Eric Green: Yes. It’s absolutely a continued focus for us, Derik, absolutely. I mean, we’re not pleased with the impact it’s had on us. We pride ourselves we have pretty much access to a large part of the market. And however, based on the conversations and the data we’ve been looking at with our customers, there will be some still in Q2 that has some destocking, but not as pronounced in Q1. So it’s really, most of it that we’re seeing is really a Q1 phenomenon.
Operator: Our next question comes from the line of Matt Larew of William Blair.
Matt Larew: Asking about the order book here. I think one thing we saw on the bioprocessing side is at some point during that saga, company started referencing green shoots or early indicators of ordering demand and then just took longer for some of those orders to convert or for sort of the green shoots to turn into a dollar signs. So just understanding that the order book is outpacing pre-pandemic levels, good coverage. What sort of the level of confidence, whether that’s written contractually or something else that sort of order activity today will convert to revenue dollars in the P&L as you see them coming in.
Bernard Birkett: Yes. Once the orders are confirmed at this stage, we’ve pressure tested a lot of that. So we have a good level of confidence that they will convert into revenues in that period. So I think we’ve done a lot of pressure testing here over the last month or 2 to make sure that that is the case. So that will be our expectation and that’s what we’re basing our level of confidence on. Again, the order book will continue to build as we move through the year, but as I said, we are ahead of where we were pre-pandemic.
Matt Larew: Okay. And then another piece of this was, I think you said 1% from HVP manufacturing capacity. And I think if we dial back to Kinston and bringing some of that capacity online, obviously, you end up catching up a little quicker than you initially thought. What sort of the scope of this capacity expansion and sort of the past year to get it back to where you want to be?
Eric Green: Yes. So specifically on what percent down is new lines, also automation or putting it into our HVP devices. These are the proprietary devices that we’ve manufactured like SelfDose and SmartDose for our customers, and these are combination devices approved with a specific drug molecule with our customers. So when you think about that specific area that’s ongoing right now of expansion, additional capacity brought in the demand is there in hand and we need to be able to get caught up to build to support our customers. And so that is on us to make sure that we execute and get that up and running in 2024 validated. We expect that to actually commercial revenues in the second half of 2024 for those specific products. From a components perspective, Kinston and other sites, our lead times are very good, and that was more of last year, getting them validated and up and running.
The HVP processing that we referenced about this year that we’ll have further completion and validation. That has really help us support customers as they do a mix shift to the higher end of HVP and also future drug launches that could have larger volumes than we anticipated due to kind of what we call breakout drugs, right, certain categories. So we’re positioning ourselves well to be able to support that growth that we anticipate coming in the near future.
Operator: Our next question comes from the line of John Sourbeer of UBS.
John Sourbeer: Maybe just dialing in on the HVPs there on the last question. I think they were around 75% of mix in 4Q. I mean, is that the right level to think about for 2024, or are there dynamics in play that could make shift up, or down with the destocking and the new capacity for the year?
Bernard Birkett: John, it’s relatively the same percentage plus or minus because the destocking is kind of across broad categories. And when we look at growth in our business, particularly in the proprietary, it is led by the high-value products in the component side. That is leading to growth. As you know that we are in a very attractive injectable market and one of the best the fastest-growing subsegment within the injectable space is biologics. Our participation rate remains very high, continues to be so. And that’s where a lot of the HVP growth is occurring which is causing a mix shift on the margin. So we anticipate that to be still robust percentage of our overall portfolio.
John Sourbeer: Appreciate that. And then I guess, specific to the destocking trends in the various proprietary product segments, I think pharma and generic saw this impact first and then now it’s more broad in the biologics. Do you expect the pharma side to recover faster followed by biologics, or just any additional details on a segment perspective.
Eric Green: Yes. That’s good questions. You’re absolutely spot on. But when we look at the destocking effect that’s happened for us in the first half of this year, it is across multiple market segments. So it’s both, it’s not just the generics and pharma, but also in some cases, in the biologics. So I would say that for us and where we are in the value chain, is pretty much across all 3 sectors, we talk about biologics, pharma and generics.
John Sourbeer: I guess just on the recovery there, do you expect them all to come back similarly, or is one you see the big green shoots more impacting one segment versus another?
Bernard Birkett: Very similar of all three, very similar staging coming back.
Operator: Our next question comes from the line of Justin Bowers of Deutsche Bank.
Justin Bowers: So I have a 2-parter here. But first, I wanted to clarify the cadence in the prepared remarks. I thought I heard products would be positive in 2Q and overall would be positive. So I just wanted to clarify that. And then sort of the step-up from 2Q to 3Q on growth? And then, the follow-up question would be just on the order book. You said it has a higher coverage ratio than pre-pandemic levels. Can you just help, is that sort of like a forward 12-month or forward 6 months, or just how do you guys look at it internally and across which businesses? Help us understand what that.
Bernard Birkett: Answering your first question, yes, we would expect proprietary to return to positive growth in Q2. As we said, it’s going to step up over the years, so we’re not going to see a huge spike anomaly. So again, there’s still a level of destocking. So probably low single-digit growth in proprietary. And then on a consolidated basis, also, we would see returning to growth in Q2. And then looking at the order book, we’re really looking at on a 12-month basis. So rolling 12 months.
Justin Bowers: Okay. Thank you. That’s helpful. And then just to clarify on the margins, too. I’m getting to, it looks like if I sort of back into the EPS guide, with a normalized tax rate, I’m still getting to roughly 90 to 100 basis points of margin expansion on the low end. Is that the right math, or is there some other dynamics in play there that I’m missing here?
Bernard Birkett: For the year?
Justin Bowers: Yes.
Bernard Birkett: No, we would expect operating margin to be flat year-over-year, yes.
Operator: Our next comes from the line of David Windley of Jefferies.
David Windley: Around the horn here. I wanted to ask a couple of follow-ups. Eric, just to clarify for the broader audience. When you talk about participation rate, I interpret that to mean that you’re expecting on the product. You and I have talked about how on big customer, big important products West likes to be in a position of a sole-source position. Can you help us to translate or translate between participation and share.
Eric Green: Yes. When we say participation rate is that when we are our customers when they file their regulatory filings, it is pointing towards the West product. that’s in their filings. And therefore, we tend to have a pretty, let’s say, share, it’s usually a very large percentage of that, if not all. Do customers in the market look at a secondary source and/or test for that secondary source, yes. But when we look at our participation rate, it tends to be a pretty large share of the volume of the doses basically. So that’s what we mean by participation. It’s a win rate for us, Dave. And it’s pretty consistent historically, and we’ve been tracking that. For both ourselves, and our partners, Daikyo at the molecule level, absolutely.
David Windley: Got it. And then you’ve talked about, your market share is 70%. That’s not a number that really has changed in a very long time, maybe even higher than that. You’ve talked about participation biologics being 90% or better. Just elephant in the room, I suppose in a competitor’s conference call recently talked about a project that they have been included on of a recently launched large molecule, sounds GLP-1, sounds very significant and sounds a little bit like a market share take. I gather that your prepared remarks, we’re kind of addressing that, but I just want to throw it out there and ask for more specificity about your participation rate in GLP-1s.
Eric Green: Yes. No, our participation rate in GLP-1 is very strong. And there might be other components that are used in the final packaging configuration that are provided by someone else in the market that’s been historically true. But the way we are positioned with our customers in that particular space is very strong on proprietary components but also on the contract manufacturing side. So I would say that in all cases, when you look at a final primary packaging containment, there’s multiple elements that go into it. Hence, the reason why we’re driving towards more of an integrated system approach as we’ve been talking about building towards. We would like to have more components than just 1 or 2 items on that whole system. So yes, others will probably be participate with their own products, but I’m pretty — I feel really comfortable where we are with our position.
