West Pharmaceutical Services, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the fourth quarter 2020 West Pharmaceutical Services 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 this session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, press star 0. I would now like to hand the conference over to your speaker today, Mr. Quentin Lai, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Catherine. Good morning and welcome to West's fourth quarter and full year 2020 conference call. We issued our financial results this morning and the release has been posted in the investor section on the company's website located at westpharma.com. This morning, CEO Eric Green and CFO Bernard Burkett will review our financial results, provide an update on our business, and present our financial outlook for the full year of 2021. There's a slide presentation that accompanies today's call, and a copy of that presentation is available on the investor 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. Actual results could differ materially from past results, as well as those expressed or implied in any forward-looking statement made here. please refer to today's press release as well as any other disclosures made by the company regarding the risk 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 now turn the call over to West's CEO and President, Eric Green. Thank you, Quentin, and good morning, everyone.

Thank you for joining us today. West had an extraordinary year of success in the face of the biggest healthcare challenge of our generations. our record-setting year of sales and margins were driven by base business demand of our components devices and solutions as well as the accelerating demand for components associated with covet 19 vaccines and therapeutics this was accomplished by our dedicated team members across the globe working tirelessly to show up each day at our facilities our labs, and remotely at their homes to make a meaningful difference to customers and patients. I want to begin by acknowledging his incredible efforts and say thank you. Starting on slide five of the presentation, the past year has truly brought to life the importance of our mission and values that guides our work each day at West. We remain steadfast in our purpose to serve society and lead by example for the communities in which we live and work. Importantly, we continue to manage through these unprecedented times by focusing on two key priorities. One, keeping our team members safe, and two, ensuring uninterrupted supply of high-quality containment and delivery devices required by our customers and the patients we jointly serve. The criticality of our business today is shown in the character and the perseverance of our team members to deliver on our commitments as a trusted partner for our customers. The strength of our performance this past quarter and throughout 2020 demonstrates the forward momentum that we have built over time with our market-led strategy, globalization of our manufacturing network, and one West team approach to satisfy market demand. Moving to slide six. These charts show a breakdown of the 2020 sales and the impact of our high-value products that we bring to numerous customers around the world. As the base business continues to grow and as we saw a growing demand for components associated with COVID-19, we leveraged our global infrastructure and Teams agility to meet the increased demand. Now turning to slide seven. Proudly, West's components are on a majority of the vaccines on the market and in development to combat COVID-19. The process for selecting the best high-quality packaging components for use with injectable medicines, including vaccines, is a complex one driven by years of science, which West has pioneered. It became clear to us in early 2020 that that we would need to accelerate production capacity for certain high-value products. As I previously shared, many of our customers are selecting fluoropolymer-coated stoppers from vial configurations made by both West and our partner, Dykeo. These are the industry standard for packaging sensitive molecules and have an outstanding track record of quality and reliability. Some of our customers have selected NovaPeer, as they have made the decision to use this best in industry component to ensure the highest degree of quality and safety. In addition, we're involved in many therapeutic approvals, and our contract manufacturing business is supporting the COVID-19 diagnostic requirements of our customers. In Q4, we accelerated our capacity expansion and began the installation of additional equipment with a modular approach to expand Floritech and NovaPure capacity. This included the installation of several 45-ton hydraulic presses and additional HVP manufacturing processes to produce components for COVID-19 vaccines at several sites. I'm proud to say that the first presses were installed and validated at the end of 2020, and we're now producing product. And we're not done yet. We have more presses that will be installed in the first half of this year. It should be noted that these investments were already included in the five-year plan. We just brought them forward to support the pandemic efforts. Moving to slide eight. While COVID-19 was much of the focus in 2020, there are a few other notable highlights I would like to share. Wes was named to the S&P 500 and recently joined the S&P 500 Dividend Aristocrats. We continue to make significant progress with our environmental, social, and governance priorities and have received many accolades in 2020 for these efforts. we launched several innovative products, such as our 20-millimeter vial-to-bag advanced product, Acceltra component line extensions, and a flip-off seal container closure system compatible with Dicul Crystals unit vials. our team of scientific and technical experts continue to educate and share insights in biologics, combination products, and container closure integrity, which are priority areas in pharmaceutical packaging and necessity during this pandemic to ensure patient safety. At the end of the year, West Digital Technology Center successfully implemented a new ERP system, SAP S4 HANA, which during this pandemic is quite an accomplishment. As we continue to improve our internal systems, S4HANA brings enhanced analytics to improve responsiveness, operating efficiencies, and greater service levels for customers. Turning to slide nine, the opportunity ahead of us centers around three core pillars, execute, innovate, and grow. The first pillar, execute, is about continuing to build from the strength and success of the market-led strategy, further globalization of our operating model, and lastly, a shift from analog to a digital environment across West. We continue to drive the market-led strategy for further defining unique value propositions to address specific customer needs in biologics, generics, and pharma. These are very attractive, robust markets for the future of injectable medicines. For the benefit of our customers, we have been able to leverage our global manufacturing network by enabling the right capabilities, scale, and flexibility to keep up with the increased demand. With the ability to leverage existing assets more effectively across our global network, we can respond to the demand of our base business and, importantly, the demand for COVID-19 while maintaining our global leadership position. we will continue to deliver digital tools such as the Dallas Center and the West Virtual, along with enhancements to improve plant productivity with automation and advanced manufacturing systems. The second pillar is innovate, with a focus on R&D efforts from concept to commercialization. Our newly aligned R&D team is focused on several areas. The first area is new products and platforms to connect the dots across science and technology for potential value creation. The second area is technology scouting and new go-to-market enablement, which explores adjacent technologies and disruptors to realize new opportunities. And the third area is product lifecycle management with the execution of development agreements and product extensions. We are confident that these R&D efforts will have us well-positioned to deliver unique innovations and future improvements to existing portfolios for our customers. The third pillar is growth, capital deployment, and free cash flow. As mentioned earlier, we have increased capital expenditures on specific equipment focused on Floritech and NovaPeer to enable us to respond to the core business growth and vaccine requirements. And as vaccines are being approved, making sure we can respond and meet the customer demands. And we continue to look for external technology opportunities to complement our business. We are working from a position of strength as we believe we have a long horizon of continued organic sales growth and margin expansion. Our focus within these three pillars, execute, innovate, and grow, allows us to be more responsive, leverage our assets more effectively, and support the trends that are happening in the industry today. Turning to slide 10 and our performance in the fourth quarter and full year. Our financial results are strong. We had approximately 20% organic sales growth in the fourth quarter and 16% for the full year, driven again by robust biologics growth, high-value product sales, and contract manufacturing. And our base business delivered significant growth with solid growth and operating profit margin expansion. This resulted in a strong adjusted EPS and pre-cash flow for the fourth quarter. And with that, I'll turn it over to our CFO, Bernard Burkett, who will provide more detail on our financial performance and guidance. Hey, Bernard.

Thank you, Eric, and good morning. So let's review the numbers in more detail. We'll first look at Q4 2020 revenues and profits, where we saw continued strong sales and EPS growth led by strong revenue performance, primarily in our biologics and generics market units and contract manufacturing. I will take you through the margin growth we saw in the quarter, as well as some balance sheet takeaways. And finally, we'll review our 2021 guidance. First up, Q4. Our financial results are summarized on slide 11, and the reconciliation of non-U.S. GAAP measures are described in slide 20 to 23. We recorded net sales of $580 million, representing organic sales growth of 19.8%. COVID-related net revenues are estimated to have been approximately $46 million in the quarter. 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 12, proprietary product sales grew organically by 25.1% in a quarter. High-value products, which made up more than 65% of proprietary product sales in the quarter, grew double digits and had solid momentum across all market units throughout Q4. Looking at the performance of the market units, the biologic market unit delivered strong double-digit growth, We continue to work with many biotech and biopharma customers who are using West and Dykeo high-value product offerings. The generics market unit also experienced strong double-digit growth led by sales of Westar and Floratech components. Our pharma market unit saw low single-digit growth with sales led by high-value products, including Westar and Floratech components. And contract manufacturing had mid-single-digit organic sales growth for the fourth quarter, led once again by sales of diagnostic and healthcare-related injection devices. We continue to see improvement in gross profit. We record as $211.1 million in gross profit, $57.9 million, or 37.8% above Q4 of last year. And our gross profit margin of 36.4% was a 390 basis point expansion from the same period last year. We saw improvement in adjusted operating profit, with $119.1 million recorded this quarter, compared to $73.1 million in the same period last year, for a 62.9% increase. Our adjusted operating profit margin of 20.5% was a 500 basis point increase from the same period last year. Finally, adjusted diluted EPS grew 63% for Q4. Excluding stock tax benefit of $0.09 in Q4, EPS grew by approximately 55%. Let's review the growth drivers in both revenue and profit. On slide 13, we show the contributions to sales growth in the quarter. Volume and mix contributed $87.8 million. or 18.7 percentage points of growth, including approximately $46 million of volume driven by COVID-19 related net demand. Sales price increases contributed $5.5 million, or 1.2 percentage points of growth. And changes in foreign currency exchange rates increased sales by 16.3 million, or an increase of 3.5 percentage points. Looking at margin performance, slide 14 shows our consolidated gross profit margin of 36.4% for Q4 2020, up from 32.5% in Q4 2019. Proprietary products' fourth quarter gross profit margin of 41.7%, with 370 basis points above the margin achieved in the fourth quarter of 2019. The key drivers for the continued improvement in proprietary products' gross profit margin were favorable mix of products sold driven by growth in high-value products, reduction efficiencies, and sales price increases, partially offset by increased overhead costs. Contract manufacturing fourth quarter gross profit margin of 17.2% was 80 basis points above the margin achieved in the fourth quarter of 2019. This is a result of improved efficiencies and planned utilization. Now let's look at our balance sheet and review how we've done in terms of generating more cash. On slide 15, we have listed some key cash flow metrics. Operating cash flow was $472.5 million for 2020, an increase of $105.3 million compared to the same period last year, a 28.7% increase. Our 2020 capital spending was $174.4 million, $48 million higher than the same period last year and in line with guidance. Working capital of $870.3 million at December 31, 2020 was $153.2 million higher than at December 31, 2019, primarily due to an increase in accounts receivable of $66 million due to increased sales activity and an increase in inventory of $85.6 million to position us to support the increasing needs of our customers. Our cash balance at December 31st of $615.5 million was $176.4 million more than our December 2019 balance, primarily due to our positive operating results. Turning to guidance, slide 16 provides a high-level summary Full year 2021 net sales guidance will be in a range of between $2.5 billion and $2.525 billion. This includes estimated net COVID incremental revenues of approximately $260 million. There is an estimated benefit of $75 million based on current foreign exchange rates. We expect organic sales growth to be approximately 13% to 14%. We expect our full year 2021 reported diluted EPS guidance to be in a range of $6 to $6.15. We continue to expand our HVP manufacturing capacity at our existing sites to meet anticipated core growth and COVID vaccine demand. Accordingly, we have set CapEx guidance at $230 to $240 million. There are some key elements I want to bring your attention to as you review our guidance. Estimated FX benefit on EPS has an impact of approximately 23 cents based on current foreign currency exchange rate and excludes future tax benefits from stock-based compensation. To summarize the key takeaways for the fourth quarter, strong top-line growth in both proprietary and contract manufacturers, gross profit margin improvement, growth in operating profit margin, growth in adjusted diluted EPS, and growth in operating a free cash flow, delivering in line with our pillars of execute, innovate, and grow. I'd now like to turn the call back over to Eric.

Great. Thank you, Bernard. To summarize on slide 17, we have a critical role to support our customers as we work to resolve this global pandemic. The participation rate remains very high, and our products are being used in this battle. We have strength in the underlying core of business and long-term growth. Our focus on execute, innovate, and grow allows us to be more responsive to the changes in the industry. Our market-led strategy is delivering the right products and solutions to our customers. Our global operations network continues to flex and respond to increased demand and capacity requirements. and our investments to fuel R&D and innovation in digital technology will continue to keep us on the forefront of the industry. The future is promising, but most importantly, we remain grounded for our mission and values each day at West because every component has a patient's name on it. Catherine, we're ready to take questions. Thank you.

Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. Our first question comes from Larry Solo with CJS Securities. Your line is open.

Great. Good morning, guys, and congrats on a great quarter and year, a tough environment, and thanks for taking my questions as well. Maybe first question, could you maybe just give us a little more color just on the COVID expectations? I think you did about 100 million, if I'm not mistaken, in 2020, maybe a little less. About 250 or 260 is your guidance for this coming year. Can you just give us a breakout? Are you seeing more on the vaccine side? You mentioned some customers are using, you know, it sounds like most are using Floratech on the vaccine side. Some are looking at Novacure. Can you give us just sort of a higher level, maybe just a mix, and any color you can add to that would be great.

Yeah, thank you, Larry, and I appreciate the question. When we started this journey, let's say in end of Q1, early Q2 of 2020, the primary focus at that point from revenue was more around the diagnostics and a few therapeutics that are being approved for COVID-19. And if you look at the tail end of 2020, it started to flip more towards vaccines. And as we move into 2021, you'll see Most of, going from, as you said, a little bit less than $100 million of revenues associated with COVID-19 in 2020, and we're guiding towards $260 million approximately for 2021. The majority of that will be vaccines-related. And our participation is very high, and the types of solutions that we're bringing to the customers tend to be around the Floritech, and in some cases the NovaPeer, in addition to products like seals. So that's the transition that you'll see in the mix of type of revenues to support the COVID-19 solutions. And that lines up very nicely to the investments we made with additional capital equipment in our facilities to support the increase in demand that we have visibility of for several quarters ahead of us.

Okay, and it sounds like I know you said you've accelerated, you've talked about this for a couple of quarters, the investment into Nova, Tour, and Westar, into Floratech. Is that, you know, the acceleration or the continued acceleration that looks like going into 2020, 2021, excuse me, is that sort of ahead of where you thought you might have been even a quarter ago in terms of the outlook for this year spending-wise?

Well, no, we're actually slightly ahead of schedule of implementation because the team's done a phenomenal job working with our suppliers and being innovative and getting the materials into our sites, or the equipment, and then obviously the validation process. So they've been working literally around the clock, as many companies are doing, to get these lines up and running and validated. But the reality is with the new equipment we installed, we didn't have a lot of revenues associated to those in 2020 that's starting to pick up in 2021. There is additional equipment that is scheduled in the first half of this year, which is on track, and also within line that we originally talked about as far as capital expenditures. So we're comfortable where we are, and further conversations with customers gives us confidence that we're planning accordingly, looking at current demand and potentially future demand.

And it looks like if I do the back of the envelope math, it's about 10% growth excluding, like we take out COVID from 2020 and 2021, and I guess that's, you know, excluding the currency benefit, I guess that sort of puts you in line with your sort of 6% to 8% organic growth targets, excluding the COVID-related sales. Is that about in the ballpark?

Yeah, that's correct, Larry. So we're... We still see a lot of strengths within the core business. And, you know, as Eric kind of alluded to in his comments also, we saw that throughout 2020, and we continue to see that as we move through 2021. And then you have the COVID vaccine revenue on top of that. So you are in the ballpark there. So that continues to be, you know, pretty much in line with our long-term construct.

Thank you. Our next question comes from Juan Avendano with Bank of America. Your line is open.

Hello, gentlemen. Thank you, and congrats on the quarter.

Great. Thank you.

According to my calculations, or unless there was any customer reclassifications among the customer segments, generics grew about 42% year over year, and I would suppose that all of this is non-COVID-related. Can you confirm with me whether or not this is correct and what drove the significant step up?

Generics was, I think, high single digits or early double digits. I don't know where you're getting. Did you say 42%? Yeah.

Okay, got it. I'll check my math on that. Okay, good. And then... Can you give us an idea about the backlog of committed orders as of the end of 2020?

When we look at the backlog, I'll say that it's stronger than it was the prior year, and the mix of it is more towards the high-value products. The other aspect of the order book is that we're having great success with customers having longer visibility so that we have better opportunities to plan accordingly in our manufacturing processes. So, yes, it's a stronger order book that mixes more towards our high-value product components, and we do have longer outlook. And obviously, on top of that, that's our core business. On top of that, you have the vaccines, in addition to the visibility of what we are responding to over the next several quarters.

Thank you. And I guess that there's been some evolving changes that could happen on the COVID vaccine packaging configurations. I mean, Pfizer is, you know, now squeezing six doses out of the five-dose vial, and Moderna might be considering putting 14 doses as opposed to 10 by doing some configurations. Have you taken into account these potential changes in the packaging configuration in your COVID-19 revenue guidance?

That's all been taken into consideration with our guidance. And so there's two ways of looking at it. It's great that we're able to get the more doses per vial to be able to respond globally as quickly as possible. But as you think about long-term, You know, there's obviously future opportunities as you think about moving down to single-use vials and or pre-filled syringes, which will potentially could become a preferred solution long-term. So we've taken all that into consideration. We feel good about where we are with our capacity and our capabilities. And also we're engaged with the dialogue about what does this look like long-term.

Okay, thank you. And then before I get back into the queue, I guess, on the contract manufacturer products, do you plan to add capacity in 2021? And is there a chance for that segment not to actually deliver double-digit growth in 2021 unless you add capacity?

Yeah, well, you know, we've been talking about the growth in contract manufacturing for a while, saying that it will gravitate toward towards mid-single-digit growth, and it wouldn't be at the double-digit growth rates we've seen over the last number of years, just given the nature of that business. We continue to invest in it. It is part of our CapEx forecast for 2021, and there's a number of growth initiatives in that area. But we have, you know, been communicating that the growth rate will become more in line with our overall construct. And I think if you look at Q4, the Q4 number, the absolute dollar was pretty consistent throughout the year with contract manufacturing. It just came up against a really big comp in Q4. So the percentage growth rate looked a little bit lighter than the previous quarters. But from a dollar perspective, it's pretty much in line with where we have expected it to be and where we have communicated it will be. But we continue to invest in that part of our business. Okay. Got it. Thank you.

Thank you. Our next question comes from Paul Knight with KeyBank. Your line is open.

Hi, guys. Could you talk to, I think, Bernard, you had mentioned that there was a negative COVID effect. Could you qualify that, and is it possible to even quantify how much headwind you had in your past results?

Yeah, well, we haven't really broken it out. We're concentrating on giving the net impact to our business, but it's really been in animal health and some in dental, which those two areas are within our farm and market unit. That's where we saw some slowing down. It wasn't overly material for us. And then I think there were some elective surgeries as well that were impacted. but nothing drastic that we would have to call out.

Right. And then, Eric, if you look at these capital expanded expenditures, do you have a footprint that you can get this turned around and done quickly, or do you have to go from Greenfield sites? I guess, ultimately, how quickly does this come online?

Very quickly, Paul. The work that has been done by the team over the last couple of years with globalizing the operations, and as you know, we moved from 29 plants to 25 plants, has enabled us to think about future growth, leverage our existing assets. So it's a very short turnaround. The longest part of the lead time is around getting the equipment built. And then there's obviously a validation process associated to that. But all the equipment is being put into existing facilities.

Okay. And then lastly, Eric, where are you in your progress on your goal of Six Sigma, if I can call it that, from when you started? Are you halfway there? Are you a third of the way there? What's your view on that? you know, what you wanted to accomplish when you arrived.

There's a lot more to do, Paul. I honestly believe we're in a very good position to leverage not just what we do today but what we can do tomorrow for our customers. We're pulled into conversations that are beyond words. our current portfolio. We have more work to do on globalization of the enterprise. We have a great opportunity to move towards more digital. I'm extremely pleased on how the team implemented S4 HANA during this pandemic in a virtual environment globally. And that's quite a test, and that was done with our internal digital technology center out of our Bangalore site. So you can hear by my tone is that I think there's a lot of opportunity for us to really have a more meaningful impact on patients and be able to support our customers as they move towards new innovative solutions, and particularly around the biologic space. Thank you. Thanks, Paul.

Thank you. Our next question comes from Jacob Johnson with Stevens. Your line is open.

Hey, thanks. Maybe first following up on Paul's headwind question, as things hopefully reopen, kind of following a vaccine, people return to the doctor and dentist, I guess take their pets to the veterinarian, have elective surgeries. Could there be upside to your expectations around growth in 2021, kind of ex-COVID?

Well, that's a very open-ended question. If those things happened, yeah, ideally you would say there would be some level of upside. But, you know, we're focused on delivering within the construct and the guidance that we've given now and making sure that we're able to deliver on that vaccine demand to get everything back to normal. And then if other markets open up, yeah, we will have the capacity in place to be able to serve those also.

Gotcha. And then on COVID work, can you talk about where you're seeing demand from these COVID vaccines and therapeutics by geography? Is this largely focused on kind of an opportunity in the U.S. and Europe, or is this a situation where there could be opportunity in kind of Asia Pacific as well?

It's global. So some of the firms, obviously the – the ones that are approved in the market right now for emergency use, they are not just in the United States, but they have partners in other regions of the world. And so, because of our position and our assets are global, we're able to support them. So if they decide to do it internally or go externally with a partner, we're there to support them with their primary containment solutions. So we're seeing... You know, if you think about it, in Asia there's probably a little more pre-filled syringe demand in the market, particularly in China. In Europe and in Asia, it's pretty consistent on the vial configurations, and it's a consistent product that we provide throughout all these customers. The Floratec coating is primarily the main driver.

Got it. Thanks for taking the questions, and congrats on the quarter. Thank you. Thank you.

Thank you. Our next question comes from John Kreger with William Blair. Your line is open.

Hey, guys. I have a question. Obviously, at the beginning of 20, you weren't thinking about COVID demand. How have you been able to handle your non-COVID work? Have you had to sort of defer that underlying order flow, or have you been generally able to keep up with the sort of typical non-COVID orders?

In general, we've been able to keep up. However, I would say there are times where we had to engage with our customers to identify if we had to pivot and respond to a particular COVID order, how we work with our customers, since we're make-to-order, and our customers have been very supportive. But in the most part, we've been able to respond. Just to put it in context, just in our proprietary business, we do over 30 billion components a year. So when you think about the demand that we're putting on our operations with the additional demand for COVID solutions, it's meaningful, but it's not over taxing the global operations.

Thanks, Eric. That's helpful. And then maybe the corollary to that as you work with clients kind of upstream in their pipeline work, are you getting the sense that some of that work has been backburnered as they sort of sprint to meet the COVID challenges? Or, again, has the normal flow of non-COVID work been pretty stable in terms of the development process?

It's interesting. We're finding, if you kind of look in the mirror a little bit, what has been approved by the FDA in 2020 versus 19 and 18, what you'll find is pretty somewhat consistent, which is interesting because we do work with certain customers. There might be a particular delay in clinical trials and so forth, but we're seeing a relatively stable, consistent pattern as we speak today. And on top of that, we look at our participation rate. It remains equal, if not better. And that's taking the vaccines out of the equation. On the core business, we're seeing very strong participation rates. So we're not seeing too much of a deviation of what we've seen in the last couple of years.

Great, thanks. And then one last one. Can you just remind us why generics tends to grow notably faster than pharma? And as you look out to 21 or 22, do you think you'll see the same trend or a little bit more of a normalization of those two buckets?

Yeah, there's two comments, and maybe, Bernard, if you want to add. But the first one is, if you think about where we started with on this market-led approach, It became apparent when we started a few years ago that the generic market unit was the lower market share amongst the three. So we had a greater opportunity to capture more share just by simply repositioning new portfolios like Acceltra that are very attractive to that segment. And the other aspect is to remind... mind you, of is the pharma business includes dental, includes vet, includes other ancillary segments outside of just branded small molecule. And therefore, you'll see a little bit more of a softness in that business. But we're seeing the number of ANDAs continue to be very strong, which is what drives the generics business for West. I don't know, Bernard, if you want to add any comment to that.

I think you've encapsulated it. It's our market share is different within those two market units, and there's more room for us to grow within generics. As Eric said, we put the market units in place. It allows us to focus in on that area and start to grow our business within generics, and that continues to be the case. We still have a pathway forward to continue that, accelerated growth. And then we're introducing new products also to help us to, you know, get more entrenched within the generics market space.

Great, thanks. And maybe just one last one. The COVID contribution that you've quantified for 21, as you think about longer-term planning, do you view that as sort of durable or more of a kind of bolus that will likely decline in 22 and 23?

Well, one of the things that we've looked at is the mix of our COVID-related business. And as Eric said earlier, it started out more on the diagnostics, the therapeutic side as we went through the first half and the first, we'll call it three quarters of 2020, and then it became larger within vaccines. And we have been communicating that we thought the vaccine will be where West would see the biggest opportunity for us. And that's reflected in our 2021 guidance. So it's really how does the vaccine play out over the next number of years? What sort of booster shots will be required? So that's how we're trying to frame it and building that into our planning. So it's obviously, you know, how does that vaccine market develop over the next number of years? And will boosters be required? But that's primarily where we're participating right now.

Understood. Thanks, guys.

Thank you. Our next question comes from Dave Windley with Jefferies. Your line is open.

Hi. Good morning. Thanks for taking my questions, and thanks to your team as well. I hope to get a vaccine soon, so I'm one of the – we're all one of the patients, so thanks for their hard work. I was hoping – probably have a series of clarifications. So in your COVID vaccine – or, excuse me, your COVID contribution – to 21, as I'm listening to you describe how that has kind of evolved in the last quarter or so, should I interpret that the 100 million of kind of base in 20 stays in that same mix and the vaccine is the 160 contribution on top of that? Or does most of the 260 actually then become vaccine as we move into 21?

Yeah, it's primarily the growth we see within the vaccine segment. And as we said, there was a lot on the therapeutics within 2020 in the early part when people were trying to figure out how to treat this thing. And then, you know, that shifted as we got into the latter part of the year. And so now more of the focus is around vaccines for us. There is some within therapeutics. A little bit in diagnostics, but it's primarily vaccine-related.

Okay, got it. And then to Jacob's question on global and your answer there, it sounds like your clients are making high-value product choices globally. Did I understand that correctly, or are you seeing them – kind of downshift to standard in, say, you know, developing economies, things like that?

We're seeing consistency, Dave, around our high-value products, particularly around the Floratech, just because of the characteristics of the vaccine, their molecule itself. So we're not seeing any reduction, I guess, if you want to call that, from the high-value product portfolio. So it truly is HVP globally.

Sure, that sounds great. In terms of then broadening out from COVID, is this experience, is the last year and the ability to kind of, I mean, I'm sure clients are familiar with these products, but your ability to kind of respond quickly to clients, to ramp up your capacity for these high-value products, is that stimulating higher adoption of high value in the non-COVID space? opportunities with these clients. I'm just wondering what kind of knock-on effect that might create in your conversations with clients.

Yeah, if you look at our biologic portfolio, as you know, we have a very high participation rate there. So that tends to be primarily around our Floratech platform. But to your point, we are seeing an acceleration of conversations around NovaPeer. because of scale and a greater understanding of the characteristics of the primary packaging containment. So as they look at vaccines, that will spill over to more of a platform approach going forward. That's how we see it, and that's why we're continuously building and pushing for helping our customers get to that NovaPure conclusion with their new molecules that they're working on.

Interesting. So that kind of segues into my last question, which is, can you give us some sense, I mean, I think two or three years ago, and really throughout this period of time, we've talked about high-value product as a percentage, but within high-value product, you obviously have many tiers, NovaPure at the higher end. Can you give us a sense of how the mix has shifted within high-value product from kind of Westar at the entry level and NovaPure at the high level. How does that evolution look, if we could see that detail?

Yeah, we don't give out the exact numbers for each area, but what you would see, if you recall that a while ago, we showed kind of a spectrum of all the high-value products from, as you rightly said, Westar all the way up to Novapeer. What you're seeing is the higher growth, and now it's higher delta on revenue is in the upper right-hand side versus the lower left side. So to your point, we are seeing that adoption. We're starting to see the volume increase. And as you know, with our business, it takes a while to get that adoption and then build it into the platform of our customers. So the higher growth is in the upper right-hand side of that spectrum.

Okay. I'll leave it at that. Thank you.

Great. Thank you.

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back to Quentin Lott for any closing remarks.

Thank you, Catherine. And thank all of you for joining us today on today's conference call. An online archive of the broadcast will be available on our website at westpharma.com in the investor section. Additionally, you can get a replay through Thursday, February 25th, by using the dial-in numbers and conference ID provided at the end of today's release. That concludes this call. Have a nice day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.