey you for opinionated by. Welcome to West Pharmaceutical Services Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions].

I would now for illustration to manus nan convention complete to your speaker today, Quintin Lai, Vice President, Investor Relations. Please spell ahead.

Quintin Lai

Thank you, Shannon. Good morning, and invited to West's Fourth Quarter and Full Year 2022 Conference Call.

We issued our financial results this greeting and nan merchandise has been posted successful nan Investors conception connected nan company's website located astatine westpharma.com. This morning, Eric Green and Bernard Birkett will reappraisal our financial results, supply an update connected our business and coming an update connected our financial outlook for nan afloat twelvemonth 2023. There's a descent position that accompanies today's call, and a transcript of that position is disposable connected nan Investors conception of our website.

On Slide 4 is our safe harbor statement. Statements made by guidance connected this telephone and successful nan accompanying position incorporate forward-looking statements wrong nan meaning of U.S. national securities laws. These statements are based connected our beliefs and assumptions, existent expectations, estimates and forecasts. The company's early results are influenced by galore factors beyond nan power of nan company. Actual results could disagree materially from past results arsenic good arsenic those expressed aliases implied in immoderate forward-looking connection made here. Please mention to today's property merchandise arsenic good arsenic immoderate different disclosures made by nan institution regarding nan risks to which it is subject, including our 10-K, 10-Q and 8-K reports.

During today's call, guidance will make reference to non-GAAP financial measures, including integrated income growth, adjusted operating profit, adjusted operating profit separator and adjusted diluted EPS. Reconciliations and limitations of nan non-GAAP financial measures to nan astir comparable financial results prepared successful conformity to GAAP are provided successful this morning's net release.

I'll now move nan telephone complete to our CEO, Eric Green.

Eric Green

Thank you, Quintin, and bully morning, everyone. Thanks for joining america today.

We will commencement connected Slide 5. For complete 100 years, nan West sanction has travel to mean truthful overmuch to truthful galore people. We person grown and expanded from manufacturing superior containment components to designing and manufacturing transportation systems. This remains nan aforesaid today. As a world marketplace leader who continues to specify nan improvement of our industry, our 10,000-plus squad members are motivated by improving diligent lives. The past fewer years person been a reminder that nan world doesn't guidelines still and nan needs of nan wellness attraction manufacture are evolving and increasing successful complexity pinch shifting curen options from nan infirmary to location setting. We stay committed to nan pursuit of technological invention and partnerships to reside nan changing needs of coming and into nan future.

Moving to Slide 6. Looking backmost astatine nan year, I'm pleased to study that West delivered wide integrated income maturation of astir 8%. This maturation was generated contempt a quickly shifting pandemic landscape. We started 2022 expecting COVID-19 measurement growth, but alternatively diminution successful orders and request from our customers really resulted successful a 15% diminution successful pandemic-related sales. Excluding COVID-19, we estimate that our guidelines integrated income maturation was debased double digit, pinch mid-teens maturation successful proprietary products, and driving this guidelines maturation is request for our high-value merchandise offerings for some bequest arsenic good arsenic precocious launched drugs, and we ended nan twelvemonth pinch a return to maturation successful Q4 successful statement manufacturing. This capacity is simply a consequence of nan dedication and relentless attraction of our squad members crossed nan globe. We are connected by a beardown work and shared values that proceed to thief america win each day. I want to admit these efforts and opportunity convey you.

Looking ahead, we stay good positioned pinch nan correct maturation strategy astir execute, innovate and grow. Our coagulated bid book of committed orders reinforces nan criticality of West's components and devices to reside our customers' increasing injectable supplier demand, and we proceed to deploy superior investments to support nan summation successful request driven by nan charismatic extremity markets.

Turning to Slide 7. In summation to our financial momentum, location were respective different notable accomplishments successful 2022. We shipped adjacent to 47 cardinal components rubbing billions of diligent lives. As technological and method leaders successful nan industry, our customers expect america to thief lick their problems. We proceed to broaden insights pinch our expertise done our webinars, published articles and method presentations. We collaborated pinch Corning to build a next-generation starring elastomer-glass system. We launched Daikyo CZ 2.25 ml insert needle syringe to support nan biologics marketplace and secured 3 further FDA-approved narcotics utilizing our SmartDose exertion arsenic we proceed to bring further worth to our customers.

Lastly, we donated $2.75 million, but much importantly, our squad members proceed to unpaid their clip to thief our section communities pinch nan top needs. Our heartfelt thoughts are pinch each those impacted by nan devastating earthquake successful Turkey and Syria, wherever we person provided assistance done UNICEF.

Shifting to Slide 8. We proceed to facet biology considerations into each facet of our business. Over nan past 5 years, we person made tremendous strides crossed nan 6 privilege areas and recently defined capacity indicators. I'm pleased that we're connected target pinch 90% of our operational discarded not being sent to landfills. Our pursuit of renewable power alternatives has aided successful a affirmative effect successful nan emanation reduction. These efforts person been recognized pinch galore ESG accolades successful 2022. We look guardant to sharing much item successful our firm work study to beryllium published successful nan spring.

Turning to Slide 9. We proceed to reside nan increasing marketplace needs pinch today's analyzable and delicate molecules. At nan caller Pharma Pack meeting, we introduced respective caller products for ample measurement transportation and complete vial containment solutions. One disposable merchandise is our West Ready Pack pinch Corning's Valor ready-to-use vials. This will beryllium nan first of galore products from our Corning partnership. The operation of these products eliminates nan consequence of delamination and reduces solid particulate successful bulk filling lines. It is supplier transportation innovations for illustration this that ensures best-in-class capacity pinch a worth proposition to meet nan accrued regulatory expectations pinch a complete vial containment solution.

Moving to Slide 10. We are introducing afloat twelvemonth 2023 financial guidance. This guidance is based connected request trends arsenic good arsenic our existent capacity levels. It's besides reinforced by our beardown West and Daikyo information complaint successful supplier approvals, particularly successful biologics and biosimilars. We expect afloat twelvemonth wide integrated income maturation of astir 3% to 4%, which includes a $303 cardinal year-over-year diminution successful pandemic-related sales. Excluding this impact, we expect mid-teens wide guidelines integrated income maturation pinch proprietary products maturation successful nan precocious teens and precocious single-digit maturation successful statement manufacturing.

2023 will correspond a modulation twelvemonth for our separator floor plan arsenic we spot a headwind from COVID-19 HVPs. That said, our expected margins for this twelvemonth are importantly supra pre-pandemic 2019 levels. This underscores nan spot of our financial conception pinch yearly separator description of 100 ground points aliases much per year. In 2019, we posted operating separator of 16.1%. In 2023, we expect operating separator of 23% to 24%, which would correspond an summation of astir 800 ground points complete a 4-year period.

Also, coming we announced that nan Board of Directors has authorized a caller stock repurchase scheme arsenic our anterior scheme was completed past year. This programme is authorized for up to $1 cardinal of stock repurchase. We statement that this caller programme does not person a specified extremity date. As comparison, successful 2022, our 12-month programme was completed astatine $203 cardinal of buybacks. And successful 2021, our 12-month programme was completed astatine $137 cardinal of buybacks. This caller $1 cardinal programme will supply for a continuation of our stock count-neutral strategy, which is assumed successful our 2023 afloat twelvemonth financial guidance. We judge this programme will besides supply elasticity for incremental stock repurchases depending connected various factors specified arsenic economical and marketplace conditions.

Turning to Slide 11. As you tin spot from our guidance, we activity continued guidelines momentum successful 2023, and we're readying for a further further maturation arsenic our customers are preparing for expanded occurrence of their existent biologics portfolio and supplier launches. As such, we proceed to thrust guardant to complete nan installation of our superior description plans for further HVP capacity. The image shows nan progression of our ongoing efforts. On my caller sojourn to Kinston, it was awesome to spot nan further abstraction added to accommodate nan installation of caller manufacturing instrumentality to reside nan maturation of HVPs and plungers. Together pinch different tract description s, this will support early request crossed our world manufacturing network.

Now I'd for illustration to move nan telephone complete to Bernard.

Bernard Birkett

Thank you, Eric, and bully morning. We will first look astatine Q4 2022 revenues and profits, wherever we saw debased single-digit integrated income maturation and a diminution successful operating profit and diluted EPS. I will return you done nan drivers impacting income and separator successful nan 4th arsenic good arsenic immoderate equilibrium expanse takeaways. And finally, we will reappraisal our 2023 guidance.

First off, Q4. Our financial results are summarized connected Slide 12 and nan reconciliation of non-U.S. GAAP measures are described successful Slides 20 to 23. We recorded nett income of $708.7 cardinal successful nan quarter, representing integrated income maturation of 2.6%. COVID-related nett revenues are estimated to person been astir $55 cardinal successful nan quarter, an approximate $69 cardinal simplification compared to nan anterior year. These nett revenues see our appraisal of components associated pinch vaccines, curen and test of COVID-19 patients, offset by little income to customers affected by little volumes owed to nan pandemic.

Looking astatine Slide 13. Proprietary Products income grew organically by 1.8% successful nan quarter. High-value products, which made up astir 72% of Proprietary Product income successful nan 4th were level compared to nan anterior twelvemonth owed to nan simplification successful COVID-related nett revenues.

Looking astatine nan capacity of nan marketplace units, nan generics marketplace portion delivered double-digit maturation led by ambition components and admin systems, while nan pharma marketplace portion knowledgeable precocious single-digit maturation led by NovaPure and Westar components. And nan biologics marketplace portion saw a mid-single-digit diminution owed to a simplification successful income related to COVID-19 vaccine.

Our Contract Manufacturing conception knowledgeable nett income maturation of 7% successful nan 4th quarter, chiefly driven by income of wellness care-related aesculapian devices. Our adjusted operating profit separator of 22.4% was a 350 ground constituent alteration from nan aforesaid play past year. Finally, adjusted diluted EPS declined 13.2% for Q4. Excluding stock-based compensation taxation use of $0.06 successful Q4, EPS declined by astir 13.6%.

Now let's reappraisal nan drivers successful some our gross and profit performance.

On Slide 14, we show nan contributions to income maturation successful nan quarter. Sales value increases contributed $28.1 cardinal aliases 3.8 percent points of growth. Offsetting value was a overseas rate headwind of astir $41.3 cardinal and a antagonistic operation effect of $8.9 million, chiefly owed to a simplification successful COVID-19-related nett demand.

Looking astatine separator performance, Slide 15 shows our consolidated gross profit separator of 37% for Q4 2022, down from 41.1% successful Q4 2021. Proprietary Products 4th fourth gross profit separator of 41.6% was 470 ground points little than nan separator achieved successful nan 4th fourth of 2021. The cardinal drivers for nan diminution successful Proprietary Products gross profit separator were unfavorable operation from a simplification successful income related to COVID-19 vaccine and continued inflationary pressures connected our works costs, including earthy materials, labour and overheads. The headwinds were partially offset by income value increases. Contract Manufacturing 4th fourth gross profit separator of 15.4% was 110 ground points beneath nan separator achieved successful nan 4th fourth of 2021. The alteration successful separator is mostly attributed to operation of products sold.

Now let's look astatine our equilibrium expanse and reappraisal really we've done successful position of generating much cash.

On Slide 16, we person listed immoderate cardinal rate travel metrics. Operating rate travel was $724 cardinal for nan year, an summation of $140 cardinal compared to nan aforesaid play past year, a 24% increase. Operating rate travel successful nan play benefited from our moving superior improvement. In 2022, we spent complete $284 cardinal connected superior expenditures, a 12% summation complete 2021. We proceed to leverage our CapEx to summation our high-value merchandise manufacturing capacity wrong our existing accommodation successful nan U.S., Germany, Ireland and Singapore. Working superior of astir $1.4 cardinal accrued by $252.6 cardinal from 2021, chiefly owed to higher accounts receivable from our accrued sales, higher inventory levels and an summation successful our rate position. Our rate equilibrium astatine December 31 of $894.3 cardinal was $131.7 cardinal higher than our December 2021 balance. The summation successful rate is chiefly owed to our operating results successful nan period, offset by our stock repurchase programme and higher CapEx.

Turning to guidance. Slide 10 provides a high-level summary. Full twelvemonth 2023 nett income guidance will beryllium successful a scope of $2.935 cardinal and $2.96 billion. There is an estimated headwind of $30 cardinal based connected existent overseas speech rates. We expect integrated income maturation to beryllium astir 3% to 4%. We expect our afloat twelvemonth 2023 adjusted diluted EPS guidance to beryllium successful a scope of $7.25 to $7.40. Also, our CapEx guidance is $350 cardinal for nan year.

There are immoderate cardinal elements I want to bring your attraction to arsenic you reappraisal our guidance. Estimated FX headwind connected EPS has an effect of astir $0.11 based connected existent overseas rate speech rates. We expect afloat twelvemonth COVID-19 related nett income to beryllium astir $85 cardinal compared to $388 cardinal successful 2022. And our guidance excludes early taxation benefits from stock-based compensation.

I'd now for illustration to move nan telephone backmost complete to Eric.

Eric Green

Great. Thank you, Bernard. To summarize connected Slide 17, nan coagulated financial capacity shared coming continues to reaffirm that our maturation strategy is working. We person a durable guidelines business proven by our market-led attack which is delivering unsocial worth to our customers. Our world operations squad is efficiently manufacturing and delivering products successful this analyzable situation pinch a attraction connected work and quality. And we're continuing to advancement superior spending crossed our operations to meet existent and anticipated early growth. We recognize that our products successful pursuit of technological innovations are captious to wellness attraction crossed nan globe which is why we're truthful committed to support diligent wellness coming and good into nan future.

Shannon, we're fresh to return questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first mobility comes from nan statement of Larry Solow pinch CJS Securities.

Lawrence Solow

Congrats connected a bully quarter, amended than evidently we expected. Eric, possibly could you conscionable talk benignant of nan long-range outlook. HVP, I cognize you mentioned 72% of measurement successful nan -- gross successful nan quarter. But could you speak to it much connected a measurement ground and peculiarly immoderate of nan faster increasing and higher margin, NovaPure and arsenic you benignant of nonstop up nan HVP curve, if you will, I mean, nan opportunities complete nan adjacent respective years?

Eric Green

Yes. Thanks, Larry. No, you're right. So if you deliberation astir HVP correct now, nan magnitude of units produced from our manufacturing sites is astir about 23% of nan full volume. But arsenic you rightly pointed out, it was astir 72% of our income successful nan past quarter. And nan higher maturation portion of that high-value merchandise spectrum of nan portfolio is coming from our FluroTec each nan measurement up to NovaPure. So NovaPure is becoming much meaningful. Obviously, it was a awesome constituent of nan COVID-19 response. But pinch nan number of biologic launches, nan NovaPure is becoming a very charismatic solution for our customers. So I would opportunity it's early. The investments that we're making, peculiarly successful our HVP plants of Kinston, Jersey Shore are astir NovaPure plungers and different types of plungers to reside early launches. So that's wherever nan maturation is really retired information is coming from nan higher extremity of HVP arsenic we speak.

Lawrence Solow

Okay. And really astir conscionable -- yes, spell ahead, I'm sorry.

Bernard Birkett

If you look astatine nan CapEx guidance arsenic good that astir 70% of that CapEx number is really to support maturation initiatives and productivity improvements. And overmuch of that is astir high-value products. So that ties successful pinch nan outlook that we would spot for nan adjacent number of years putting that capacity successful place.

Lawrence Solow

And what astir conscionable mostly successful nan industry, I cognize nan trends person been biologics are evidently increasing faster than wide drugs. Has that inclination for illustration accelerated complete nan past fewer years? Or what's nan outlook location connected a wide macro level?

Eric Green

Yes. We judge nan biologics and biosimilar abstraction is going to beryllium nan fastest-growing area for caller supplier launches. If you deliberation astir nan past year, though, however, it was absorbing to spot nan number of ANDAs and besides mini molecules approved into nan market. And fortunately, we person a beardown position successful those areas also. But I deliberation if you benignant of accelerated forward, you'll still spot biologics and biosimilars beryllium nan fastest maturation area successful our space.

Lawrence Solow

Got it. And past conscionable lastly, tin you conscionable springiness america benignant of a -- conscionable a little update connected nan call, not judge if you had talked a small spot astir Corning astatine all, but conscionable benignant of wherever we guidelines there? I cognize I deliberation past year, you had moreover called retired really overmuch you're spending connected R&D. I'm judge it's a beautiful incremental portion this twelvemonth arsenic well. But I don't cognize what you could speak to connected nan R&D broadside and nan cost, but possibly conscionable benignant of wherever we guidelines qualitatively, nan gross outlook and really large this could beryllium complete nan adjacent fewer years?

Eric Green

Yes, Larry, it's a really beardown partnership, and we're really pleased that earlier this month, we were capable to denote our first merchandise motorboat of combining our West NovaPure stopper successful Corning's Valor vials, which -- what we explanation arsenic our Ready Pack solution. And conscionable to punctual everyone that this is benignant of a seeder aliases a seed programme that we usage successful nan improvement of caller molecules. So this has been very successful for america successful nan past. We're leveraging this transmission to present this operation going forward. It's a awesome testament of nan attraction betwixt nan 2 firms connected really bringing nan merchandise together arsenic a complete solution. And truthful while this is early, we saw much activity to do. We person a number of launches that we person scheduled, whether it's successful 2023, 2024. Ultimately, wherever we want to get to is simply a complete solution pinch nan 1 supplier maestro vial. So it's a complete afloat characterized system. And truthful that we'll proceed required investments. And truthful if you look astatine our R&D walk successful 2023, it will beryllium somewhat up, and a bully information of that incremental portion will beryllium astir nan West-Corning partnership.

Operator

[Operator Instructions]. Our adjacent mobility comes from Matt Larew pinch William Blair.

Matthew Larew

I conscionable wanted to inquire conscionable you referenced benignant of nan committed bid book. And I'm funny possibly if you comparison nan creation of that bid book coming versus pre-COVID, obviously, connected nan non-COVID part? Maybe conscionable successful position of what NovaPure and FluroTec request look like? I conjecture nan mobility is, retired of nan imaginable FluroTec customers who you commencement engaging with, what does nan conversion look for illustration -- excuse me, connected nan NovaPure side, what does nan conversion look like, successful position of folks who yet extremity up choosing to spell pinch NovaPure possibly versus a fewer years ago?

Eric Green

Yes. Thank you for nan question. So erstwhile I look astatine nan bid book versus pre-pandemic and past portion retired nan COVID piece, overall, it's a nett summation wherever we were astatine that constituent successful time. When you look astatine nan composite of nan maturation of that bid book, it is really driven by our high-value products, and peculiarly nan higher extremity HVPs, we're seeing a patient maturation successful plungers, not conscionable successful nan NovaPure sector, but successful nan different categories of HVP. But -- truthful from an bid -- committed bid book perspective, that's nan benignant of nan characteristics we're seeing correct now.

In regards to nan take rate, it's really rather high. So our information rate, peculiarly successful nan biologics and biosimilars is very, very strong. And what we are doing is we're seeding pinch nan NovaPure portfolio. And erstwhile that is locked in, successful nan improvement shape arsenic they spell done into commercialization, that's nan extremity result. Better outcomes for our customers, obviously, amended compatibility pinch nan supplier molecule. So we're very excited to spot nan continuation of that take of NovaPure and that's hence nan logic why we're putting these investments successful place, and we're seeing much of a modulation from vials to prefilled syringes which will require our plungers. So that's wherever we are, but it's a very, very patient maturation floor plan of nan higher extremity of HVPs.

Matthew Larew

And past conscionable possibly a cleanup 1 connected nan instrumentality issues you referenced connected nan 3rd 4th call. How does that extremity up impacting 4th fourth results comparative to expectations of wherever do things guidelines now halfway into nan first 4th of '23?

Eric Green

Yes. So those issues are resolved. The squad did a really awesome occupation to resoluteness nan issues and get our manufacturing accommodation backmost up online. Fully validated, characterized and beryllium capable to support commercialized production. That was done in, I'd say, mid portion of Q4, a small spot later successful that portion of nan quarter. So we're afloat retired correct now successful Q1. And I'm excited that we person that astatine this constituent to let america to get immoderate of nan backlog caught up successful nan early parts of this year.

Operator

Our adjacent mobility comes from nan statement of Jacob Johnson pinch Stephens.

Jacob Johnson

Congrats connected a bully quarter. Maybe benignant of pursuing up connected that past question. Just Bernard, arsenic we deliberation astir really nan twelvemonth plays out, thing you'd item successful position of seasonality aliases benignant of separator progression, gross progression passim nan year? And possibly on those aforesaid lines, tin you conscionable punctual america erstwhile you person nan toughest comps from COVID that you'll beryllium lapping from 2022?

Bernard Birkett

Yes. So I deliberation from a cadence perspective, going backmost to what we would person seen benignant of pre-COVID wherever first 4th is usually a small spot lighter, picks up a spot successful nan 2nd 4th and past levels retired successful Q3 and Q4. And from a comp perspective, I deliberation a batch of nan COVID revenues we would person had would person been successful nan first half of 2022. So that's where, I won't opportunity challenges, but that's wherever nan biggest comps are going to beryllium from that perspective, and past immoderate successful Q3 and past evidently lighter successful Q4.

Jacob Johnson

Got it. And past connected statement manufacturing, bully to spot a return to maturation there, uptick successful gross successful nan quarter. I deliberation gross separator was down sequentially. Can you conscionable deed connected what drove both? And possibly related, you're pointing to, I think, beautiful robust maturation successful 2023. Were location immoderate investments you're making for this twelvemonth and benignant of again on nan aforesaid lines, what's driving nan maturation successful that business successful 2023?

Bernard Birkett

Yes. I deliberation arsenic you'll remember, erstwhile we were talking done 2022, a batch of nan challenges we look wrong statement manufacturing is really astir 1, 2 -- 1 customer chiefly and a displacement successful their business. And truthful arsenic that benignant of person tailed disconnected towards nan backmost extremity of nan year, it allows america to beryllium capable to return to growth. And past we really saw request summation from our existing customer guidelines astir apt a small spot up of wherever we would person anticipated going into nan 4th quarter. So that was again affirmative to see. And what we would expect arsenic we move into 2023 that we will beryllium seeing mid-single-digit maturation for our statement manufacturing connected our existing business and past layering successful caller business astatine nan aforesaid time. So we proceed to make immoderate investments successful that area.

Operator

Our adjacent mobility comes from nan statement of Paul Knight pinch KeyBanc.

Paul Knight

The mobility is, I touched connected it, I guess, is COVID astir apt starts travel past they manufacture much merchandise Q2, Q3, right? And past little successful Q4. That's nan mobility one. And past nan different would beryllium regarding this prefilled syringe marketplace is that really what you're seeing arsenic biggest opportunity correct now?

Eric Green

Yes. Paul, that's a bully question. So nan first portion is that erstwhile we deliberation astir nan COVID, it's -- we're looking astir correct now, astir $85 cardinal for 2023 is comparatively benignant of evenly spread. We can't get immoderate much granular than that astatine this point. But arsenic you know, we were overmuch higher than that past year. So we do person nan capabilities to manufacture accordingly.

In regards to nan prefilled syringe, erstwhile you deliberation astir our investments, peculiarly successful nan past mates of years and moving pinch immoderate of nan launches successful anticipation astir plungers, which evidently supports nan prefilled syringe abstraction is really -- we're anticipating higher maturation successful that area. And that is -- instrumentality is coming online arsenic we speak. I mentioned a small spot successful my prepared remarks astir Kinston, a batch of nan further instrumentality successful location is really geared astir plungers. And truthful I'm excited to build support that portion of nan marketplace arsenic we spot nan prefilled syringe marketplace proceed to grow pinch precocious growth. So we're going to play successful that, and we're prepared for it, and that's wherever investments are really focused connected today.

Operator

Our adjacent mobility comes from nan statement of Derik De Bruin, Bank of America.

Derik De Bruin

So tin you talk a small spot astir benignant of for illustration pricing? You sewage astir 4% successful 4Q. How should we deliberation astir that successful '23? Are you -- I cognize you were debating taking immoderate higher pricing. You're looking astatine your pricing dynamics arsenic things are going forward. And I guess, person you done that? And are you -- person you seen immoderate pushback from your customers?

Eric Green

Yes. Thanks for nan question. So you're right. We person implemented successful nan 4th fourth of 2022, obviously, discussions pinch our customers astir nan 2023 almanac year. Our nett value summation will spell up successful 2023, and that is evidently for each nan correct reasons, peculiarly pinch immoderate of nan inflationary challenges and truthful distant that I deliberation each industries are being faced with. So I deliberation nan squad responded appropriately. I judge we took a very -- very well-balanced approach. We do person definite customers connected contracts, truthful we did person immoderate limitations. However, overall, pinch nan caller pricing squad and strategy we put successful spot a mates of years ago, we're starting to spot that salary off. So that will beryllium rolling retired arsenic we speak and already this 4th and will beryllium rolling passim 2023. But Bernard, do you want to supply much colour connected that?

Bernard Birkett

Yes. So our -- I deliberation successful nan 4th quarter, we said we did astir 3.8% of pricing. We're targeting 5% to 6% connected value arsenic we move done 2023. So it is simply a spot of a measurement up. And portion of that is to return into relationship nan inflationary costs pressures that we're besides seeing. But arsenic Eric said, you tin spot nan trajectory and our value increases complete nan past number of years and really we're approaching that. That's besides been connected nan increase.

Derik De Bruin

Great. Just a small spot of an accounting question. What was nan tailwind from stock-based comp successful '22? And your first taxation rates are ne'er what you extremity up being pinch for nan afloat year. So is it comparable to deliberation -- is it reasonable to deliberation you get a comparable use successful '23?

Bernard Birkett

We guideline without it because it's very difficult for america to estimate it. If you look astatine -- past year, it was astir $0.22, I believe. So it's -- we guideline without it for a logic because it is truthful difficult for america to foretell that's benignant of extracurricular of our control.

Derik De Bruin

Got it. And if I tin compression 1 much in, if you don't mind. How should we deliberation astir nan economics connected nan prefilled syringes? I mean, obviously, there's a batch of caller narcotics coming retired for metabolic disease, for obesity. And really should we deliberation astir your imaginable profitability aliases nan revenues associated pinch 1 of those units? And conscionable springiness america immoderate measurement to benignant of for illustration ballpark what your -- I mean what your gross publication could beryllium connected thing for illustration that?

Eric Green

Yes. So if you deliberation astir nan prefilled syringe area and nan plungers, we are -- it depends connected if it's NovaPure, it's beautiful comparable to -- we talk astir nan $0.88 to complete $1 a unit. But if it's not nan NovaPure, different types of HVPs you person a very ample scope between, let's telephone it, $0.40 per unit. So you tin spot nan scope that we're operating in. From a separator perspective, again, if it is HVP that could scope anyplace betwixt 55% to 80%.

So I'm giving you a very wide scope because not each molecules person nan aforesaid requirements. But what's bully astir our finance thesis successful our facilities, peculiarly connected plungers is that nan instrumentality and nan processes are somewhat fungible. So we tin leverage nan existing assets we're putting into nan existent supplier launches, but besides nan anticipated areas of imaginable growth. So we're positioned well.

Operator

Our adjacent mobility comes from nan statement of John Sourbeer pinch UBS.

John Sourbeer

I conjecture possibly digging successful a small spot much connected nan caller capacity coming online successful nan CapEx. Any colour conscionable connected pacing location for nan year? And past conscionable a follow-up connected nan instrumentality and nan delays successful 3Q. I deliberation that was astir nan $30 cardinal a period headwind. Can we presume now that this is up, that's contributing astir $30 cardinal a period arsenic well?

Bernard Birkett

Yes. The effect successful Q3 was astir $30 million. And that whitethorn alteration depending connected measurement operation arsenic we spell done each quarter. So it's difficult to say, it's $30 cardinal each quarter. It would beryllium difficult to perpetrate to that astatine this point. But successful saying that each of those problems that we had successful Q3 person been resolved, arsenic Eric benignant of talked astir earlier, and overmuch of that happened arsenic we progressed done Q4.

And connected nan pacing of layering successful caller CapEx, that will hap arsenic we move done 2023. So it's not each astatine once. We'll spot immoderate of it arsenic we get into nan backmost extremity of nan 2nd 4th peculiarly successful Kinston, wherever we are getting caller parts of our installation up and moving pinch nan instrumentality that we've installed there. And past arsenic we advancement done nan year, location will beryllium instrumentality layered successful in nan different HVP sites.

John Sourbeer

Got it. I admit it. And past I conjecture conscionable possibly connected COVID, it looks for illustration you lowered nan guidance location slightly. I conjecture conscionable immoderate thoughts connected conscionable wherever endemic levels spell from here? How overmuch much further driblet do you deliberation that you spot coming down from COVID beyond 2023?

Bernard Birkett

It's difficult to estimate that. Like we've tried to -- well, we've fixed our champion estimate based connected nan accusation that we person today. If we thought it was going to driblet immoderate further, and we would person included that successful nan guidance. But based connected what we spot today, that's wherever we deliberation it's going to play out.

Operator

Our adjacent mobility comes from nan statement of David Windley pinch Jefferies.

David Windley

I dream you tin perceive me. I wanted to -- I've sewage a mates of follow-ups, but I wanted to commencement pinch conscionable asking if you would level group wherever nan marketplace units are pinch benignant of generics having a beardown extremity of nan twelvemonth and biologics down, those are benignant of other directions than is normal. What's nan benignant of comparative sizing of your 4 segments of nan business truthful we person a guidelines to activity disconnected of?

Bernard Birkett

Yes. So if you look astatine biologics arsenic we spell into 2023, nan biggest driblet -- aliases nan biggest effect of COVID revenues being reducing is wrong nan biologics segment. So we do spot a simplification there. But if you backmost that out, we're really seeing very beardown double-digit maturation wrong nan biologics conception for our halfway business. And past arsenic we advancement done '23 connected generics, again, we would beryllium looking to spot precocious single-digit, early double-digit growth, pharma, precocious azygous digits and past statement manufacturing, arsenic we said earlier, mid-single-digit growth.

David Windley

Okay. And Bernard, truthful to use those, truthful is it for illustration I deliberation biologics was 40% to 45%. I'm conscionable looking for should I deliberation astir pinch nan benignant of COVID correction that it's person to nan 40%? I'm conscionable looking for benignant of nan percentages to use those maturation percentages to.

Bernard Birkett

Yes. It's -- biologics was mid-40s. It's going to travel backmost a flimsy bit. So you're astir apt 40% to 45%. And past -- pharma and statement was astir 17% aliases 18%.

David Windley

That's fine. I tin travel up offline. On nan installation of nan instrumentality and Eric, we talked astir successful Kinston, nan washing instrumentality successful that process, I conjecture I was nether nan belief that that was specifically NovaPure and possibly moreover much specifically NovaPure plunger equipment, but Bernard's answered nan past mobility that it benignant of varies that that $30 cardinal a period will alteration based connected measurement and mix, possibly I misunderstood what -- really fungible that instrumentality is crossed your merchandise lines? So possibly you could further elaborate connected that, please?

Eric Green

Yes. No, absolutely. So specifically nan instrumentality that we've discussed astir Q3, that was ongoing operations, not specifically conscionable NovaPure. So you person washers that lavation -- pharmaceutical washing capacity that supports really nan high-value merchandise portfolio. The imagination that you -- nan washing instrumentality that you were capable to spot that is for NovaPure. So immoderate of nan instrumentality is not fungible, but nan halfway elements of nan instrumentality is. But nan maturation that we're having, based disconnected of that instrumentality you looked astatine was really astir nan dense portion astir nan NovaPure. There's immoderate operation effect to it. And successful nan early investments we're making that you saw successful Kinston, that is -- that's, again, it's a wide scope of high-value products. FluroTec each nan measurement up to NovaPure.

David Windley

Okay. So wherever I wanted to spell pinch that, and I'll make this my past one, is you're losing nan year-over-year COVID $300-ish million. Management has made nan constituent that that has been very precocious gross margin, precocious incremental separator revenue. And truthful that creates, I think, contributes to this modulation twelvemonth connected margin, Eric, that you mentioned successful your prepared remarks, it seems for illustration arsenic you've put immoderate of this instrumentality successful spot that was nan clasp up successful 3Q, again, your past reply helps maine to understand that better. But nan gross imaginable that that instrumentality unlocks is successful nan vicinity of nan gross that you're losing from COVID. I conjecture I now understand that possibly nan separator connected that gross that's coming successful is possibly not rather arsenic rich | arsenic COVID, you could corroborate that for me. But conscionable reasoning astir that and immoderate different factors that we should beryllium keeping successful mind that power that separator modulation that are not arsenic rich | arsenic nan COVID gross that is coming off?

Bernard Birkett

Yes. Dave, I'll return that. And conscionable going backmost to your past mobility connected nan split, conscionable to clear that up. So nan -- arsenic a percent of proprietary sales, biologics is for illustration mid-40s, generics, mid-20s and past pharma successful a debased 30% range, and that will get you to nan split.

With respect to your mobility connected margin, it's not arsenic elemental arsenic 1 merchandise coming retired and different merchandise going in. So we're looking astatine it wherever there's a operation impact, obviously, pinch nan COVID revenues falling disconnected and they person been higher-margin products. And we've besides sewage nan effect of ostentation connected our costs base. So you've sewage those 2 headwinds. And past arsenic we alluded to, we talked astir earlier is nan summation successful value that we're seeing is supra what we would usually spot successful our business. So that helps offset immoderate of this separator pressure.

And past we person a very circumstantial costs initiatives wrong our business, some from an operations manufacturing position and past connected SG&A and R&D, really looking astatine costs power and costs management. That is delivering a number of efficiencies for us. So it helps america to flooded immoderate of nan separator challenges, but not each of them. And past that goes backmost to nan constituent earlier, we're not really -- separator is not stepping backmost to pre-COVID levels. We're maintaining aliases holding connected to a batch of nan improvements that we made aliases nan gains that we made.

Operator

Our adjacent mobility comes from nan statement of Justin Bowers pinch Deutsche Bank.

Justin Bowers

Just piggybacking connected Dave's question. Can you thief america understand and possibly it's a scope of benignant of what nan separator floor plan is connected nan C-19 business? And past pinch respect to nan caller capacity that's coming online successful 2023, tin you thief america understand really that phases in? Is it ratable? Or is it much 2nd half loaded? Any colour location would beryllium helpful.

Bernard Birkett

So nan separator connected nan COVID products would person been astatine nan higher extremity of our separator scope because a batch of that was NovaPure. So you could person been looking astatine scope of 60% to 70% plus. And past connected nan CapEx portion connected that being layered in, it's -- a batch of it has been layered successful and commissioned arsenic we speak. But to spot nan effect of it will beryllium much truthful successful nan backmost half of nan twelvemonth erstwhile it's afloat operational and we're capable to put a batch of measurement through.

Justin Bowers

Understood. And past conscionable a speedy 1 connected China. Maybe a position update connected nan 2 plants complete there? And immoderate thoughts connected really that impacts nan progression of nan year?

Eric Green

Yes. In China, nan -- our business effect for West wide is rather low. A batch of nan activity that we're manufacturing we do successful China is for China. And truthful we person a really beardown squad location successful our installation successful Qingpu that continues to seizure much stock wrong nan market. But our reliance connected that -- connected our squad location to export is very low. And again, wide worth aliases revenues and profits to nan corp is very small. So that's our effect successful China. Our proviso chain, if you deliberation astir procuring materials, is not heavy limited connected that portion of nan world. The squad has done a really bully job. Many of our products are co-located to our manufacturing sites. So that's really we've group up our procurement and proviso concatenation of earthy materials.

Operator

I would now for illustration to move nan convention backmost complete to Quintin Lai for closing remarks.

Quintin Lai

Thanks, Shannon, and convey each of you for joining america connected today's convention call. An online archive of nan broadcast will beryllium disposable connected our website astatine westpharma.com successful nan Investors section. Additionally, you whitethorn entree a replay for 30 days pursuing this position by utilizing nan dial-in numbers and convention ID provided astatine nan extremity of today's net release. That concludes this call. Have a bully day.

Operator

This concludes today's convention call. Thank you for participating. You whitethorn now disconnect.

Editor: Naga



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