David Windley: Got it. And then, last question for me. From a capital allocation standpoint, maybe a two-parter, I apologize. You’ve talked about CapEx. You’ve talked about a lot of that being growth that CapEx number continues to be relatively high in 2024. I guess I want to kind of understand to what extent you’re catching up on capacity. You’ve talked about long lead times, you talked about demand and hand things like that, or is there a risk of some mismatch of capacity as you’re spending still aggressively on CapEx? And then, in terms of alternative uses of free cash flow, stock is going to get dislocated on this news. You bought back stock in 2023. How aggressively might management want to step in and buy back stock as a sign of confidence in the long-term growth outlook. Thank you.
Eric Green: Dave, let me address the first part and then maybe I’ll turn it over to Bernard on the second part. When I look at the capital that we have in front of us today for 2024, the $350 million. It is true that we would like to be able to get our capital as a percentage of sales back to the high single-digit range. However, while 70-plus percent of our capital is still around growth. These are commitments that our customers were working with, whether it’s near term or more midterm, that we need to build support. So in the contract manufacturing side, it’s very clear, it’s very near term. These are contracts we have agreed upon for a number of years ahead of us that we need to get the installed capacity in place immediately so we can start producing product for them.
On the proprietary side, we are anticipating future growth with new drug launches that are occurring and will occur and based on the volumes that we’ve been asked to be able to support, these are the types of investments we need to make. So, for example, HVP processing is not just a NovaPure play, but it’s the ability to take our HVP portfolio and support the growth not just on the volume, but also new drug launches, any particular categories that are going to have outsized growth rates. And then also on this mix shift effect that is on us today due to regulatory changes requiring higher quality, lower particulates to meet these regulations that are going in place. So those are the drivers why we feel good, confident about the investments we’re making because we know the return on these investments are very positive for us and obviously for our customers.
And that’s the lens that we currently have. Do you want to, Bernard, touch on the capital?
Bernard Birkett: Yes. Dave, I think it’s important for us to deploy CapEx in this way, it takes time for us to layer in capacity. It takes 12 to 24 months. And so based on just back to Eric’s comments, what we’re seeing from a demand perspective, we need to layer that in at this time. So we don’t actually run into long lead times like we experienced in COVID and then it’s difficult to respond to growth in the market and not capture all the opportunities. So that’s thinking behind layering in this capacity. And again, it’s around very specific areas. And we do expect our CapEx to kind of level off here possibly after 2024 because we have a lot of the investment on. And again, it’s a very deliberate and disciplined approach to capital deployment.
We review it on a regular basis. And based on all the analysis we have feedback or input from our customers, but we need to continue deploying as we’ve outlined in 2024 to be prepped for the next number of years. Was there another part of that question?
David Windley: Share repurchase?
Bernard Birkett: Yes. On the buyback, again, we have a very deliberate process as to how we deploy the buyback. And we review that on a quarterly basis to see where we are, and we will continue to do that. and to deploy it where and when appropriate.
Quintin Lai: We have time for just one more question.
Operator: Our final question comes from the line of Larry Solow of CJS Securities.
Larry Solow: There it is. Thank you. Long wait there, worth the wait. I guess just a couple, first of all, Eric, thank you for a really good description of sort of not a great subject, but the impact of the lower sales outlook, really appreciate that. I guess kind of just switching gears to a couple of topics. Can you just give us a little more follow-up on, a little more color just on the — you mentioned an ongoing sort of regulatory shift. Has this accelerated in terms of requirements for low particulate. And is that something that’s going to drive some of the legacy products to have to switch maybe over, or is that just driving more on new products coming to the market?
Eric Green: Yes, Larry, it’s a good question, thanks for that, and thanks for your patience.
Larry Solow: Absolutely.
Eric Green: No, absolutely. So there’s a regulatory shift that’s occurring called Annex 1, really being driven out of Europe, but it’s going to obviously be a driver for a lot of the multinationals because of the requirements across the globe. And what that means is that we have a pretty large part of our portfolio. We mentioned in the neighbor of billions of components we produce each year that when we classify a standard that would be required to move up what we classify as high-value product portfolio to be able to service some higher quality lower particulates to meet these regulations. Now when you look at our HVP mix shift historically, we talked about it for a number of years. The success of that mix shift of West for the last several years has been on really new molecules, particularly in the biologics as more volume and demand goes in that particular segment, it’s higher ASP, higher margin.
And we’ve been seeing that benefit at West for a number of years. What we’re seeing going forward that continue to because of our because of the participation rate that we have with these new launches. We also now, because the regulatory changes are being enforced and policies are being changed it will require a mix shift effect of existing drugs in the market. So that’s a great opportunity for us to work with our customers were necessary to be able to transition them into a more appropriate packaging configuration that allows them to meet or exceed all the standards. So we’re quite excited about this opportunity. We look at some of the investments that we need to make [indiscernible] support it, particularly on the HVP processing. We’re very much aligned to where the market is going.
And if I would just share one more comment, historically here at West, when we introduced new products or capabilities particularly on our last [Indiscernible] components, it’s usually coincide with the regulatory change. So as the regulations have evolved over time, our portfolio has evolved with and exceeded those requirements, which has always put us in a good position. They’ll support our customers and ultimately their patients. So I’m feeling good about this that we’re ready to be able to address this this item, but it will take several years. It’s not a 1-year event or a 2-year event. It does take several years, but we’re ready to go on that.
Larry Solow: It sounds like it’s a layer in some extra growth on an annual basis if it comes to fruition over a multiple year period. But if I could squeak one more in, just on the devices and reaching 10% of proprietary high-value price sales. I think that’s a nice significant milestone. Is that driven more by SmartDose, SelfDose, is that the combination of two, what’s really driving that growth going forward?
Eric Green: It’s interesting. It’s actually through all of them, but the biggest drivers have been last year, and we’re actually quite excited. Our administration systems, our admin systems continues to grow well. We just relaunched a new version of our [indiscernible] 2-millimeter, which partners real well to 20-millimeter into the hospital health care market. In the SelfDose, we’re seeing a nice uptick demand in that category with discrete customers and their drug launches. And then, in SmartDose is an area that we’ve been focused on for a number of years, but we’re at a point now of inflection on volume growth that we have to get ahead of the curve. And that is an area that we’re laser focused on right now. We have a dedicated team with new automated equipment coming online so we can remove the manual processes, allows us to be more efficient, higher volume, higher quality to be able to support the growth of these launches.
So it is kind of across multiple areas, and it’s exciting to see it starting to gain traction.
Operator: Thank you. I would now like to turn the conference back to Quintin Lai for closing remarks. Sir?
Quintin Lai: Thank you, Latif. And thank you for joining us on today’s conference call. An archive online archive of the broadcast will be available on our website at westpharma.com.com in the Investors section Additionally, you may access a replay for 30 days following the presentation by using the dial-in numbers and conference ID provided at the end of today’s earnings release. That concludes today’s call. Have a nice day.
Operator: Thank you for participating. You may now disconnect.
