Q4 2022 West Pharmaceutical Services Inc Earnings Call
Yeah.
Okay.
Good day, and thank you for standing by.
Welcome to the West pharmaceutical services fourth quarter 2022 earnings conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star. One wondering your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one again, please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today, Quintin Lai Vice President of Investor Relations. Please go ahead.
Thank you Shannon.
Good morning, and welcome to West fourth quarter, and full year 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.
Weighted at West Pharma Dot com.
This morning, Eric Green and burning Briquette will review our financial results provide an update on our business and presented an update on our financial outlook for the full year 2023.
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.
The 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.
And 8-K reports.
During today's call management will make reference to non-GAAP financial measures, including organic sales growth adjusted operating profit adjusted operating profit margin and adjusted diluted EPS.
Conciliations and limitations of the non-GAAP financial measures to the most comparable financial results prepared in conformity to GAAP are provided in this morning's earnings release I'll now turn the call over to our CEO Eric great. Thank.
Thank you Quintin and good morning, everyone. Thanks for joining US today, we will start on slide five.
For over 100 years, the west team has come to mean, so much. There's so many people we have grown and expanded from manufacturing primary containment components to designing and manufacturing delivery systems.
This remains the same today as a global market leader, who continues to define the evolution of our industry. Our 10000 plus team members are motivated by improving patient lives.
Past few years have been a reminder, that the world doesn't stand still and the needs of the health care industry are evolving and growing in complexity with shifting treatment options from the hospital to home setting.
We remain committed to the pursuit of scientific innovation and partnerships to address the changing needs of.
Today and into the future.
Moving to slide six.
Looking back at the year I'm pleased to report that west delivered overall organic sales growth of approximately 8%.
This growth was generated despite a rapidly shifting pandemic landscape.
We started 2022 expecting COVID-19 volume growth, but instead declining orders and demand from our customers actually resulted in a 15% decline in pandemic related sales.
Excluding COVID-19, we estimate there are base organic sales growth was low double digit with mid teens growth in proprietary products and driving its base growth as demand for our high value product offerings for both legacy as well as recently launched drugs.
And we ended the year with a return to growth in Q4 and contract manufacturing.
This performance is a result of the dedication and relentless focus of our team members across the globe.
We are connected by a strong responsibility and shared values that continue to help us succeed each day I want to acknowledge these efforts to say thank you.
Looking ahead, we remain well positioned with the right growth strategy around execute innovate and grow.
Our solid order book of committed orders reinforces the criticality of west components and devices to address our customers growing injectable drug demand.
And we continue to deploy capital investments to support the increase in demand driven by the attractive end markets.
Turning to slide seven.
In addition to our financial momentum there were several other notable accomplishments in 2022.
We shipped close to 47 billion components such in billions of patient lives.
Scientific and technical leaders in the industry, our customers expect us to help solve their problems. We continue to broaden insights with our expertise through our webinars published articles and technical presentations.
We partnered with Corning to build the next generation, leading Alaska glass systems.
We launched think you'll see the two to five ml insert needle syringe to support the biologics market.
And secured three additional FDA approved drugs using our smart dose technology as we continue to bring additional value to our customers.
Lastly, we donated $2 $75 million, but more importantly, our team members continue to volunteer their time to help our local communities with the greatest needs.
Our heartfelt thoughts are with all those impacted by the devastating earthquake in Turkey, and Syria, where we have provided aid through UNICEF.
Shifting to slide eight we continue to factor environmental considerations into every aspect of our business over the past five years, we have made tremendous strides across our six priority areas and newly defined performance indicators I.
I'm pleased that we're on target with 90% of our operational waste not being sent to landfills, our pursuit of renewable energy alternatives as they did in a positive impact in the emission reduction. These efforts have been recognized with numerous ESG accolades in 2022, we look for.
To share in more detail and our corporate responsibility report to be published in the spring.
Turning to slide nine.
We continue to address the growing market needs with today's complex and sensitive molecules at the recent pharma pack meeting we introduced several new products for large volume delivery and complete vial containment solutions.
One available product as their west ready packed with corning's valor ready to use vials. This will be the first of many products from our corneum partnership the combination of these products eliminates the risk of delamination and reduces glass particulate and bulk filling lines.
It is drug delivery innovations like this that ensures best in class performance with a value proposition to meet the increased regulatory expectations with a complete vial containment solution.
Moving to slide 10.
We are introducing full year 2023 financial guidance. This guidance is based on demand trends as well as our current capacity levels is also reinforced by our strong west and <unk> participation rate and drug approvals, especially in biologics and.
Biosimilars, we expect full year overall organic sales growth of approximately 3% to 4%, which includes a $303 million year over year decline in pandemic related sales.
Excluding this impact we expect mid teens overall base organic sales growth with proprietary products growth in the high teens and high single digit growth in contract manufacturing.
2023 will represent a transition year for our margin profile as we see a headwind from COVID-19, HV piece that said our expected margins for this year are significantly above pre pandemic.
2019 levels. This underscores the strength of our financial construct with annual margin expansion of 100 basis points or more per year.
In 2019, we posted operating margin of 16, 1% in 2023, we expect operating margin of 23% to 24%, which would represent an increase of approximately 800 basis points over a four year period.
Also today, we announced that the board of directors as authorized a new share repurchase plan as our prior plan was completed last year. This program is authorized for up to $1 billion of share repurchase. We note that this new program does not have a specified end date as.
Comparison in 2022 or 12 month program was completed at $203 million of buybacks and in 2021 or 12 month program was completed $137 million of buybacks.
This new $1 billion program will provide for a continuation of our share count neutral strategy, which is assumed in our 2023 full year financial guidance.
We believe this program will also provide flexibility for incremental share repurchases, depending on various factors such as economic and market conditions.
Turning to slide 11.
As you can see from our guidance, we see continued base momentum in 2023, and we're planning for a further additional growth as our customers are preparing for expanded success of their current biologics portfolio and drug launches as such we continue to drive forward to complete the installation of our <unk>.
<unk> expansion plans for additional H VP capacity.
The picture shows the progression of our ongoing efforts.
A recent visit to Kinston it was impressive to see the additional space added to accommodate the installation of new manufacturing equipment to address the growth of <unk> and Plunger's together with other site expansions. This will support future demand across our global manufacturing network.
I'd like to turn the call over to Bernard.
Eric and good morning with FERC.
For 2022 revenues and thoughtful where.
Where we saw low single digit organic growth.
The decline in operating profit and diluted yes.
I will take you through the drivers impacting sales and margin in the quarter as well as some balance sheet takeaways.
And finally, we will review our 2023 guidance.
First up Q4, our financial results are summarized on slide 12, and a reconciliation of non U S. GAAP measure are described in slides 20 to 23.
We recorded net sales of $708 7 million in the quarter, representing organic sales growth of two 6%.
Covid related net revenues are estimated to have been approximately $55 million in the quarter and.
An approximate $69 million reduction compared to the prior year.
These net revenues include our assessment of components associated with vaccines treatments and diagnosis of COVID-19 patients offset by lower sales to customers affected by lower volumes due to the pandemic.
Looking at Slide 13 proprietary products sales grew organically by one 8% in the quarter.
High value products, which made up approximately 72 percentage of proprietary product sales in the quarter or flat compared to the prior year.
Due to the reduction in Covid related net revenues.
Looking at the performance of the market units the generics market unit delivered double digit growth led by envision components and admin systems.
While the pharma market unit experienced high single digit growth led by Novo pure and westar components.
And the biologics market unit saw mid single digit decline due to a reduction in sales related to COVID-19 vaccine.
Our contract manufacturing segment experienced net sales growth of 7% in the fourth quarter, primarily driven by sales of health care related medical devices.
Our adjusted operating profit margin of 22, 4% with a 350 basis point decrease from the same period last year.
Finally, adjusted diluted EPS declined 13, 2% for Q4 <unk>.
Excluding stock based compensation tax benefits of <unk> and Q4 EPS declined by approximately 13, 6%.
Now, let's review the drivers in both our revenue and profit performance.
On slide 14, we show the contributions to sales growth in the quarter.
Sales price increases contributed $28 1 million or three eight percentage points of growth.
Offsetting price was a foreign currency headwind of approximately $41 $3 million and a negative mix impact of $8 9 million.
Primarily due to a reduction in COVID-19 related net demand.
Looking at margin performance Slide 15 shows our consolidated gross profit margin of 37%.
For Q4 2022 down from 41, 1% in Q4 2021.
Proprietary products fourth quarter gross profit margin of 41, 6% was.
It was 470 basis points lower than the margin achieved in the fourth quarter of 2021.
The key drivers for the decline in proprietary products gross profit margin were unfavorable mix from a reduction in sales related to COVID-19 vaccine.
And continued inflationary pressures on our planned cost, including raw materials labor and overheads.
The headwinds were partially offset by sales price increases.
Contract manufacturing fourth quarter gross profit margin of 15, 4% was 110 basis points below the margin achieved in the fourth quarter of 2021.
The decrease in margin is largely attributed to mix of products sold.
Now, let's look at our balance sheet and review, how we've done in terms of generating more cash on.
On slide 16, we have listed some key cash flow metrics.
Operating cash flow was $724 million for the year, an increase of $140 million compared to the same period last year and 24% increase.
Operating cash flow in the period benefited from our working capital improvements.
In 2022, we spent over $284 million on capital expenditures of.
A 12% increase over 2021.
We continue to leverage our capex to increase our high value product manufacturing capacity within our existing facilities in the U S, Germany, Ireland and Singapore.
Working capital of approximately $1 4 billion increased by $252 6 million from 2021, primarily due to higher accounts receivable from our increased sales higher inventory levels and an increase in our cash position.
Our cash balance at December 31st of $894 $3 million $131 7 million higher than our December 2021 balance the.
The increase in cash is primarily due to our operating results in the period offset by our share repurchase program and higher Capex.
Turning to guidance Slide 10 provides a high level summary.
Full year 2023, net sales guidance will be in a range of $2 93, 5 billion and $2 $96 billion.
There is an estimated headwind of $30 million based on current foreign exchange rates.
We expect organic sales growth to be approximately 3% to 4% we.
We expect our full year 2023, adjusted diluted EPS guidance to be in a range of $7 25 to $7 40.
Also our Capex guidance is $350 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 has an impact of approximately 11.
Based on current foreign currency exchange rates.
We expect full year COVID-19 related net sales to be approximately $85 million.
Compared to $388 million in 2022.
And our guidance excludes future step future tax benefits from stock based compensation.
I'd now like to turn the call back over to Eric Great. Thank you Bernard.
Summarized on slide 17, the solid financial performance share today continues to reaffirm that our growth strategy is working we have a durable base business proven by our market led approach, which is delivering unique value to our customers. Our global operations team is efficiently manufacturing and delivering products.
In this complex environment with a focus on service and quality and we're continuing to progress capital spending across our operations to meet current and anticipated future growth, we realize that our products in pursuit of scientific innovations are critical to health care across the globe, which is why we're so committed to.
To support patient health.
And well into the future Shannon, we're ready to take questions. Thank you.
Thank you.
As a reminder to ask a question. Please press star one wondering your telephone and wait for your name to be announced.
To withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Okay.
Our first question comes from the line of Larry Solow with CJS Securities. Your line is now open.
Good morning, guys. Thanks for taking the question and.
<unk>.
Good quarter better than obviously, we would expect that.
Eric maybe could you just discuss sort of the long range outlook <unk>, you mentioned, 72% of volume in the rare.
Revenue in the quarter, but could you speak to it more on a volume basis.
Particularly some of the faster growing and much higher margin Novo pure and as you kind of.
Ascend up the HCP curve, if you will in the.
<unk> over the next several years.
Yes, Thanks, Larry.
And good morning.
No youre right. So if you think about HCP right now the amount of units produced from our manufacturing sites is roughly around 23% of the total volume, but as you've rightly pointed out it was about 72% of our sales in the last quarter.
And the higher growth part of that high value product spectrum portfolio is coming from our Florida Tech all way up to Nova peer so no appears becoming more meaningful obviously it was.
<unk> made.
A major element of the COVID-19 response.
With the number of biologic launches.
The Nova peer is becoming a very attractive solution for our customers. So I'd say it's early.
Investments, so, we're making particularly in our HB.
<unk> plans to <unk> Jersey shore.
Our around Nova peer Plunger's.
And other types of Plunger's to address future launches. So that's where the growth is really our portion is coming from the higher end of <unk> as we speak.
Okay.
Yeah go ahead I'm sorry.
If you look at the Opex and guidance as well.
Yes.
Approximately 70% pass Capex number is really to support growth initiatives.
Initiatives and productivity improvements and much of that is around high value products, so that ties in with the.
The outlook that we would see for the next number of years, putting that capacity in place.
And just what about just generally in the industry.
The trends have been biologics are obviously growing faster than overall drugs.
Has that trend accelerated over the last few years, what's the outlook there.
General.
The macro level.
Yes, we believe the biologics and Biosimilars space is going to be the fastest growing area for a new drug launches. If you think about the last year, though however, it was interesting to see the number of Andas.
And also small molecules approved into the market.
Fortunately, we have a strong position in those areas also but I think if you kind of fast forward Youll still see biologics and biosimilars would be the fastest growth area.
Our space.
Got it and then just lastly can you just give us sort of a just a brief update.
And then on the call I'm not sure if you talked a little bit about Corning at all but just sort of where we stand there I know I think last year, you had even called out how much you're spending on R&D I'm sure.
Pretty incremental piece this year as well but.
What you can speak to on the R&D side, and the cost, but maybe just sort of.
Where we stand qualitatively the revenue outlook.
How big this could be over the next few years. Thanks.
Yes, Larry.
Really strong partnership and we're really pleased that earlier this month, we were able to announce a.
Our first product launch of combining our no worse no appears stopper in corning's valor vials.
Which what we what we label as are ready pack solution and just to remind everyone said this is kind of a of.
Cedar is seed program that we use.
And the development of new molecules. So this has been very successful for us in the past or leverage in this channel.
To introduce this combination going forward.
It's a great Testament of the focus between the two firms on really bringing the products together together as a complete solution and so while this is early with more work to do.
We have a number of launches that we have scheduled whether it's in 2023 and 2024.
Ultimately, where we want to get to is a complete solution with the one drug master file. So it is a complete fully characterized system.
And so that rule will continue to required investments and so if you look at our R&D spend in 2023, it will be slightly up and a good portion of that incremental piece will be around the west Corning partnership.
Thank you as a reminder, we ask that you. Please limit yourself to one question and one follow up.
Our next question comes from Matt Larew with William Blair. Your line is now open.
Hey, good morning, Thank you for taking my questions.
So just wanted to ask just you referenced sort of a committed order book and I'm. Just curious maybe if you compare it the composition of that order book today versus pre.
Pre COVID-19, obviously on the nonpublic part maybe just in terms of what appear in Florida demand look like I guess the question is out of the potential floor.
Our tech customers seeing let's start engaging with what is it conversion look like.
The Novo peer side, what are the conversion would look like in terms of folks will ultimately end up choosing to go with with <unk>, perhaps versus a few years ago.
Yes. Thank you for the question so.
When I look at the order book versus pre pandemic, and then strip out the Covid piece.
Overall, it's a net increase from where we were we were at that point in time.
When you look at the composite of the growth of that order book. It is really driven by our high value products and particularly the higher end of <unk>.
Seen a.
Healthy growth and Plunger's not just in the dove appears sector, but in the other categories of HCP.
But.
So from a from a order committed order book perspective.
The kind of the characteristics, we're seeing right now in regards to.
The adoption rate is actually quite high so our participation rate, particularly in the biologics and Biosimilars is very very strong and what we're doing is we're seeding.
With the Nova peer portfolio and once that is locked in the development phase as they go through into commercialization. That's the end result.
Better outcomes for our customers, obviously better compatibility with the drug molecule. So we're very excited to see the continuation of that adoption of Nova peer and that's hence the reason why we're putting these investments in place.
We're seeing more of a transition from vials to pre filled syringes.
Will require our plunger, so that's where we are but it's a very very healthy growth profile of the higher end of Hcp's.
Thanks, Eric and then just maybe a cleanup one on the equipment issues you referenced on the third quarter call. How did that end up impacting fourth quarter results relative to expectations of where things stand.
Now halfway into the first quarter of 'twenty three.
So those issues are resolved the team did a really great job.
To resolve the issues and get our product.
Fashion facilities back up on line fully validated characterize and build support commercial production that was done in <unk>.
I'd say mid mid part of Q4, a little bit later and that part of the quarter.
So we are we're at full out right now in Q1 and.
And I am excited that we have that at this point to allow us to get.
Some of the backlog caught up in the early parts of this.
This year.
Thank you. Thank you. Thank you.
Our next question comes from the line of Jacob Johnson with Stephens. Your line is now open.
Hey, Thanks, good morning. Thank.
Hey, congrats on a nice quarter, maybe kind of following up on that last question just on I guess.
As we think about how the year plays out any anything you'd highlight in terms of seasonality or kind of margin progression revenue progression throughout the year and maybe along those same lines can you just remind us when you had the toughest comps.
From Covid.
You'll be lapping from 2022.
Yes, I think from a cadence perspective.
Going back to what we would've seen kind of pre COVID-19.
Where.
First quarter is usually a little bit lighter picks up a bit in the second quarter, and then levels out in Q3 and Q4.
And from a comp perspective.
I think a lot of the Colbert revenues, we would've had would've been in the first half of 2022, so thats where the I.
I won't say a challenges, but that's where the biggest comps are going to be from that perspective.
And then some in Q3 and then obviously later in Q4.
Got it thanks for that and then.
And contract manufacturing nice to see a return to growth there uptick in revenue in the quarter gross margin was down sequentially can you just hit on what drove balanced and maybe related you're pointing to I think pretty robust growth in 2023, where are there some investments you're making for this year and kind of the analog.
On the same lines, what's driving the growth in that business in 2023.
Yes, I think as you'll remember when we were talking through 2022.
The challenges we face within contract manufacturing is really around one two or one customer mainly a shift in their business.
And so is that kind of.
Have tailed off towards the back end of the year. It allows us to be able to return to growth than we actually saw demand increase from our existing customer base, probably a little bit ahead of where we would have anticipated and going into the fourth quarter. So that was again positive to see.
Yes.
And what we would expect as we move into 2023 that will be seen.
Mid single digit growth or a contract manufacturing.
On our existing business and then layering in.
Business at the same time.
So we continue to make some investments in that area.
Got it thanks for taking the question.
Thank you our next.
Question comes from the line of Paul Knight with Keybanc. Your line is now open.
Yes, Thanks, Eric and Bernard and Quintin and the question is.
<unk> touched on it I guess is the Covid probably start slow then they manufacture more product.
Q2, Q3, right and then less in Q4.
That's question.
One and then.
The other would be regarding the pre filled syringe market is that really what youre seeing is biggest opportunity right now.
Yes, good morning, Paul Thats a good question. So the first part is that when we think about the Covid. It's we're looking about right now approximately $85 million.
For 2023 is relatively.
Evenly spread it can't get any more granular than that at this point, but.
But as you know we were much higher than that last year. So we do have the capability to manufacture accordingly.
In regards to the pre filled syringe and when you think about our investments, particularly in the last couple of years and working with some of the launches in anticipation.
Around Plunger's, which obviously supports the crucial turn space.
Is actually we are anticipating a higher growth in that area.
And that is equipments coming online as we speak I mentioned, a little bit in my prepared remarks about kinston a lot of the additional equipment and there is really geared around.
Blenders and so I'm excited to build support that part of the market as we see the.
<unk> Prefilled syringe market continue to expand with high growth. So we're going to play in that and we're prepared for it and Thats, where our investments are really focused on today.
Okay. Thanks.
Thanks, Bob.
Thank you.
Our next question comes from the line of Derik de.
Bank of America. Your line is now open.
Hi, good morning.
Good morning Derik.
So can you talk a little bit about sort of like pricing.
At about 4% in <unk>.
How should we think about that in 'twenty. Three are you I know you were debating taking some higher pricing. We're looking at your pricing dynamics I think if youre going forward.
And I guess, if you have you done that and have you seen any pushback from your customers.
Yes. Thanks for the question, so you're right we have implemented and the.
The fourth quarter of 2022, obviously discussions with our customers about the 2023 calendar year.
Our net price increase will go up in 2023.
And that is obviously for all the right reasons, particularly with some of the inflationary challenges and so forth that I think all industries are being faced with.
I think the team responded appropriately I believe we took a very.
Very well balanced approach, we do have certain customers on contracts. So we do have some limitations. However, overall with the new pricing team and strategy. We put in put in place a couple of years ago, we're starting to see that pay off.
So that will be rolling out as we speak.
Already this quarter and be rolling in throughout 2023, but Bernard do you want to provide more color on that yes or.
I think on the fourth quarter, we say if we did about three 8% in pricing we're targeting.
<unk> of 5% to 6% on price as we move through 2023. So it is a bit of a step up.
Part of that has to take.
Into account the inflation rate.
Cost pressures that we're also seeing and but as Erik said, you can see the trajectory and our price increases over the last number of years.
How we're approaching that.
That's also been on the increase.
Great.
A little bit.
Accounting question.
What was the tailwind from stock based comp.
'twenty two and.
Your initial tax rates are never what you end up being but for the full year. So is it comparable.
Is it reasonable to think you get a comparable benefit in 'twenty three.
And we guide without it because it's very hard for us to estimate us.
If you look at.
Last year. It was 22 I believe.
So it's we.
We guide without a FERC.
A reason because it is so hard for us to predict that's kind of outside of our control.
Got it.
And if I can squeeze one more in if you don't mind.
How should we think about the economics on the pre filled syringes I mean, obviously, there's a lot of new drugs coming out.
In metabolic disease, where obesity and how should we think about your <unk>.
Potential profitability or the revenues associated with one of those units and just give us some way to sort of like ballpark what you're.
What your revenue contribution could be on something like that.
Yes.
If you think about the pre filled syringe area and the lenders we are it depends on if it's.
If it's novo peer it's pretty comparable to we talked about the 80.
To over $1 a unit.
But if it's not the novo peer or other types of <unk>.
You got to have a very large range between let's call. It <unk> 40 per unit.
So you can see the range that where we're operating in from a margin perspective again, it is <unk> and that could range anywhere between 55% to 80%. Some gives me a very broad range because not all molecules have the same requirements.
But what was good around our investment thesis and our facilities, particularly around <unk> is that the equipment and the processes are somewhat fungible. So.
We can leverage the existing assets.
The current drug launches, but also.
Areas of potential growth.
We're positioned well.
Okay. Thank you very much.
Thank you. Thank you.
Our next question comes from the line of Jon <unk> with UBS. Your line is now open.
Hi, Thanks for taking the questions I guess, maybe digging in a little bit more on the new capacity coming online in the Capex any color just on pacing there for the year and then just to follow up on that equipment and the delays at <unk> I think that was around $30 million of months headwind can we assume now that this is up.
That's contributing around $30 million a month as well.
The impact in Q3 was about $30 million.
And that may vary depending on volume mix as we go through each quarter. So it is hard.
To say, it's 30 million each quarter.
What would be difficult to.
To commit to that at this point, but in saying that all of those problems that we had in Q3 have been resolved as Eric talked about earlier and much of that happened as we progressed through.
In Q4.
And on the pacing of layering in your Capex that will happen as we move through 2023. So it's not all at once and what we will see some of it as we get into the back end of the second quarter.
Particularly in Kinston, where we are getting new parts of our facility up and running with the equipment that we've installed there and then as we progress through the year that would be equipment layered in and the other <unk> sites.
Got it I appreciate it and then I guess, just maybe on on Covid It looks like.
The guidance there slightly I guess, just any thoughts on just where.
Endemic levels go from here how much more further drops do you think that you see coming down from Covid.
Beyond 2023.
It's hard to.
Estimated that we'd like we've tried to well we were given our best estimate based on the information that we have today.
We thought it was going to drop any further and we would have included that in the.
And in the guidance, but based on what we see today. That's what we think is going to play out.
Got it thanks for taking the questions.
Thank you.
Thank you and our next question comes from the line of David Windley with Jefferies. Your line is now open.
Hi, Thanks for taking my question I Hope you can hear me.
I wanted to.
I've got a couple of follow ups, but I wanted to start with just asking if you would level set.
Where the market units are with kind of generics, having a strong end of the year and biologics.
Down those are kind of opposite directions, and as normal what's the kind of relative sizing of your four.
Four segments of the business. So we have a base to work off of that thank you.
Okay. So if you.
Look at biologics as we go into 2023.
The biggest drop or the biggest impact of Covid revenues.
Reducing is within the biologics segment. So we do see a reduction there, but if you back that out we're actually seeing very strong double digit growth within the biologics segment.
For our core business and then as we progressed through 2003 on generics again, we would be looking to see high single digit double digit growth pharma.
High single digits, and then contract manufacturing as we said earlier mid single digit growth.
Okay and burners so.
Two.
Apply those so is it like I think biologics was 40% to 45% I'm just looking for should I think about with the kind of COVID-19 correction that it's closer to the 40 I'm just looking for kind of the percentages to apply those growth percentages too.
Yes.
Biologics laws you have mid Forty's, it was going to come back just a slight bit.
<unk>.
So youll, probably 40% to 45% and then.
Our and.
In contract was about 17 or 18.
That's fine I can follow up online.
On the.
On the installation of the equipment and Eric we talked about in Kinston.
Washington equipment in that process.
I guess I was under the impression that that was specifically.
No the pure and maybe even more specifically, nova pure plunger equipment, but burners and answer to the last question that it kind of varies that that $30 million a month.
Will vary based on volume and mix, maybe I misunderstood.
How fungible that equipment is across your product lines or perhaps you could.
Further elaborate on that please.
No absolutely so specifically the equivalent that we discussed about Q3.
That was ongoing operations that specifically just north of here, so yes washers that.
Pharmaceutical Washington capability that supports really the high value product portfolio the vision that you.
So the ambition of equipment that you.
That you were able to see that as for Novo here. So some of the equipment is not fungible.
But the core elements of the equipment is.
But the growth that we're having it's half of that equipment you looked at was really around the heavy part of others Nova peer.
Some mix effect to it.
And then the future investments, we're making that you saw in <unk>.
Since then that is that's again, it's a <unk>.
What range of high value products.
Florida Tech all way up to Novo peer.
Okay. So I.
I wanted to go with that and I'll make this is my last one is you're you're losing the year over year Covid 300 ish million dollars management's made the point that that has been very high gross margin high incremental margin revenue and so.
And that creates I think contributes to this transition year on margin Eric that you mentioned in your prepared remarks, it seems like as you've put some of this.
This equipment in place that was the hold up in <unk> again, your last answer helps me to understand that better.
But the revenue potential that that equipment unlocks is in the neighborhood of the revenue that you are losing from Covid I guess I now understand that maybe the margin on on that on that revenue that's coming in is perhaps not quite as rich as COVID-19 you could confirm that for me.
But just thinking about that and any other factors that we should be keeping in mind that.
That influenced that margin transition that are not as rich as the COVID-19 revenue that is coming off thanks.
Yes, Dave I'll take that and just going back to your last question on this list just to clear that up so that as a.
<unk> a proprietary sales.
Biologics is like mid forties.
Generics mid twenties, and then Rmi.
In a low 30% range.
That will get you to this place.
With regard to your question on margin.
It's not as simple as one product coming out and then another product going in so we're looking at is where there's a mix impact obviously with the COVID-19.
Revenues fallen off and there have been a higher margin products.
And we've also got us.
The impact of inflation on our cost base.
So you've got those two headwinds and then as we alluded to we talked about earlier is the increase in price that we're seeing is above what we would normally see.
In our business so that helps offset some of this margin pressure and then we have a very specific.
Cost initiatives within our business both from a in operations manufacturing.
Manufacturing perspective, and then on SG&A and R&D are really looking at cost control and cost management that is delivering a number of efficiencies for us. So it helps us to overcome some of the margin challenges, but not all of them.
And then that goes back to the point geraghty, our or not actually margin stepping back.
<unk> pre pre COVID-19.
Levels were maintaining our holding onto a lot of the improvements that we made on the gains that we made.
That's very helpful. Thank you.
Thank you.
Our next question comes from the line of Justin Bowers with Deutsche Bank. Your line is now open.
Hi, Good morning, everyone. Just piggybacking on <unk> question can you can you help us understand and maybe it's a range.
Sort of what the margin profile is on the on the 19 business and then with respect to the new capacity that's coming online in 2023 can you help us understand.
How that phases in is it ratable or is it is it more second half loaded.
Any color there would be helpful.
So the margin on the Covid products would've been at the higher end of our margin.
Range.
Because a lot of that was notable curious so you could have been looking at.
The range of 60% to 70% plus.
And then on the Capex piece on that being layered in.
It's a lot of it is being layered in and commissioned as we speak but to see the impact of it will be more so in the back half of the year when it's fully operational and we're able to put a lot of volume through.
Understood and then just a quick one on China, maybe a status update on.
The two plants over there.
Any thoughts on how that impacts.
The progression of the year.
In China our business.
Pack for our West overall is quite low.
A lot of the activity that remain fashion, we do in China is for China, and so we have a really strong team there and our facility in Chengdu.
<unk> continues to capture more share within the market, but our reliance on that on our team there to export is very low and again overall values, our revenues and profits to the corporation is very small.
So that's.
That's our impact in China, our supply chain, if you think about procuring materials.
Is not heavily dependent on that part of the world. The team has done a really good job in.
Many of our products are co located to our manufacturing sites. So that's how we've set up our our procurement and supply chain of raw materials.
That's helpful. I appreciate it.
Great. Thank you.
I would now like to turn the conference back over to Quintin Lai for closing remarks.
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Provided at the end of today's earnings release that concludes this call have a nice day.
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Okay.
Okay.