West Pharmaceutical Services : The leader in mission critical injection components.

Riding the Biologic wave.

I informed my subscribers earlier in the week of a new business which was added to the DInvests portfolio. West Pharmaceutical Services (WST).

Core and Main (CNM) was the unlucky company to make way to fund this new purchase mainly due to price and cyclicality inherent within its industry. I still believe CNM to be a an excellent business with good growth prospects, however, the thought of missing out on a high quality company such as West at a price of $202 was unbearable.

You might not be familiar with the name, but I’m pretty confident you’ve been in contact with its products. This business might not be on your investment radar but after this article, I’m sure it will be.

A) The business

West Pharmaceutical Services is a global market leader with a 70% market share in primary packaging and delivery components for injectable therapeutics. Primary packaging is the packaging that comes into direct contact with the product, as you might have guessed, being in the pharmaceutical industry these must go through rigorous tests making sure these materials don’t jeopardise the safety of the drug.

They design, manufacture and assemble elastomer components such as stoppers, seals and plungers, also the vials, flip off caps and self administer injectable products such as insulin pens and CMO offerings.

With over 100 years in operation, West has built a reputable reputation within this niche market through compounding excellent service and high quality products.

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B) Products and offerings.

West Pharmaceuticals products are mission critical at the end of bioprocessing workflow. Their small components are used in injectable delivery applications and containment solutions. As these components come into contact with the drug, they therefore, like any other stage in the drug manufacturing process must be documented and approved by regulators. The products are critical yet a tiny fraction of the final cost of the drug.

• Seals, Plungers, Stoppers, Flip off seals (Delivery)

• Crystal Zenith Vile, syringes and cartridges (Containment)

• Self delivery injectables. Insulin pens. (Delivery)

West sells over 40 billion of these components annually.

WST also offers manufacturing services through their Contract Manufacturing segment. Here, West manufacture customer-owned components and devices to their specific needs. This segment accounts for 20% of revenues.

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C) Why pharma companies choose to partner with West?

Imagine your a CEO of a pharma company. Your company will spend billions on R&D putting a new drug through trials and eventually reaching commercialisation, after obtaining drug approval. As a business, the first priority would be to obtain a return on your investment. Surely you wouldn’t choose a partner for your primary packaging and containment based on price? I’m hoping you would choose the highest quality and experienced player in this niche market. “For assurance, West currently participates with 90% of all new biologic molecules that come to market”. After all, the biggest risk here is risk of contamination which would result in product recalls or even worse, harm to patients. The time and cost associated with these risks can be mitigated by choosing a company with a high reputation for excellence, leading products and decades of experience ……… West has over 100 years and counting.

D) Product mix and geography.

I wont dive too deep here. As you can see, West has global operations, their biggest regions being EMEA and Americas.

80% of Wests sales come from their propriety products with 20% coming from contract-manufacturing.

When we look into their market group, we see Biologics as their largest market. This mix shift is a huge growth driver for West pharma. For comparison purposes, in 2016, Biologics represented 22% of West total sales. In 2024, Biologics represented 39% of WST’s total net sales.

Biologics, which consist of large molecule therapies are primarily delivered through injectable applications, Wests “bread and butter”. This is due to the large molecular weight and complexity of the molecule itself. In the image below, paracetamol, classified as a small molecular drug, is able to be taken orally and mass produced. The same cannot be done with Alemtuzumab in the example below, due to its high complexity, molecular weight and its sensitivity to temperature. As more large molecule therapies are being discovered, growth for Wests propriety products should continue to increase and also as a % of sales. Here, margins are greater which in turn should also boost margins in future years.

E) Competitive Advantage

In my opinion West Pharmaceutical has three competitive advantages.

• 1) High barriers from strict regulations

Like any stage in the bioprocessing workflow, whether it be upstream, downstream or like this case the chosen packaging and delivery systems in the final stages, must be documented in the “DMF” Drug Master File. The “DMF” is a regulatory document that contains confidential information about a drug's manufacturing process, packaging, and storage.

Once a process is logged into the “DMF”, although not impossible, it’s a time consuming and costly process to change in future years. With a higher portion of biologic drugs being developed, demand for West products and services should continue to increase. Once a drug manufacturer chooses West to supply their packaging and containment needs they, “in theory” are locked in for the duration of the drugs lifespan.

• 2) Pricing Power

Due to Wests products being a tiny fraction of the drugs final cost, companies are reluctant to change suppliers based on price. The risks, time and opportunity cost will outweigh the cost savings of changing suppliers. Due to their quality products and regulatory expertise, West are able to increase prices with minimal affect on the customers final cost.

• 3) Brand Reputation and industry expertise.

The evolving regulatory landscape requires pharma and biotech companies to partner with a true expert who can help them navigate new regulations successfully. The pharmaceutical industry has evolved in recent years with tighter regulations having been implemented to further enhance the safety and efficacy of drugs.

As an example, very recently, the EU Good Manufacturing Practice (GMP) updated it’s Annex 1 guidelines which came into effect in August 2023. Annex 1, is the requirement for pharmaceutical manufacturers to develop a comprehensive Contamination Control Strategy (CCS) that documents their approach to assuring the sterile drug product’s high quality and enhancing patient safety. These new regulations see customers shifting from standard components to more enhanced products which West class High Value Products “HVP”. Currently West has over 200 Annex 1 projects with customers.

I have no doubt tighter regulations will continue to evolve and its paramount drug manufacturers partner with industry leading experts such as West to help navigate bringing their drugs to market.

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F) Growth

Biologics, as I mentioned earlier in the article, is projected to grow high single-digits to low double-digits into the future. West Pharmaceutical is well positioned to benefit from this anticipated growth trend in larger molecule therapies. The growth in biologics should increase WST revenue mix towards higher propriety sales. For some context, Propriety sales have over double the gross margins over their other segment, contract manufacturing. This mix shift along with their investments to expand their manufacturing facilities in preparation of future demand, should result in increased revenues and margins.

Another growth driver is the GLP-1 market. Here, West has been investing heavily to capture demand in their propriety products and also their contract manufacturing through self administration injectors.

Most recent EC.

“ I would note that we have just agreed to terms for a multiyear contract with one of the largest manufacturers for all of their GLP-1 primary packaging elastomer needs.”

These drivers position West for continued mid-high single digit organic growth.

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G) Risk

There are many different types of delivery options currently available for patients, Oral “Tablet”, Injection, Absorption “Creams” and inhalation.

The biggest risk for West are alternative delivery methods that can support large molecule therapies. Large molecule drugs can only be administered through an IV “Drip” or infusion “Inject”. Any innovations in the future where these therapies can somehow be administered through alternative, less invasive methods could harm West operations. Afterall, we would all prefer to take a tablet or a cream than an injection. I personally cant see this ever happening due to the complexities on large molecule drugs but “never say never” I suppose.

H) Conclusion

West Pharmaceutical is a behemoth in the primary packaging and containment market. With over 100 years in operation, West has obtained industry expertise not matched by many. Their high barriers to entry, high switching costs and the continuation of growth within biologic therapies position West for continued growth for decades to come.

Tougher regulations to enhance drug efficiency and safety continue to evolve, with West well positioned to navigate their customers through these ever changing landscapes. Another important reason to partner with experts.

The mix shift in biologics should enhance margins in the years to come as it becomes a larger % of revenues. West have a 90% win rate in new molecules brought to market. As I mentioned earlier, Propriety products gross margins are over double the margins of their CMO segment.

Their outlook for 2025 wasn’t great, but I believe this to be temporary. In 2025 West are facing FX headwinds of an estimated 75Million and in the contract manufacturing segment, Wests decision not to participate in the two contracts they have with their continuous glucose monitoring “CGM” business “This is due to financial return thresholds not being met” is offsetting gains in GLP-1 and Biologics. However, once this revenue gap has been filled, revenue growth should be back to more normalised levels.

West will be a core position within the DInvests portfolio for the foreseeable.

Thanks for reading.

DInvests

DRGInvests on X.

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Disclaimer: I have a beneficial long position in West Pharmaceuticals WST 0.00%↑ . I can’t guarantee the accuracy of the information provided in the newsletter. All statements express personal opinions and information gathered online. Any estimates, forward looking statements and assumptions made in this newsletter are unreliable. Do your own research. Any information in this newsletter is for educational and entertainment use only and should not be taken as investment advice.