West Pharmaceutical Services Inc (WST) — Q4 2022 Transcript

Thank you, Shannon. Good morning, and welcome to West's 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, located at westpharma.com. This morning, Eric Green and Bernard Birkett will review our financial results, provide an update on our business, and present 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 4 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 laws. 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 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 5. For over 100 years, the West name has come to mean so much to 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 10,000-plus team members are motivated by improving patient lives. The past few years have been a reminder that the world doesn't stand still, and the needs of the healthcare industry are evolving and growing in complexity with shifting treatment options from the hospital to the home setting. We remain committed to the pursuit of scientific innovation and partnerships to address the changing needs of today and into the future. 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, the decline in orders and demand from our customers actually resulted in a 15% decline in pandemic-related sales. Excluding COVID-19, we estimate that our base organic sales growth was low double-digit, with mid-teens growth in proprietary products, and driving this base growth is 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 in 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 and 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's 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. In addition to our financial momentum, there were several other notable accomplishments in 2022. We shipped close to 47 billion components touching billions of patient lives. As 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 a next-generation leading elastomer-glass system. We launched Daikyo CZ 2.25 ml insert needle syringe to support the biologics market and secured 3 additional FDA-approved drugs using our SmartDose 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. We continue to factor environmental considerations into every aspect of our business. Over the past 5 years, we have made tremendous strides across the 6 priority areas and newly defined performance indicators. 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 has aided in a positive impact in the emission reduction. These efforts have been recognized with numerous ESG accolades in 2022. We look forward to sharing more detail in our corporate responsibility report to be published in the spring. 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 is our West Ready Pack with Corning's Valor ready-to-use vials. This will be the first of many products from our Corning partnership. The combination of these products eliminates the risk of delamination and reduces glass particulate in bulk filling lines. It is drug delivery innovations like this that ensure best-in-class performance with a value proposition to meet the increased regulatory expectations with a complete vial containment solution. We are introducing full year 2023 financial guidance. This guidance is based on demand trends as well as our current capacity levels. It's also reinforced by our strong West and Daikyo participation rate in 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 high-value products. 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 4-year period. Also, today we announced that the Board of Directors has 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 a comparison, in 2022, our 12-month program was completed at $203 million of buybacks. And in 2021, our 12-month program was completed at $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. As you can see from our guidance, we seek 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 capital expansion plans for additional high-value product capacity. The picture shows the progression of our ongoing efforts. On my 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 high-value products and plungers. Together with other site expansions, this will support future demand across our global manufacturing network.

Thank you, Eric, and good morning. We will first look at Q4 2022 revenues and profits, where we saw low single-digit organic sales growth and a decline in operating profit and diluted EPS. I will take you through the drivers impacting sales and margin in the quarter as well as some balance sheet takeaways. Our financial results are summarized on Slide 12 and the reconciliation of non-U.S. GAAP measures are described in Slides 20 to 23. We recorded net sales of $708.7 million in the quarter, representing organic sales growth of 2.6%. COVID-related net revenues are estimated to have been approximately $55 million in the quarter, an approximate $69 million reduction compared to the prior year. These net revenues include our assessment of components associated with vaccines, treatment, and diagnosis of COVID-19 patients, offset by lower sales to customers affected by lower volumes due to the pandemic. Proprietary Products sales grew organically by 1.8% in the quarter. High-value products, which made up approximately 72% of Proprietary Product sales in the quarter were 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 ambition components and admin systems, while the pharma market unit experienced high single-digit growth led by NovaPure and Westar components. The biologics market unit saw a 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 healthcare-related medical devices. Our adjusted operating profit margin of 22.4% was a 350 basis point decrease from the same period last year. Finally, adjusted diluted EPS declined 13.2% for Q4. Excluding stock-based compensation tax benefit of $0.06 in Q4, EPS declined by approximately 13.6%. Now let's review the drivers in both our revenue and profit performance. Sales price increases contributed $28.1 million or 3.8 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. Our consolidated gross profit margin was 37% for Q4 2022, down from 41.1% in Q4 2021. Proprietary Products fourth quarter gross profit margin of 41.6% 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 plant costs, including raw materials, labor, and overheads. The headwinds were partially offset by sales price increases. The decrease in 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 the mix of products sold. Additionally, operating cash flow was $724 million for the year, an increase of $140 million compared to the same period last year, a 24% increase. Operating cash flow in the period benefited from our working capital improvement. In 2022, we spent over $284 million on capital expenditures, 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. Our cash balance at December 31 of $894.3 million was $131.7 million higher than our December 2021 balance. 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, full year 2023 net sales guidance will be in a range of $2.935 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 expect our full year 2023 adjusted diluted EPS guidance to be in a range of $7.25 to $7.40. Our CapEx guidance is $350 million for the year. Estimated FX headwind on EPS has an impact of approximately $0.11 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. Our guidance excludes future tax benefits from stock-based compensation.

Great. Thank you, Bernard. To summarize, the solid financial performance shared 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 healthcare across the globe, which is why we're so committed to support patient health today and well into the future. Shannon, we're ready to take questions. Thank you.

Congrats on a strong quarter, which surpassed our expectations. Eric, could you discuss the long-term outlook? HVP mentioned that 72% of revenue came from volume this quarter. Can you elaborate on it in terms of volume, especially regarding the faster-growing, higher-margin NovaPure? As you advance along the HVP curve, what opportunities do you see in the coming years?

Yes. Thanks, Larry. No, you're right. So if you think about HVP right now, the amount of units produced from our manufacturing sites is roughly around 23% of the total volume. But as you rightly pointed out, it was about 72% of our sales in the last quarter. The higher growth part of that high-value product spectrum of the portfolio is coming from our FluroTec all the way up to NovaPure. So NovaPure is becoming more meaningful. Obviously, it was a major element of the COVID-19 response. But with the number of biologic launches, NovaPure is becoming a very attractive solution for our customers. So I would say it's early. The investments that we're making, particularly in our HVP plants of Kinston and Jersey Shore are around NovaPure plungers and other types of plungers to address future launches. So that's where the growth is really coming from at the higher end of HVP as we speak.

Okay, please proceed. I apologize for interrupting.

If you look at the CapEx guidance as well that approximately 70% of that CapEx number is really to support growth initiatives and productivity improvements. And much of that is around high-value products. So that ties in with the outlook that we would see for the next number of years putting that capacity in place.

And what about just generally in the industry, I know the trends have been biologics are obviously growing faster than overall drugs. Has that trend like accelerated over the last few years? Or what's the outlook there on a general macro level?

Yes. We believe the biologics and biosimilar space is going to be the fastest-growing area for new drug launches. If you think about the last year, though, it was interesting to see the number of ANDAs and also small molecules approved into the market. And fortunately, we have a strong position in those areas also. But I think if you fast forward, you'll still see biologics and biosimilars be the fastest growth area in our space.

Got it. Lastly, can you provide a brief update on Corning? I'm curious about our current standing there. I recall you mentioned the amount allocated for R&D last year, and I'm assuming it's a significant component this year as well. Could you share some insights on the R&D efforts and costs, as well as the qualitative aspects regarding the revenue outlook and potential growth over the next few years?

Yes, Larry, it's a really strong partnership, and we're really pleased that earlier this month, we were able to announce our first product launch of combining our West NovaPure stopper in Corning's Valor vials, which we label as our Ready Pack solution. And just to remind everyone that this is a seed program that we use in the development of new molecules. So this has been very successful for us in the past. We're leveraging this channel to introduce this combination going forward. It's a great testament of the focus between the two firms on really bringing the product together as a complete solution. And so while this is early, we still have more work to do. We have a number of launches that we have scheduled, whether it's in 2023 or 2024. Ultimately, where we want to get to is a complete solution with one drug master vial. So it's a completely fully characterized system. And so that will continue to require investments. And 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.

I wanted to ask about the committed order book. I'm curious how the composition of that order book compares today to pre-COVID, particularly regarding the non-COVID segment. Specifically, what does demand look like for NovaPure and FluroTec? Out of the potential FluroTec customers you are engaging with, what is the conversion rate like? On the NovaPure side, how does the conversion rate appear compared to a few years ago, particularly among those who ultimately choose NovaPure?

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 where 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, particularly the higher end HVPs. We're seeing healthy growth in plungers, not just in the NovaPure sector but in the other categories of HVP. So from an order committed order book perspective, that's the characteristics we're seeing right now. In regards to the adoption rate, it's actually quite high. So our participation rate, particularly in the biologics and biosimilars, is very strong. What we are doing is we're seeding with the NovaPure portfolio. And once that is locked in during 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 NovaPure, and that's hence the reason why we're putting all these investments in place, and we're seeing more of a transition from vials to prefilled syringes which will require our plungers. So that's where we are, but it's a very, very healthy growth profile of the higher end of HVPs.

And then just maybe a cleanup one on the equipment issues you referenced on the third quarter call. How does that end up impacting fourth quarter results relative to expectations of where do things stand now halfway into the first quarter of '23?

Yes. So those issues are resolved. The team did a really great job to resolve the issues and get our manufacturing facilities back online. Fully validated, characterized and be able to support commercial production. That was done in, I'd say, mid-part of Q4, a little bit later in that part of the quarter. So we're full out right now in Q1. And I'm 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 year.

Congrats on a nice quarter. Maybe kind of following up on that last question. Just Bernard, as we think about how the year plays out, 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 have the toughest comps from COVID that you'll be lapping from 2022?

Yes. So I think from a cadence perspective, going back to what we would have seen kind of pre-COVID 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 COVID revenues we would have had would have been in the first half of 2022. So that's where, I won't say challenges, but that's where the biggest comps are going to be from that perspective, and then some in Q3 and then obviously lighter in Q4.

Got it. And then on contract manufacturing, nice to see a return to growth there, uptick in revenue in the quarter. I think gross margin was down sequentially. Can you just hit on what drove both? And maybe related, you're pointing to robust growth in 2023. Were there some investments you're making for this year and kind of again along 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, a lot of the challenges we faced within contract manufacturing is really around 1 customer mainly and a shift in their business. And so as that kind of tailed off towards the back end of the year, it allows us to be able to return to growth. And then we actually saw demand increase from our existing customer base probably a little bit ahead of where we would have anticipated going into the fourth quarter. So that was again positive to see. And what we would expect as we move into 2023 is that we will be seeing mid-single-digit growth for our contract manufacturing on our existing business and then layering in new business at the same time. So we continue to make some investments in that area.

The question is, I touched on it, I guess, is COVID probably starts to flow then they manufacture more product Q2, Q3, right? And then less in Q4. That's the question one. And then the other would be regarding this prefilled syringe market is that really what you're seeing as the biggest opportunity right now?

Yes, Paul, that's a good question. Currently, we're projecting around $85 million related to COVID for 2023, and it's fairly evenly distributed. We can't provide more detailed information at this moment. Last year, our numbers were significantly higher, but we do have the capacity to adjust our manufacturing as needed. Regarding the prefilled syringe market, we've made considerable investments in recent years, especially concerning plungers, which are essential for this sector. We expect to see substantial growth in that area. New equipment is being installed right now, particularly in Kinston, where much of the new machinery is focused on plungers. I'm excited about our ability to support this segment of the market as the demand for prefilled syringes continues to grow. We're well-prepared for this opportunity, and our investments are directed towards it.

Can you discuss pricing a bit? You achieved about 4% in Q4. How should we consider that going into '23? I know you were considering potentially raising prices and are evaluating your pricing strategies moving forward. Have you made any changes, and have you encountered any pushback from your customers?

Yes. Thanks for the question. So you're right. We implemented in the fourth quarter of 2022 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. So I think the team responded appropriately. I believe we took a very well-balanced approach. We do have certain customers on contracts, so we did have some limitations. However, overall, with the new pricing team and strategy we 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 and already this quarter and will be rolling throughout 2023. But Bernard, do you want to provide more color on that?

In the fourth quarter, we reported approximately 3.8% in pricing. We are aiming for a price increase of 5% to 6% as we progress through 2023, which represents a noticeable increase. This is partly in response to the inflationary cost pressures we are experiencing. As Eric mentioned, you can observe the upward trend in our price increases over the past few years, and we are continuing on that path.

Great. I have a question about accounting. What was the impact from stock-based compensation in 2022? Also, your initial tax rates typically differ from the final rates at the end of the year. Is it reasonable to expect a similar benefit in 2023?

We provide guidance without it because it's very challenging for us to estimate. Last year, it was approximately $0.22, as I recall. We exclude it from our guidance for a reason, as it is difficult for us to predict and falls outside of our control.

Got it. If I may ask one more question, how should we consider the economics of the prefilled syringes? There are clearly many new drugs being introduced for metabolic diseases and obesity. What can we expect regarding your potential profitability and the revenues from these units? Could you provide some guidance on what your revenue contribution might look like for something like that?

Yes. When considering the prefilled syringe market and the plungers, if it's NovaPure, we have a cost that typically ranges from $0.88 to over $1 per unit. However, for other types of HVPs, costs can vary significantly, starting around $0.40 per unit. This highlights the range within which we operate. Regarding margins, if it involves HVP, those can vary from 55% to 80%. I'm providing a broad range since different molecules have different requirements. The good news about our investment strategy in our facilities, especially concerning plungers, is that our equipment and processes are adaptable. This allows us to utilize the existing assets for both current drug launches and anticipated growth areas. Therefore, we are well positioned.

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 a follow-up on the equipment and the delays in Q3. I think that was around the $30 million a month headwind. Can we assume now that this is up, that's contributing around $30 million a month as well?

Yes. The impact in Q3 was about $30 million. And that may vary depending on volume mix as we go through each quarter. So it's hard to say, it's $30 million each quarter. It would be difficult 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 kind of talked about earlier, and much of that happened as we progressed through Q4. And on the pacing of layering in new CapEx, that will happen as we move through 2023. So it's not all at once. We'll 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, there will be equipment layered in in the other HVP sites.

Got it. I appreciate it. And then I guess just maybe on COVID, it looks like you lowered the guidance there slightly. I guess just any thoughts on just where endemic levels go from here? How much more further drop do you think that you see coming down from COVID beyond 2023?

It's difficult to provide an estimate. We have given our best guess based on the current information available. If we anticipated a further decline, we would have included that in our guidance. However, based on our current observations, this is where we believe it will trend.

I hope you can hear me. I have a couple of follow-up questions, but I want to start by asking you to provide some clarity on where the market units stand, especially with generics performing well at the end of the year and biologics declining, which is typically the opposite of what we expect. Can you give us an overview of the relative sizes of your four business segments so we have a baseline for our discussion?

Yes. Looking at biologics as we enter 2023, the most significant decline in COVID-related revenues is within the biologics segment. We do observe a reduction there. However, when excluding that factor, we are experiencing very strong double-digit growth in our core biologics business. Additionally, as we move through 2023 in the generics segment, we anticipate high single-digit to early double-digit growth, while pharma should see high single-digit growth, and contract manufacturing is projected to achieve mid-single-digit growth.

Okay. And Bernard, so to 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 correction that it's closer to the 40%? I'm just looking for kind of the percentages to apply those growth percentages to.

Biologics was in the mid-40s range and is expected to improve slightly, so it's likely between 40% and 45%. Meanwhile, pharma and contract manufacturing were around 17% to 18%.

That's fine. I can follow up offline. On the installation of the equipment and Eric, we talked about in Kinston, the washing equipment in that process, I guess I was under the impression that that was specifically NovaPure and maybe even more specifically NovaPure plunger equipment, but Bernard's answered 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? So perhaps you could further elaborate on that, please?

Yes, absolutely. Specifically, the equipment discussed for Q3 relates to ongoing operations, not just NovaPure. There are washers that provide pharmaceutical washing capability, which supports our high-value product portfolio. The washing equipment you saw is intended for NovaPure, but not all of the equipment is interchangeable. However, the core components of the equipment are interchangeable. The growth we've experienced, based on the equipment you examined, is primarily driven by NovaPure, although there is some mix effect involved. The future investments we are making, as you saw in Kinston, encompass a wide range of high-value products, from FluroTec to NovaPure.

Okay. So where I wanted to go with that, and I'll make this my last one, is you're losing the year-over-year COVID $300-ish million. Management has made the point that that has been very high gross margin, high incremental margin revenue. And so 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 equipment in place that was the hold up in Q3, 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're losing from COVID. I guess I now understand that maybe the margin on that revenue that's coming in is perhaps not quite as rich as COVID, you could confirm that for me. But just thinking about that and any other factors that we should be keeping in mind that influence that margin transition that are not as rich as the COVID revenue that is coming off?

Yes. Dave, I'll address that. To clarify your earlier question regarding the sales split, biologics account for about mid-40s percent, generics are around mid-20s percent, and pharmaceuticals are in the low 30% range, which gives you the overall split. Regarding your question about margins, it's not merely a matter of replacing one product with another. We're facing a mix impact due to the decline of high-margin COVID revenues. Additionally, inflation is affecting our cost structure, presenting two significant challenges. As we've mentioned before, the price increases we're experiencing exceed our typical business trends, helping to alleviate some of the margin pressure. Furthermore, we have targeted cost initiatives across our operations, manufacturing, SG&A, and R&D, focusing on cost control and management, which is generating efficiencies. This approach helps to mitigate some margin challenges, but not all. Importantly, we are not reverting to pre-COVID margin levels; instead, we're maintaining many of the improvements and gains we achieved.

Just piggybacking on Dave's question. Can you help us understand and maybe it's a range of sort of what the margin profile is on the C-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 more second half loaded? Any color there would be helpful.

So the margin on the COVID products would have been at the higher end of our margin range because a lot of that was NovaPure. So you could have been looking at range of 60% to 70% plus. And then on the CapEx piece on that being layered in, a lot of it has been 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.

I hope you can hear me. I wanted to start by asking if you could clarify the current status of the market units, considering that generics are performing well at the end of the year while biologics are down, which is unusual. Can you provide the relative sizing of your four business segments so we have a proper reference?

Yes. Looking at biologics as we move into 2023, we see the most significant impact from reduced COVID revenues in this segment, leading to a decline. However, if we exclude that factor, we are witnessing robust double-digit growth in our core biologics business. Additionally, for generics in 2023, we anticipate high single-digit to early double-digit growth, while pharmaceuticals should see high single-digit growth. As for contract manufacturing, we expect mid-single-digit growth.

Thanks, Shannon, and thank all of you for joining us on today's conference call. An online archive of the broadcast will be available on our website at westpharma.com in the Investors section. Additionally, you may access a replay for 30 days following this presentation by using the dial-in numbers and conference ID provided at the end of today's earnings release. That concludes this call. Have a nice day.