Q2 2023 West Pharmaceutical Services Inc Earnings Call
Thank you for standing by and welcome to the West Pharmaceutical services Q2, 2023 earnings conference call.
At this time, all participants are in listen only mode.
The speaker's presentation there'll be a question and answer session to ask a question at that time. Please press star one one on your telephone please.
Please be advised today's conference call is being recorded.
I would like to turn the call over to Mr. Quintin Lai Vice President of Investor Relations. Please go ahead.
Thank you Valerie.
Good morning, and welcome to Wests second quarter 2023 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 what swarm of Dot com.
This morning here at Green Dot and Burger 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.
There's 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 the <unk> and then 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.
These future results are influenced by many factors beyond the control of the company actual results could differ materially from past results as well as those expressed or implied in any forward looking statements made here. Please.
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, including organic sales growth adjusted operating profit adjusted operating profit margin and adjusted diluted EPS.
Reconciliations and limitations of the non-GAAP financial measures to the most comparable financial results prepared in conformity to GAAP are provided in this morning's earnings release.
I'll now turn the call over to 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 a solid second quarter, which has us positioned for an even stronger performance.
Second half of the year.
Continued success is a result of our proven growth strategy as we capitalize on the robust customer demand and ongoing capacity expansion projects and.
And probably the strength of the one west team and unwavering commitment to our purpose continues to set us apart as the trusted market leader I want to acknowledge the team members across the globe and say thank you.
The second quarter performance was driven by our base proprietary products business, which grew mid teens as expected COVID-19 sales continue to drop as the second quarter last year was the peak of a pandemic related sales.
With respect to our base business, the biologics market unit again.
Double digits with stable demand.
Our generics market unit continued to benefit from H B P capacity expansions as the base grew strong double digits in the pharma market unit base grew high single digits. In addition con.
Contract manufacturing experience significant momentum in the quarter with delivery of components for injection related devices.
Turning to slide six.
The key levers of growth in Q2 were primarily driven by HPV components and delivery systems, our participation rate and recently approved new molecular entities in the U S and Europe remains strong.
The components developed by west or our partner dike you are addressing some of the most critical therapeutic areas around immunology oncology, including gene therapy applications cardiovascular neurology diabetes and obesity. This is also reflected in the solid order book.
Lots of biologics generics and pharma customers, a clear reflection of the needs of the market.
And we continue to make good progress on bringing down lead times for certain HV piece, we're seeing our order book patterns reverting to a more normal pre the pandemic cadence.
And then in addition, we continue to work closely with customers to update demand trends for the near and long term. These trends underscore the importance of our capacity investments, which are making a significant impact across west global operations for example at our <unk>.
West Kinston plant, we have installed validated and brought online additional H VP capacity for Nova peer Plunger's.
Although it is early days, we are pleased with the initial output as operations ramp up.
Recently I had the opportunity to visit web site in Singapore, where we have enhanced the capabilities to meet growing.
Demand from our commercial customers in the APAC region.
It was exciting to see the facility fully equipped with industry, leading coating pharmaceutical washing sterilization and automated vision inspection capabilities for elastomers.
This marks another exciting milestone on our journey towards meeting the industry's increasing emphasis on biologics.
Shifting to slide seven.
At the end of June we published our 2022 ESG report on the company website I am proud of the progress. The organization has made towards the new five year targets with even greater scientific rigor and quantitative focus on environmentally based targets.
We know to fulfill our purpose effectively together as one west we must continue to progress the sustainability goals diversity and inclusion and success around our charitable endeavors.
Collective efforts from last year were recognized by several organizations, including being named as one of America's climate leaders by USA today.
Moving to slide eight.
Our full year 2023 organic sales growth outlook remains unchanged at approximately 3% to 4% and we're raising the 2023 financial outlook for overall net sales and adjusted diluted EPS now I'll turn the call over to Bernard who will go into more detail from the quarry.
Sir Bernard Thank you, Eric and good morning, Let's review the numbers in more detail. We'll first look at Q2, 2023 revenues and profits, where we saw a low single digit decrease in organic net sales and a decline in operating profit and diluted EPS compared to the second quarter of 2022.
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 provide an update to our 2023 guidance.
First up Q2.
Our financial results are summarized on slide nine and the reconciliation of non U S. GAAP measures are described on slide 17% to 21.
We recorded net sales $753 $8 million, representing an organic sales decline of two 5%.
Covid related net revenues are estimated to have been $20 million in the quarter and.
An approximate $106 million reduction compared to the prior year.
Looking at slide 10 proprietary products organic net sales declined five 5% in the quarter.
High value products, which made up approximately 74% of proprietary product sales in the quarter.
Declined due to the reduction in Covid related net revenues.
Looking at the performance of the market units.
The generics market unit delivered high single digit growth led by sales of westar components and self injection related devices.
While the pharma market unit experienced mid single digit growth.
By invasion, and westar components as well as admin systems.
And the biologics market units, so a double digit decline due to a reduction in sales related to COVID-19 vaccine.
Our contract manufacturing segment experienced a double digit net sales growth, primarily driven by an increase in sales of components related to injection related device.
Our adjusted operating profit margin of 24, 5% was a 490 basis point decrease from the same period last year.
Finally, adjusted diluted EPS declined 14, 6% for Q2 exclude.
Excluding stock based compensation tax benefits.
<unk> decreased by approximately 18%.
Now, let's review the drivers in both our revenue and profit performance on.
On slide 11, we show the contributions to organic sales decline in the quarter.
Sales price increases contributed $43 1 million or five six percentage points of growth in the quarter.
<unk> state a foreign currency tailwind of approximately $4 4 million.
Offsetting price was a negative mix impact of $61 9 million.
Which includes an approximate $106 million reduction in COVID-19 related net demand.
Looking at margin performance.
Slide 12 shows our consolidated gross profit margin 38, 7% for Q2 2023.
Down from 41, 7% in Q2 2022.
Proprietary products' second quarter gross profit margin of <unk>.
43, 9% was 230 230 basis points lower than the margin achieved in the second quarter of 2022.
The key driver for the decline in proprietary products gross profit margin was primarily unfavorable mix from a reduction in sales related to COVID-19 vaccine.
Offset by sales price increases and production efficiencies.
Contract manufacturing second quarter gross profit margin of 15, 4% was 90 basis points below the margin achieved in the second quarter of 2022.
Primarily due to inflationary pressures on our plant labor costs.
Now, let's look at our balance sheet and review, how we've done in terms of generating cash on.
On slide 13, we have listed some key cash flow metrics.
Operating cash flow was $307 $3 million for the six months ended June 2023, a decrease of $17 million compared to the same period last year, a five 2% decrease primarily due to a decline in operating result.
Our second quarter 2023 year to date capital spending was $157 5 million.
$25 6 million higher than the same period last year.
We continue to leverage our capex to increase our high value product manufacturing capacity.
Working capital of approximately 136 billion at June 32023.
Climbed by 37.
$9 million from December 31, 2022, primarily due to reductions in our cash balance.
Our cash balance at June 3700, $96 3 million.
It was $98 million lower than our December 2022 ballot.
The decrease in cash is primarily due to our share repurchase program and higher capex offset by our operating cash flow in the period.
Turning to slide eight provides a high level summary, sorry, turning to guidance slide eight provides the high level summary.
We are updating our full year 2023, net sales guidance and expect net sales to be in a range of $2 97 to $99 5 billion.
Compared to our prior guidance range of $2 96 by $2 99 zero billion.
There is an estimated full year 2023 tailwind $20 million based on current foreign exchange rates.
Compared to prior guidance of a tailwind of $15 million.
We expect organic sales growth to be approximately 3% to 4%.
Unchanged from prior guidance.
We are raising our full year 2023, adjusted diluted EPS guidance to be in a range of $7 $65 $7 18.
Compared to our prior range of $7 50 to $7.
Hi.
Also our capex guidance $350 million for the year unchanged from prior guidance.
There are some key elements I want to bring your attention to as you review our guidance.
We expect full year, COVID-19 related sales to be approximately $60 million.
Unchanged from prior guidance.
Net sales guidance also includes a reduction of $8 million, resulting from the divestiture of the European facility.
Produce standard proprietary product component.
Unchanged from prior guidance.
Full year 2023, adjusted diluted EPS guidance range includes an estimated FX tailwind of approximately 5%.
Based on current foreign currency exchange rate.
Compared to prior guidance of a tailwind to.
The updated guidance also into EPS of <unk> 26 and <unk>.
<unk> with year to date 2023 tax benefit on.
Stock based compensation our.
Our guidance excludes future tax benefits from stock based compensation I would now like to turn the call back over to Eric. Thank you Bernard to summarize on slide 14, the solid financial performance in Q2 has us positioned well for the second half of the year. We continue to have a strong base business, which is the <unk>.
Testament to the foundation, we have built over time as the global leader, we recognize the critical role our products play in healthcare across the globe and that is why we're so dedicated supporting patient health, both now and into the future Valerie we're ready to take questions. Thank you.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press star one one on your telephone again to ask a question. Please press Star 111 moment. Please for our first question.
Our first question comes from the line of Larry Solow of CJ ask your line is open.
Great. Good morning, guys. Thanks for taking the questions.
Congrats on another good quarter.
Archie give I will just give us a little more color you actually mentioned sort of a bunch of sort of.
Areas, where you guys are driving <unk> growth.
Our product line.
And a lot of.
Talk about the <unk> diabetes weight management and the growth there, but I'm just trying to get a sense I know historically you guys have never had one.
One is let's not to get too carried away with one group of products, but in this case. It seems like there's been a lot of positive news and noise about the GOP warm. So can you just give us a sense of may.
Maybe color how that how that's represented in your overall revenue mix today, and where that could be in the future.
Yes, good morning, Larry and thanks for the question and thanks for joining us on the call.
When we look at where the pipeline is being developed in our success, but we call. It participation rate continues to remain very high.
As we look at year to date as an example.
And even from last year.
We need to be clear that we are actually supporting many different therapeutic areas and not just one or two and that's what's really exciting about our portfolio as we continue to evolve our offerings that we continuously be the.
The company to support on their primary containment again across many different therapeutic <unk>.
Categories.
So some will have higher demand in the market some less.
Such as gene gene therapy, as you think about the number of doses.
But our focus is to make sure that we are continuing to have that high participation rate.
And in all different areas have different type of growth.
Trajectories over the next five plus years.
Got it that's fair enough.
Question on.
Just margins in proprietary products and for Bernard.
Nice sequential improvement.
A little bit higher sales in I think a lot multiple sales looks like dropped to the gross margin line there anything.
Unusual in this quarter compared to last quarter looks like Kobe jobs or about the same.
Ill cover related shelf anything we should be aware of there.
Drove that sort of a 150 bps sequential improvement in gross margin proprietary products.
It's really down to product mix.
We're seeing that continued growth in high value products.
Ex COVID-19.
We're seeing that positive impact that's flown into margin. We're also.
Improving the throughput within our facilities getting better levels of efficiency and we're seeing that partly because of the capacity that we're layering in but again.
Improvements to our existing infrastructure and that combination is delivering to those improved margins and again, that's part of the.
The overall construct that we've been talking about over the last number of years. So we just continue to deliver on that.
Got it well.
While I've got you Bernard just thoughts on Capex and sort of.
This year I think you are maintaining that $350 million number.
As you look out over the next few years.
Do you feel like this number and I guess that would probably be.
High class problem, but do you feel like this capex level will remain at this.
Davis area or do you see it may be coming down as you look out.
And we would expect to see as normalized back to what we have been talking about pre COVID-19 of about 6% to 7% of revenues.
But again its dependent on if there are.
Other spikes in demand are investments that we need to make but we're willing to do that we will continue to invest in our business where its need us at.
At the moment, we're investing in.
Capacity around plunger's across our high value product network. So it's not just in one facility, it's right across the network to be able to meet the global demand from our customers.
We're seeing the results of that.
<unk> as we speak our lead times are reducing significantly so we're getting back to pre COVID-19 levels and I think by the end of Q3, our lead times will be normalized.
<unk> of our business. We're also layering in some strategic flex capacity. So we're able to respond to sudden increase in demand for customers and then that capacity kind of feeds into a long term plan as well. So it will be utilized over the kind of five year strategic horizon.
With Capex, we have made we said that significant investments over the last number of years.
And maybe a little bit.
Similar as we move forward to next year, but that may be starting to tail off.
Thank you one moment please.
Our next question comes from the line of Jacob Johnson of Stephens. Your line is open.
Hey, Thanks, good morning.
Following up on that last question and kind of the investments you've made in capacity recently I think thats. The number one question, we're getting and I imagine youre getting as law firms on investors kind of around the magnitude of the revenue opportunity from from the Novo <unk> plunger capacity additions is there any.
The way to frame up or quantify the revenue potential of those.
Capacity additions and then Eric you also mentioned kind of early days.
Ramp up Atkinson, just curious kind of what the ramp there might look like as we think about the next two.
<unk> to 24 months.
Yes, I'll start with the ramp up just to address that quickly.
As you know we've been discussing how the installed capacity is coming in throughout 2020.
<unk> three in second half, we're starting to ramp up so we expect that to its occurring today.
Continued throughout Q3 and through the balance of the year and it usually takes about two or three quarters to get to a.
A pretty.
Steady state.
Then as Bernard mentioned, a little bit earlier is that we're always adding a little bit more capacity build flex so anticipate kinston, particularly on the no repair plunges be ramping up through the balance of the year.
Yes, that's the way I would frame it.
Is that.
When we look at the mix of our Capex investment I.
I think we've said before.
Pre COVID-19 it was like 50% of our Capex deployment is around maintenance.
And then 50% level.
On growth will now Athene is 70% the capex deployment.
Well and specifically around growth in high value products.
So.
It's not just the growth in the revenue fell to the growth in operating margin given the areas that we're investing so I think thats the way, we would frame it and that ties into our long term construct of that 7% to 9%.
And if opportunities take us above that I think we'll be in a good position to respond.
Okay. Thanks.
Thanks for that and then maybe just.
Good question.
For you Eric you mentioned.
And in your prepared comments kind of work working closely with customers on.
And trends.
As I think about the biologic patch market I know you are not very exposed to early stage biotech, but theres been a lot of focus on the near term dynamics there given funding in some prioritization we've seen in the pipelines there.
I suppose could maybe impact future commercialization at some point, but I'm just kind of curious you.
Do you have in your perspective, where do you kind of have a longer term view and conversations with customers over the long longer term has there been any kind of change in M&A, our long term planning given the current macro we're in.
Yes, no I don't see a long term change to plans.
Absolutely.
Spot on what do you say that are our exposure from a revenue and profit perspective.
In regards to biotech funding was preclinical or clinical is extremely low although we are active as you know.
The thesis of our of our growth is participating during the pipeline.
And then we work through the whole commercialization, so we don't see any.
Change long term, especially in the biologics very encouraged when I look at the first half of this year, a number approved new biologics and how we're positioned as you know very well that it takes a while for those to ramp and to get more.
Into higher patient population.
But we are positioned well and where our exposure in the biotech funding is very low right now but in this whole discussion does not change our outlook.
For the biologics long term.
Thank you one moment please.
Our next question comes from the line of Paul Knight of key your line is open at Keybanc. Your line is open yes. Thanks, Eric.
<unk>.
Impact if any is there from the rocky Mount situation with Pfizer does that kind of.
Cause us to think about pacing on <unk> or what any any impact in your view in the industry from that damage.
Yes, Paul Thanks for asking the question first of all we're always concerned about any of our customers sites and their employees and I know we have a.
A slight 60 miles from their Kinston North Carolina. So we've obviously reached out and offered any assistance not just from a product perspective for a community perspective, so very long standing relationship.
And that's that's first form of Vermont's on our mind, when we were talking to them.
Our day after the event.
In regards to.
US as as product and.
Revenue.
We would not say, there's any any change in our in our.
The trajectory for Q3 Q4, and we are really specifically the organization west is ready to respond.
Appropriately immediately to support them in any way so in that we will leverage our global operations if necessary. So so the to answer to answer to your question, we are ready to support when needed and but no no change to our outlook for the next two quarters.
And I know, our Michigan was opening up.
In the first half of the year what was that facility.
And then the other cap capacity question as our Waterford under expansion yet.
Now I'll turn I'll touch on the first one I'll, let Bernard touch the second one in Waterford.
So in Michigan.
Contract manufacturing site and it's one of our seven contract manufacturing sites throughout Europe , and the United States.
And it is.
Primarily focus of the expansion has been around.
Auto injectors.
And that is up and running as we speak.
And we're doing the ramp up with our customer at this time, so very pleased on the progress and the output of the product high quality product that's coming out of there.
And that was kind of a transfer of knowledge from another site, we have over in Europe , and so that whole global network approach and contract manufacturing is actually another benefit for our customer. So that's where we are with the Michigan you wanted to talk about Waterford.
And Waterford, we are we are looking to us.
The expansion of that facility, but it's not going to be here in 'twenty three probably start sometime in later in 'twenty four right now we're working through Jersey shore, our Kinston in Singapore as Eric mentioned and then we have also expansion going on in our <unk> site.
So its comment.
Okay.
Then I guess vaccine is waning as vaccine moving to five.
Five dose vial and or is it moving to <unk>.
Syringe.
Yet.
And our.
We haven't seen any major shift in that at this point.
Okay. Thank you.
Thank you Paul.
Thank you one moment please.
Our next question comes from the line of Derik Debruin of Bank of America. Your line is open.
Hey, good morning, Thanks for taking my question. So I've got several so I'm going to hop off on.
You are getting really good pricing it looked like 5% to 6% on the quarter, that's relative to your 1%, 2% historically, how sustainable is that.
Going forward well I think.
Okay.
Yes, because it's a great question. So thanks for joining the call today.
Youre right I mean, historically, we were in the 1% to 2% corridor, all the way up to let's say 2021.
And when you think about 2022, we were roughly between three and 4% net.
Net price contribution in this year, where we're delivering on the high end, what we stated earlier this year to five 6%.
We do we intentionally built capabilities in the organization a couple of years ago that we were.
Giving visibility of that believes we can be somewhere in between where we are today and where we were back in 2021, I won't give specific guidance right now, but our belief is that we have the ability.
To have more of a consistent predictable price element and we're focused on the mix also which is a big driver of growth here at west. So while price is important and will continue to deploy the strategic pricing aspect. We're also very focused on mix and making sure we're bringing customers in at the higher end of <unk>.
The lower end. So those are the two levers that were focused on.
Got it that's really helpful.
Yes.
Your competitor detwiler called out some.
Stocking issue inventory issues going on with it I mean, I know you havent release, you've seen a little bit of this spend is with care.
Wondering has that had any impact on the business are you seeing any issues with that bidders for by popping up be unexpected.
Yes, very good.
All of that's taken consideration as we kind of set the guidance for the balance of the year.
We have a good lines with our customers.
There is some when you think about the Covid vaccine, obviously theres the stocking Destocking has been going on for last couple of quarters and then we look at the base business. There is some.
Inventory management here and there, but it's very low and the amounts when compared to our order book.
Particularly last year, we have a good handle on it.
But we haven't and we're keeping an eye on and having conversations with customers very low impact.
At West right now.
Got it.
So we we.
Like a lot of other people have done a bunch of work on the GOP ones.
I think one of the questions. We're constantly getting from investors is like how do you sort of think about.
Impact of the Injectables business as the oral <unk>, one sort of come out I mean, what are your customers.
How are your customers thinking about the impact of those and sort of the sort of like I mean, youre, obviously I didn't want our HD chassis for <unk> <unk> and other products, but how your customers are thinking about the impact of the oral is on that market.
Well I'm a little hesitant to.
Go further on that conversation Derik I would I would ask you to or anyone to speak to our customers directly they have a good line of sight.
The injectable market and capabilities versus the oral.
I do know for a fact that from our position we're working with the customers.
To make sure that we do have the focus on capacity the timing of the capacity and as we ramp.
It's actually touching both sides of our business that just the elastomers HCP elastomers proprietary side. There is also a contract manufacturing and we're taking we're taking a very balanced approach to this.
So, but again, we're very focused on that side and I would I would.
For Ya.
One to the to the customers on the oral conversation.
Thank you one moment please.
Our next question comes from the line of Matthew <unk> of William Blair. Your line is open.
Hi, Good morning, I wanted to ask you about the expansion in Singapore.
And maybe just to use that.
Can you Eric could you help us frame.
Asia Pac in general is from Marvin HCP perspective are you seeing an acceleration in demand for <unk> in particular in Asia Pac.
At this kind of driving the recent investment that I just kind of curious given that you were just over there what youre hearing.
Yes, great question, Thanks, Matt I think.
Im excited about.
Actually burn and I were able to see the progress in Singapore with our site as you know, it's one of our five high value product manufacturing sites on a globe.
And so and it supports some very exciting growth areas from a geographic perspective and I'll.
I'll call out South Korea as an example, as an example.
I would also call out in other parts of Southeast Asia.
And so in fact in some of the products are going into Japan. So I am really excited about how.
We're able to leverage the site to really drive growth through Asia Pacific.
What we're what we're doing there is we're making sure that our customers, particularly the global customers again, the same quality product service out of any of the five <unk> sites and we expect Asia Pacific to continue to be a high growth area for us due to the.
The amount of investments of our customers.
And also they are not just servicing the local market youre finding a lot of our customers in that region is supporting the global market and working on behalf of some of the larger global drug companies.
And with this while we're in Singapore, we have to meet with several of our customers came together in Singapore throughout the region.
And it was very it was a very informative and how we think about the.
Demand of HCP in the future because customers are expecting high level quality.
And benefits that they can truly represent the products on a global scale and that's where we come in to build support them. So hopefully that gives you some context of what we're trying to accomplish in Singapore.
Okay. Thanks, and then I have to clean up from earlier questions. One if I'm interpreting your comments correctly, Eric should we can we think about full utilization of the new capacity not only current till one Q2 or just given that it takes a couple of quarters to ramp up and then the second.
Really stocking is still de Minimis, but.
<unk> over quarter is it fair to say that it's been become a bit more of a headwind or a bit more.
And then I'll jump off thanks.
Yes, no stocking comment really it's all majority of it is around the COVID-19 destocking.
And so.
We've been pretty clear on our quarterly cadence.
Last year, what we're seeing this year. So that's probably the majority of it from a base perspective.
<unk> seen a material difference from quarter to quarter.
On the ramp up of <unk>. It is a ramp ups and it's going to take several quarters to get to.
Very high utilization rate, so there'll be some time in 2024, I just want to be clear, we did add additional capacity to handle flexibility in future demand that we anticipate particularly with some of the new approvals are just coming through.
So yes, there will be some.
Some flex to that but we expect it to be higher utilized throughout 2024.
Thank you one moment please.
Our next question comes from the line of David Windley of Jefferies. Your line is open.
Alright, thanks for taking my questions good morning.
I wanted to kind of extend a couple of earlier questions first on the.
Growth Capex to 70% of Capex that now represents growth is there an algorithm we can think about.
How that how our capex dollar translates either to revenue or or say gross profit.
Do you guys think about it in that way at all.
Yes.
Something that we.
Sure, we don't share that information that I think David the way we framed it is that 70% is focused on growth.
The growth is primarily in high value products and it's to drive our long term construct either to meters are to create capacity to go above that and then it's focused on higher margin products. So the return on investment is faster. So it's investing in particularly around the biologics segment I think thats easier.
<unk> way to frame us rather than us given specific dollars to revenue and profit.
That's not something we're willing to share okay, I'll try it a slightly different way so I've had.
Some investors.
Recall to me or account to me that.
The Kinston, Nova pure pleasure expansion doubles that capacity would you be willing to comment on that or confirm that.
The expansion that we put into Kinston, specifically is significantly more than what we had there before but on a global basis.
It's adding.
More than two X.
Capacity.
And the Nova peer portfolio.
But that's about as far as we can go with giving the details there.
So.
I'll be very clear, though David and it's a very it's a valid question.
<unk> multiple molecules multiple customers and some network effects, so I got to be careful.
Not a particular product or a category it's across multiple.
<unk>.
It's been leveraged in multiple ways.
Right, Okay got it.
In the.
In thinking kind of a similar question to <unk>.
To Paul's I think about.
About the Pfizer North Carolina, Rocky Mount facility, but thinking just more broadly about sterile fill finish.
Capacity throughput et cetera. So.
Generally speaking you here the sterile fill finish capacity is still.
Quite tight.
In the case of <unk>.
Some of the <unk> ones. Some of those manufacturers have had some FDA related issues that have caused.
Cut down of facilities.
Down of a facility that's certainly more in the past and I would think would have already impacted you. If it was going to but I guess I'm just wondering about how how attentive we need to be too.
The capacity activities in the kind of the next downstream function from you the folks that are using your youre elastomers to complete their work.
Yes.
That's part of normal supply chain management, and I think that our approach is that we.
We are getting indicated indications from our customers what their demand is across a number of different therapeutics. Our job is to make sure that we have the capacity in place to be able to deliver when they need us.
Sometimes that timing can flex and but we haven't seen.
<unk> a major impact on our business to this point and our focus as we said as Larry and capacity and back to Eric's point, it's not just in Kinston.
We're leveraging capacity across our global network to be able to provide whatever response, our customers need and we've learned a lot from the last couple of years about having that capacity at a number of different facilities and.
We're able to flex faster and we can meet any spike in demand.
That's what we're doing right now and that's what we have to remain focused.
And what happens in the other parts of the supply chain, we're aware of us.
But you know some of that is outside of our control.
Last question for me.
Just to get your take your temperature on.
The progress for your Valor glass partnership ready pack seeding of the market and what Youre seeing there. Thank you.
Yeah, David Good question I'm actually quite excited I know, we just had another review.
With our partner.
And the progress we're making as you know this is a multi.
Step journey, we have multiple launches right now we're more focused on the bio launches I think just a few weeks ago, we had pretty in biotechnology launched through our channel.
Customers are very excited about the opportunity to have a fully characterized complete system that.
That the partnership with Corning gives us flexibility and capability of representing a complete system with a one DMF to our customers.
And so we're we are still on the path to be able to continue to launch various.
Configurations, ultimately to get to the point of a fully characterized pre filled syringe using the best technologies of both organizations, but thats still just going to take some time to get there.
I won't I won't give you exact dates but over the next couple of years, you see various launches and penetration with our customers.
Thank you.
One moment please.
Our next question comes from the line of John <unk> of UBS. Your line is open.
Alright, thanks for taking the question.
Just maybe a modeling one here to start off how do we think about the revenue cadence here in the second half with the different dynamics at play you have the new capacity coming on my Covid roll off and then some seasonality just any additional color you could provide us there.
Yes, I would say that.
Q Q2.
Q3, like similar to Q2, plus minus and then we would expect to see.
Pickup in Q4 based on the capacity that we're in.
<unk>.
Implementing on in Kinston ended a couple of other facilities.
Got it.
And then just on Biosimilars I don't think you touched on there's a few that have been coming online I guess I was just pointing into demand you have here on revenue.
The changes around the competitive environment, you're seeing on bio biosimilars.
Switching to a competitor.
Yes, no no no issue for us actually when we look at.
Biosimilars and work with those customers has a very similar primary packaging configuration of <unk>.
Others.
So it is the higher end of our high value products and we continue to participate very high when we talk about our participation rate for biologics were also inclusive of Biosimilars. So we look at that as kind of Holistically and.
Feeling really good about where we are and where we're going.
I appreciate the color there and then just last one for me.
No comment on APAC, but would you be willing to say how much of your revenue is in China, and others have called out some issues there and headwinds have you seen anything.
In the China market just to call out.
Yes, it's very little low very low single digit percentage of the overall west enterprise sales.
If you if we look at that business, we're pleased to where it's at but if there's any headwinds it's all around COVID-19.
That's strictly that where the issues are.
Which was characterized basically for the whole globe for us right now.
But very low exposure right now in China.
Got it thanks for taking the questions.
Okay. Thank you. Thank you one moment please.
Our next question comes from the line of Justin Bowers of Deutsche Bank. Your line is open.
Hi, good morning, everyone.
A quick one on the margins with.
Revenue being flat sequentially plus or minus.
Is it fair to think of operating margins being around the same level and then.
We think about for Q.
The step up there in volumes.
Should there be some some incrementals there with respect to the margins.
And then part two pardon if I missed this but what was the C 19 contribution.
In the quarter.
So.
To answer the margin question.
We would expect it to step down a little bit.
That's typically what we see.
Coming off Q2 from a manufacturing point of view, it's usually our strongest quarter in the year.
Given the various shutdowns that we have in Q3 Q4, there's typically a little bit of a step down and that will be normal for us.
So it's just a baked that in.
What's embedded in the guidance.
COVID-19 did about $20 million in Q2 from a revenue perspective.
Okay got it that's it for me thank you.
Okay. Thank you thanks.
I'm showing no further questions at this time I'd like to turn the call back over to Quintin Lai for any closing remarks.
Thanks, Valerie 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. Additionally, you may access the replay for 30 days. Following this presentation by using the dial in numbers and conference I'd provided at the end of today's earnings release that.
Concludes this call have a nice day.
Thank you ladies and gentlemen, this does conclude the conference you may now disconnect have a great day.
Okay.
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