Q2 2022 West Pharmaceutical Services Inc Earnings Call
Okay.
Good day and thank you for standing by work until the Q2 2022 West Pharmaceutical services conference call.
At this time all participants are in a listen only mode.
After the Speakers' presentation that would be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.
Please be advised that today's conference is being recorded I would now.
I'd like to hand, the conference over to your speaker for today, Quintin Lai Vice President Investor Relations you may begin.
Thank you to Wanda good morning, and welcome to our second quarter 2022 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 West Gordon with Dot Com.
This morning, Eric Green and burner broke out will review our financial results provide an update on our business and presented an update on our financial outlook for the remaining full year 2022.
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 four is our safe Harbor statement statements made by 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.
Company's future results are influenced by many factors beyond the control of the company.
Results could differ materially from past results as well as those expressed or implied in any forward looking statements made here.
Please refer to today's press release as well as any other disclosures made by the company regarding the risks 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.
<unk>.
<unk> 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 turn the call over to our CEO Eric Green.
Thank you Quintin and good morning, everyone. Thanks for joining us today.
We will start on slide five I'm pleased to report that we delivered an excellent second quarter, we grew 13% organically with over 18% organic sales growth in our proprietary products segment. Our base business continues to have solid demand across all three market units.
Biologics pharma and generics.
Which more than offset a slight decline in COVID-19 related sales and again, our high value products led the way to its impressive growth.
Our continued success highlights the strength and the resilience of our proven strategy of execute innovate grow which continues to set us apart as a trusted market leader it.
It is the strength of our one west team guided by our purpose that makes a meaningful difference in ensuring our customers have reliable supply of the components necessary to deliver drugs to patients.
An example of a one watts culture in action is our team members in China, who I would like to thank for their inspiring efforts and commitment to our customers during the Lockdowns in April and May.
The relentless focus and our purpose enabled us to reopen our sites and continue to serve our customers with minimal impact.
Now moving to slide six.
We made great progress in the second quarter, let me briefly share a few highlights.
We continue to deliver the key drivers of growth in Q2, primarily driven by our H B P components, including Nova peer envision. Thank you crystal zenith and self injection devices.
With a strong order book for our biologics and generics customers along with pharma demand ramping up we are seeing the benefits of our capital spending investments as we optimize productivity.
That's our global operations, our 2020 capital expansion is now complete and we're driving forward to complete the installation of our 2020 one expansion.
Turning to Crystal Zenith.
We have made been expanding capacity of our one ml syringe is our customer uptake has been robust at the 2022 Bio International Conference, we launched the <unk> Crystal Zenith 2.25 ml insert needle syringe system with.
But the market trend for larger dose injections were able to answer the needs of more patients the safe and reliable containment solutions.
The new <unk> system will help our customers bring a larger volume of product to patients with fewer or less frequent injections, enabling an easier patient experience.
As we continue to advance the standard of care for patients with our customers I'm pleased to share that we have a combination drug approved using our newly launched Susie 2.25 ml system with targeted customer launch in 2023. In addition, we're seeing good progress with our smart dose.
Body sub Q delivery system, and now have three FDA approved biologic drugs using our technology shift.
Shifting to slide seven and an update on ESG at the end of June we published our 2021 corporate responsibility report on the company website, we are tracking well towards our five year targets and I'm proud of how our organization has connected our onewest culture with our ESG initiatives.
As we know to fulfill our purpose effectively we must progress our environmental sustainability goals diversity inclusion and success around our charitable efforts together. This makes for a better performing company today and then into the future I'm also pleased to share that yesterday.
We announced that our board of directors has elected doctors Stephen Lockhart as our newest member.
As the former Chief Medical Officer of Sutter Health and California. His expertise will be a valuable addition to our board.
Before I turn it over to Bernard I wanted to provide some high level thoughts on our updated full year outlook and implied second half 2022 guidance.
We have two headwinds.
FX and slowing COVID-19 demand.
On the positive.
Not only has a base business has been strong and in the first half of the year, but we also expect the generics and pharma market units to perform even better than second half of the year with additional resources to address the demand dynamics for guidance were taking their overall sales down by 100 million.
For the full year <unk>.
Incremental FX.
Going to be a 75 million dollar headwind. In addition, we're seeing a decline in COVID-19 demand as compared to our April outlook that assumed modest growth over 2021, while we're seeing some orders for stoppers for smaller vials to hold fewer doses, we do not assume a meaningful sale.
<unk> impact in 2022, and expect an overall decline of COVID-19 sales of 20% or $85 million from 2021 sales levels to summon up changes in FX and COVID-19 are causing headwinds well in excess of our 100 million.
Negative change to full year sales guidance on the positive side, we're expecting even stronger base business growth in the second half of this year from all three market units of biologics pharma and generics that is helping to moderate the guidance impact now I'll turn it over our call to burner.
Thank you Eric and good morning, Let's review the numbers in more detail, we'll first look Q2, 2022 revenues and profits where.
Where we saw another strong quarter of sales growth led by performance in our biologics and generics market units.
I will take you through the profit drivers in the quarter as well as some balance sheet takeaways and.
And finally, we will provide an update to our 2022 guidance.
First up Q2, our financial results are summarized on slide eight and the reconciliation of non U S. GAAP measures are described in slide 17% to 20.
We recorded net sales of $771 $3 million, representing organic sales growth of 13, 1%.
Looking at slide nine proprietary products sales grew organically by 18, 3% in the quarter.
High value products, which made up approximately 73% of proprietary product sales in the quarter grew double digits and had solid momentum across biologics and generics market units in Q2.
Looking at the performance of the market units.
The biologics market unit delivered strong double digit growth, we continue to work with many biotech biopharma customers, who are using west and <unk> high value product offerings.
The generics market units also experienced strong double digit growth led by sales of Thoratec and westar components.
Our pharma market unit saw mid single digit growth with sales led by high value products, including Nova pure components.
And contract manufacturing declined eight 9% for the second quarter due to a reduction in sales of components for diagnostic devices.
We recorded $321 $5 million in gross profit.
$6 4 million or 2% above Q2 of last year.
And our gross profit margin of 41, 7% with a 180 basis point decline from the same period last year.
We saw improvement in adjusted operating profit with $227 million recorded this quarter compared to $211 2 million in the same period last year for a seven 5% increase.
And our adjusted operating profit margin of 29, 4% was a 20 basis point increase from the same period last year.
Finally, adjusted diluted EPS grew one cents for Q2, excluding stock based compensation tax benefits.
<unk> Q2, EPS grew by approximately 4%.
So let's review the drivers in both revenue and profit.
On slide 10, we show the contributions to sales growth in the quarter.
Volume and mix contributed $71 7 million or nine nine percentage points of growth and.
Sales price increases contributed $23 4 million.
Our three two percentage points of growth in the quarter.
Looking at margin performance Slide 11 shows our consolidated gross profit margin of 41, 7% for Q2 2022.
Down from 43, 5% in Q2 2021.
Proprietary products' second quarter gross profit margin of 46, 2%.
360 basis points lower than the margin achieved in the second quarter of 2021.
The decline in proprietary products gross profit margin was caused by inflationary pressures impacting all planned cost, including raw materials labor and overheads.
Partially offsetting these inflationary headwinds with improvements in our product mix price increases and pass through surcharges at approximately 90 basis points of benefit benefit associated with onetime fees from Covid supply agreements.
Contract manufacturing second quarter gross profit margin of 16, 3% was 40 basis points below the margin achieved in the second quarter of 2021.
The decrease in margin is largely attributed to mix of products sold in the period.
Yeah.
Now, let's look at our balance sheet and review, how we've done in terms of generating more cash.
On slide 12, we have listed some key cash flow metrics.
Operating cash flow was $324 $3 million for the six months ended June 2022.
An increase of $91 2 million compared to the same period last year at 39, 1% increase.
Our operating cash flow in the period benefited from increased earnings our working capital performance and timing of income tax payments.
Our second quarter 2022 year to date capital spending was $131 9 million.
$23 million higher than the same period last year.
Working capital of approximately $1 2 billion at June 32022 increased by $58 1 million from December 31, 2021, primarily due to increases in accounts receivable and inventory offset by reductions in our cash.
Our cash balance at June 30 at $718 5 million.
It was $44 $1 million lower than our December 2021 balance.
The decrease in cash is primarily due to our share repurchase program and higher capex offset by our strong operating cash flow in the period.
Turning to guidance Slide 13 provides a high level summary.
We are updating our full year 2022, net sales guidance and expect net sales to be in a range of $2 95 billion and $2 97 5 billion.
Compared to our prior guidance range of 3.05 billion to 3.075 billion.
There is an estimated headwind of $190 million based on current foreign exchange rates compared to our prior estimate and headwind $115 million.
We expect organic sales growth to be approximately 11% compared to prior guidance of approximately 11% to 12%.
We expect our full year 2022, adjusted diluted EPS guidance.
To be in a range of $9 to $9 15 compared to our prior range of $9 30 to $9 45.
This revised guidance includes our first half 13 sand EPS positive impact of tax benefits from stock based compensation.
Also our Capex guidance remains at $380 million for the year.
There are some key elements I want to bring your attention to as you review our guidance.
Estimated FX headwind on EPS as an increased impact of approximately 55.
Based on current foreign currency exchange rates compared to our prior estimated headwind of 38.
We expect full year, COVID-19 related sales to where to be approximately $85 million lower in 2021 sales.
And our guidance excludes future tax benefits from stock based compensation.
To summarize the key takeaways for the quarter.
Strong top line growth in proprietary growth in operating profit solid adjusted diluted EPS, Despite FX and inflationary headwinds and growth in operating cash flow.
Delivering in line with our pillars of execute innovate and grow I would now like to turn the call back over to Eric. Thank you Bernard.
To summarize on slide 14, our performance in Q2 as positioned as well for the second half of the year. We continue to have a strong base business, which is a testament to the foundation.
Over time with the right strategy and execution.
Leveraging the benefits of our global operating model to deliver the robust book of committed orders and continue to accelerate capital spending across our operations to meet current and anticipated future growth to Wanda we're ready to take questions. Thank you.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
Please standby, while we compile the Q&A.
Our first question comes from the line of Derik de Bruin with.
With Bank of America. Your line is open.
Hi, good morning, everyone.
Thanks for taking the question.
Derrick height, so could you be a little bit more specific on the COVID-19.
Headwind I mean, you've called out $85 million versus prior.
Prior guidance included some growth with it basically I'm just trying to see I'm, just trying to make sure I.
Trying to back into a more specific.
Number four the over for the organic revenue growth boost to the core business. It looks like I'm backing into roughly a 3% increase from your prior guide just for you guys.
I can work the math out a little bit better if you give me some a little bit more guidance.
Yes, Derek let me give you a little more color on that if we think about 2021, our revenues for Covid, where was approximately $460 million, what we're saying in 2022 based on the current.
Visibility and discussions with customers, where the cat about a 20% reduction of that number which is about $85 million.
And if we kind of look ads.
And it's again this is based on the variability that we're seeing in the industry right now.
If you think about moving forward for 2023, we do believe.
It was by another 30 or maybe up to 50% reduction of the 2022 number. So that's kind of the glide path, we see with Covid.
19 demand right now.
This is you are correct. There is a implied base business increase and that's what we're seeing with particularly around the biologics and a stronger pharma and generics for the second half so the ex Covid business.
If we look at the.
The proprietary it was roughly around 23% growth in proprietary for the second quarter.
That's robust and that we're seeing that continue for the balance of the year great.
Great well, thanks for Preempting My twenty-three Whitewood question, which is going to be the follow up to that.
Thanks for that.
And so I guess the question, but then also have you de risked a number enough for 2022 right is there further downside to that 80.
$85 million.
Well based on the information that we have right now.
What we believe we have derisked it enough.
Based on the facts that we see again Covid is that there is always this changing landscape with it depending on what's going to happen this year and probably into 2023.
And we have taken a.
Our conservative view I would think around Covid.
Got it.
It looks like you called out a 90 basis point margin boost the pp was that related to a cancellation fee.
That might have come in the quarter.
From Covid projects.
That's correct.
Okay.
And.
Any issues in terms of I mean, it gets comes up it is going to answer equally in terms of my incoming questions in terms of customer inventory stocking.
Yes.
Just sort of any signs of anything exits in the supply chain.
Right now.
Yes, I know Derek when you look at the order book today.
One area that we're focused on is the <unk>.
Our lead times as you can imagine the last couple of years with the Covid demand we had to pivot.
And prioritize in certain parts of our.
Product portfolio. So our focus right now is reduce lead times back to where they should be.
And that's why you hear us talk about we have capacity that is being installed as we speak but also into 2023, which will give us.
More capability to support our customers on the increase in demand, we're seeing and particularly around biologics and in particular on the higher end of high value products. So that's that's the focus we have we don't see.
Based on the demand and discussions with customers, it's not a large restocking.
Concept going on right now with the underlying core business.
Great.
Question from a client can you just qualify the cancellation fee how big number what that was.
Approximately.
$12 million.
Great.
Thank you very much.
Thank you Sir.
Thank you.
Please standby for our next question.
Our next.
Comes from the line of Paul Knight with Keybanc.
Line is open.
Hi, Hi, Eric Thanks for the time regarding the 23% proprietary growth.
Obviously, we are seeing.
Biologic approval strong but.
One area that seems to be.
Good numbers around us.
Biosimilars, how big is biosimilar benefit in the market and to West can do you have.
Quantitative or qualitative read on the Biosimilar tailwind.
Yes, no. Thank you Paul for the question no. We're seeing we're seeing the benefits of the Biosimilar approvals and entry into the marketplaces, all over although I would say it's relatively small.
And in the scheme of the entire biologics portfolio.
And Theres a high high value product adoption. So when you think about the packaging configurations with our biologic customers, it's near identical to what we see with the Biosimilars.
And is the trend to single dose syringe pretty pretty dramatic are changing in your view.
That's one area, where we're investing heavily as specifically give you really a specific areas around Nova peer lenders.
And that is the.
It supports what Youre, saying is that there is a tremendous movement towards pre filled syringes in the biologic space in the Biosimilar space are looking for it's a high adoption of buildup here. So that's where our investments are going we have installations going on in 2022, but also in 2023 to start getting ahead of the curve with.
Our customers.
Okay, and then last Bernard.
FX guide there was was $115 million for.
This year and now it's minus 190 for the full year is that way, we what you said earlier.
That's correct.
Okay. Thank you.
Thank you Paul.
Yes.
Thank you please standby for our next question.
Our next question comes from the line of Larry Solow with CJS Securities. Your line is open.
Hi, good morning, Thanks for taking questions just bouncing through a couple of other call side. So can you just review so so for the guidance.
Currency impact is.
$75 million and then the net sales impact I guess is $25 million did I get that right, it's $85 million less COVID-19 and then youre, adding back essentially 60 million plus from the base business is that am I capturing that.
That's correct Larry do you have that accurate okay, great and then on that and then you just mentioned you kind of called out.
A COVID-19 related sales vaccine related sales dropping this year like you said, 20%.
There may be another 50% drop in volume demand in 'twenty, three I think I caught that right and then the offset to that obviously, hopefully some offset there would be.
Our move to a more I know you.
Pre filled syringes or less doses provided it sounds like a little bit is happening and that in 'twenty. Two could you just give us sort of an update on how you see that.
Transforming in 'twenty three and as we go on are you still confident that we will see a pretty good job.
The transformation on the Covid side onto a single dose.
Yes, Larry you summarized it well I just wanted to add one comment though than 'twenty trajectory. We do think it's more of a range.
30% to 50% and again Thats a lot of variability so we're trying to be conservative on our absolutely.
Your point is valid that there is a shift that is starting to occur with less doses per vial.
So that configuration is is obviously in some cases some customers as boon for about 20 millimeter down to a 13 millimeter stopper, what we're seeing right now it's more in the vial configuration versus pre filled syringe.
We see that going into 2023 and beyond I do want to just state Youre right Theres less doses per vial, which is a net benefit to west with the key variable that is very unpredictable right now is that number of patients taking the dose.
And the data is widely available in the market and you see the low uptake as we speak right now, but yet to be determined as we get through 2022 and also into 2023.
Alright.
Yeah placement to that.
A pre filled syringe.
Take it Eric just mentioned when answering the other question is really within our core business within biologics, that's where we're seeing.
A lot of increased demand.
<unk>.
And move in move through 'twenty, two and into 2023 right Larry.
So thats our core business.
Right right, so thats right, so that big sort of switch.
Switch on a macro level.
Pre filled syringes are certainly.
Increasing across the biologic space and not just specifically the Covid vaccine. We're hopeful that will happen and then there's certainly some talk of that I'm sure with your customers, but youre talking in general that trend that multiyear trend, which you've talked about for a while.
And then on over pure itself could you just give us like an idea.
It seems like I know you don't break out percentages in penetration, but it seems like we're still relatively in the early stages can we just can you just like maybe qualitatively.
<unk> penetration of Nova pure to say floor attack, our westar one of your more highly penetrated <unk>.
Yes, I would say.
Commercial in the market right now the Nova peer is a lower percentage than the other parts of the high value product portfolio. When you look at the pipeline and or newly approved drugs that are ramping up in the marketplace. There is a higher percentage.
Thats utilizing the Nova peer, particularly around the the plunger's.
It lines up very nicely to the investments, we're making this year and next year that we've committed to already to have installation in capacity expanded quite significantly so that that's.
That's where we are in that journey.
While it is a lower percentage it has tremendous value proposition to our customers and that's why we see the pipeline is very attractive.
Particularly in the biologic space.
Great and then just just lastly, Eric you spoke a lot about and it sounds like you are really enthusiastic about sort of the outlook for the self injectables.
And you mentioned could you just give us sort of I know you talked a lot about the <unk> and the new two five milligram. Sir can you just give us sort of an update on smart dose.
Where we stand with that and how you see that unfolding over the next few years. Thanks.
This is an area that we've been working on for a number of years and what we can.
Talked about more recently is our customers are looking at ways of taking new molecules, but also.
Current molecules in the market.
Reformulate and move from an IV to a sub Q.
Delivery mechanism.
Particularly around lifecycle management and that is actually quite exciting and hence when you think about I mentioned on the call in the prepared remarks that we now have three combination device approvals.
With with biologics.
So we're starting to gain momentum.
To start moving products into the commercial environment versus still in development. When I look at the development projects. We're working on with a number of customers. It is now more gravitating towards the larger volumes.
<unk> molecules in the marketplace and it's around lifecycle management. So it's exciting as I believe we are.
And a good point in time.
More work investments need to occur.
And it takes some time to get into really large meaningful revenues, but we're definitely in the right direction with that with that part of the portfolio.
Great excellent I appreciate all the color. Thanks.
Thank you Larry.
Thank you please standby for our next question.
Our next question comes from the line of Justin <unk> with William Blair. Your line is open.
Hi, good morning, congrats on the quarter.
I'll start off with.
At some point do you have any plans for any further price increases for the rest of the year just trying to get a sense of what's assumed in your guidance.
Well right now I'd say its continuing with the pricing strategy that we've had as.
As we progress through 2022, where we've done some specific price increases for customers General price increases and then we continue to monitor if there are further surcharges that we need to implement.
As this as these inflationary cost continue to.
As we move through the second half of the year.
It's something we review.
On a monthly basis nothing to announce to say there is any specific increase at the moment.
But we are tracking it pretty closely and offsetting.
Much of that cost increase as we can and as we've talked about before there is sometimes a lag as to when we experienced the cost increase itself and then when we can pass it on and again, that's something we're working through but again it's fluid.
Got it and can you remind us how we should think about margin cadence for the rest of the year and I guess, what are the underlying assumptions around raw material costs freight and overall supply chain.
Yes.
<unk>.
And that margin continue to step up as we move through the remainder of the year again Thats based on what we have been communicating.
Since we gave guidance in February of this year and so we will continue to see that happening as we improve our levels of efficiency and Larry and extra capacity.
Some of the things that we're having to do right now is too.
Replace the Covid.
Demand that we've just called out is decreasing.
<unk>.
Other products and other demand within our network.
And we've been started doing that as we progress through Q2 that will continue to Q3 and Q4.
And the demand is there essentially to fill in many of our facilities and that growth is reflected in the guidance thats embedded.
Got it that's very helpful and just one last one for me so longer term that 100 bps of margin improvement each year.
I guess is that predicated on inflation and supply chain pressure easing in 2023 or can you achieve that without.
Situation improving in other words, while the continued uptick in <unk>.
Valley products alone helped drive that obviously along with the.
Continuing to increase in efficiency.
Our expectation is that that would be the case in our target is to continue to expand margins by 100 basis points.
And that's based on what we can see today now some black Swan event or something happens.
Side of our control that at.
That's a different story, but based on what we have in front of us today.
The intention is to continue that 100 basis points expansion.
Sounds good thank you.
Thank you Joseph.
Thank you please standby for our next question.
Our next question comes from the line of Jacob Johnson with Stephens. Your line is open hey, good.
Good morning.
One quick house keeping question first on the Covid revenue in <unk>, you talked about 23% growth ex COVID-19 in proprietary products that seem to imply that the COVID-19 revenues, where maybe $110 million in the quarter.
That in the ballpark.
Yes, that's right.
It's pretty close.
Okay.
Thank you.
Then Eric you mentioned the potential for pharma and generic demand to pick up in the second half of the year and you also mentioned, adding some resources. There can you just talk about.
The resources, you're adding there and where you somewhat capacity constrained for those end markets.
First half of this year.
Yes.
As the resources more around the demand bill too.
Over on the demand that has been given to us specifically in generics and pharma.
And there are discrete customer projects. So we're feeling good about.
The work Thats ahead of us, but we did we do need to allocate resources appropriately to be able to deliver those demands that are for the second half of this year that was the intent of the comment.
Together with pharma and generics. So if you take the first half of the year compared to the second half those two units to be growing.
A lot faster than they were in the first half. So that's what we want to make sure that was clear that was that's going to be occurring from our plants, both in Europe , and the United States. Okay.
Okay.
And then last question from Brian .
On R&D expense.
Flattish sequentially.
I think if I remember correctly, there are going to be some investments flowing through the R&D line, maybe around the according relationship and some other efforts just how should we think about R&D expense maybe back half of this year into 2023.
Yes, we would expect it to tick up in the second half of the year and that theyre going to be two drivers around that one is.
The level of <unk> that we're seeing coming through our pipeline.
And then that's really on our delivery devices and then also looking at.
Corning glass partnership that we have in place will be adding additional cost and again, it's all embedded in the guidance and it is being planned for the year, but that will happen in the second half of the year.
More so in Q4 than in Q3.
Okay perfect. Thanks for taking my questions.
Thank you Jacob.
Thank you.
Please standby for our next question.
Our next question comes from the line of Dave Windley with Jefferies. Your line is open hi.
Hi, Thanks for taking my question good morning, gentlemen.
I was hoping to just to.
Try to shine, a little bit more light on the comments around.
Bias toward pre filled syringe.
Novo peer stoppers or excuse me, Nova pure Plunger's that you mentioned.
CZ.
The uptick in work around syringe is there like how much of that is related.
So as.
As clients want pre filled syringe is that still predominantly glass and you're supplying what you traditionally have but in Nova pure high value or is that also driving uptick in CZ resin.
Syringes.
Just anything you can add there would be much appreciated.
Yes, David Good morning, it's easy.
A great application, we started thinking about silicon free but from what's what the preferences is still glass has.
And the work, we're doing with partner with Corning.
So there are certain molecules certain applications that <unk> is particularly well positioned for it.
And we're able to capture some of that demand now when it comes to <unk>.
<unk> here.
Plunger's really the comment is around the glass PFS solution.
And also more and more around the biologics and biosimilars than anything else.
Okay, and then Eric in your comments around.
Addressing shortening lead times I want to make sure.
Sounds like the base business is accelerating.
Two I think it was Larry.
Bridge or maybe Paul's bridge around the $60 million of the base that makes up for some of the weakness.
How much of that is.
And I'll say pulling forward.
Activity, because space and capacity productive capacity is freed up.
By the lowering of Covid and to help to shorten lead times for your clients.
Versus kind of underlying steady state flow of demand can you help us to understand the difference there.
Yes, Dave long term construct we'd still believe in the 7% to 90%. So when we started talking about 23% in the quarter for proprietary excluding COVID-19.
That is <unk> sales sizing that that long term construct has two elements to that one is we do believe the.
Freeing up some of the capacity, which is obviously not just dedicated COVID-19 it will be able to support our core business and to bring some of those lead times in line, it's not the entire portfolio, but specific area.
More around the high value products.
When you think about the market units.
<unk> is still really strong what I mean by that is we think about our order confirmed order book It continues to increase.
From.
The end of last year and one of the major drivers that is biologics and when you dig a little bit further it's a combination of.
Recently launched molecules that are having a very strong success in the marketplace.
<unk>.
And secondly, this do preparing for the pipeline for new newly approved drugs that are will be approved or have been approved recently.
There is always inventory management going on with our customers, but I would say in the last two or three years, we were not in a position.
<unk> oversupply any one particular customer so we're trying to bring the lead times back in line.
Constant work that we're focused on but I want to state that the underlying growth of the business extremely healthy.
Across all marketing, especially biologics.
Got it. Thanks, So I guess to rephrase that last point that you just made.
Youre confident that.
Customers are are not say stocking because you basically couldnt produce enough for them to overstock.
To flip the question.
Or are they under stocked or I.
I guess the.
A version of that would be.
Kind of.
Dependent on longer lead times than our comfortable and so youre kind of catching up and getting them short backup to what normal should be.
It sounds like maybe you're right what you are saying.
Yes, David you are correct. There are in some cases not across the whole portfolio, but there are some cases, where we with the relationships we've had with our customers is to establish.
Very robust schedules are tight schedules to make sure that we're not creating any issues.
<unk>.
Availability of material, but there was some of that and we're working through those as we speak and that's one of the reasons why we highlighted that some of the capital investments that we made.
Committed to that are rolling in this year and also into next year, particularly around Nova peer.
Is to really alleviate.
To support the growth in the biologics space and Thats.
<unk> is definitely needed to get in there to stay ahead of the curve.
Got it.
The way I would frame it is to bring lead times back to where they.
Our pre Covid and then it's to be able to maintain those lead times.
As the business is actually growing.
Rather than.
I am happy to lead times go back out so thats, what we have to layer in the capacity. So it's actually managing two things at once it's not just one.
So we're seeing this acceleration in growth in some areas of our business and plus trying to get customers to stock levels, where they feel comfortable if thats the case, but thats going to take a period of time that is not an instantaneous thing.
Sure and Bernard on your point on layering in the capacity.
To confirm this change in your or does this change in your Covid expectations.
Change the amount of Capex investment or the pacing of those projects at all relative to bringing on additional capacity.
The projects that we have right now it does not change any of those.
And the projects that Eric mentioned about particularly on the plunger side.
We are continuing to layer in that capacity and that specifically around growth that worse, that's inherent in the market right now and the changes ever seen.
So there is no change there and if we could actually accelerate that on boarding.
That would be more beneficial for us if we could do that because the demand is there to date.
Got it seems like a strong sign last question for me in regard to.
Star.
Stoppers versus.
Plunger's and components that you supply for pre filled syringe I think you've answered in the past that you are relatively economically agnostic.
Two form factor is that true or is there any nuance that we should think about there.
No.
Yes.
That that holds true economics arent that.
Vastly different between the two.
Okay. Thanks, I appreciate you answering all my questions.
Thank you David Thank you.
Thank you.
I'm showing no further questions in the queue I would now like to turn the call back over to Quintin Lai for closing remarks.
Thanks to Wanda and thank you for joining us on today's conference call an online archive of the broadcast will be available on our website at west pharma Dot com in the investors section.
That concludes this call have a nice day.
<unk>.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Okay.
Mhm.
Okay.
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