Executive Summary / Key Takeaways

• West Pharmaceutical Services is strategically pivoting towards accelerated, high-margin growth, primarily driven by its High-Value Product (HVP) components in the booming GLP-1 and biologics markets, alongside significant tailwinds from Annex 1 regulatory upgrades.
• The company delivered strong financial results in Q3 2025, with consolidated organic revenue growth of 5.0% and adjusted diluted EPS up 6% year-over-year, leading to an upward revision of its full-year 2025 guidance.
• Technological differentiation, particularly in proprietary elastomers and Crystal Zenith polymers, underpins West's competitive moat, enabling superior drug containment and delivery solutions that command higher value and support long-term customer partnerships.
• Strategic operational optimization, including the planned automation of SmartDose production and a shift towards higher-margin drug handling in contract manufacturing, is set to enhance profitability and efficiency, offsetting short-term headwinds from CGM contract exits.
• Management's preliminary outlook for 2026 and reaffirmation of a 7% to 9% long-term organic growth construct signal confidence in a sustainable growth trajectory, supported by improving market conditions and a disciplined capital allocation strategy.

The Foundation of Injectable Solutions: A Strategic Evolution

West Pharmaceutical Services, Inc. (NYSE:WST) stands as a critical, yet often unseen, pillar of the global pharmaceutical industry. Founded in 1923, the Exton, Pennsylvania-based company specializes in designing, manufacturing, and selling advanced containment and delivery systems for injectable drugs and healthcare products. Its core business is bifurcated into two segments: Proprietary Products and Contract-Manufactured Products. The Proprietary Products segment offers a comprehensive suite of solutions, including stoppers, seals, syringe and cartridge components, and sophisticated administration systems, complemented by integrated services like analytical lab support. The Contract-Manufactured Products segment focuses on the design and automated assembly of complex devices for pharmaceutical, diagnostic, and medical device clients.

West's overarching strategy is deeply rooted in its historical journey, which has emphasized technological differentiation, global manufacturing presence, and robust customer partnerships. A testament to this is its enduring, nearly 50-year relationship with Daikyo Seiko, Ltd., a Japanese affiliate, which has expanded West's market reach and product offerings. Over the past five years, West has made substantial investments in its High-Value Product (HVP) infrastructure, establishing five centers of excellence across North America, Europe, and Asia. These strategic hubs are designed to provide localized support, enhance capacity, and drive growth as demand for HVP components continues to normalize and expand globally.

The company's competitive standing is formidable, particularly in specialized containment solutions. West's technological innovation, exemplified by its proprietary elastomers and Crystal Zenith polymer solutions, provides a distinct edge. These advanced materials offer tangible benefits such as enhanced drug stability, reduced contamination risks, superior chemical resistance, and purity for injectable systems. This technological leadership translates into a strong competitive moat, allowing West to command higher average selling prices (ASPs) and achieve better margins in premium segments. The company's integrated ecosystem for drug delivery, including regulatory support and after-sales services, further differentiates it from competitors like Becton, Dickinson and Company (BDX), AptarGroup (ATR), and Amcor plc (AMCR), who may offer broader portfolios but often lack West's specialized focus and end-to-end partnership approach in high-precision pharmaceutical applications.

West's research and development (R&D) efforts are critical to maintaining this technological lead. The company consistently invests in elastomeric packaging components, formulation development, drug containment systems, and self-injection and administration systems. A significant R&D initiative is the development of an integrated system for human-use prefilled syringes, with a launch targeted for late 2025 or early 2026. This new offering, building on the successful introduction of non-human use prefilled systems earlier in 2025, aims to further enhance module efficiency and improve temperature coefficients, solidifying West's position as an innovator in drug delivery. These technological advancements are not merely incremental; they are foundational to West's strategy, enabling it to capture a significant portion of opportunities arising from evolving regulatory landscapes, such as the EU GMP Annex 1.

Performance Momentum and Strategic Shifts

West Pharmaceutical Services has demonstrated a clear return to growth and improved profitability, particularly in its High-Value Product (HVP) components segment. For the third quarter of 2025, consolidated net sales increased by 7.7% to $804.6 million, with organic growth reaching 5.0%. This strong performance contributed to a 6% increase in adjusted diluted EPS to $1.96 compared to the prior year. The first nine months of 2025 saw consolidated net sales rise 5.8% to $2.27 billion, with organic growth of 4.7%.

The Proprietary Products segment, the engine of West's long-term growth, reported net sales of $647.5 million in Q3 2025, an organic increase of 5.1%. This was primarily fueled by a robust 13% organic growth in HVP components, which now constitute 48% of total company sales. Key drivers included strong demand for Westar, Envision, and NovaBrand products. The burgeoning GLP-1 market is a significant tailwind, with GLP-1 elastomers now accounting for 9% of total company sales. West is actively collaborating with customers on new GLP-1 molecules and generics, expecting continued market evolution and expansion. The biologics market is also normalizing, with West's participation rate in biologics and biosimilars trending above 90% year-to-date.

Another critical growth driver is the accelerating adoption of Annex 1 regulations. West anticipates Annex 1 and related HVP upgrades to contribute 200 basis points to its growth in 2025, an increase from previous expectations. The company is actively engaged in 375 ongoing Annex 1 upgrade projects, leveraging its proven network strategy, scale, quality, and in-house capabilities to convert standard products to higher-value offerings. This strategic conversion is particularly attractive, given the significantly higher margins of HVP (60%+) compared to standard products (20-30%).

Profitability metrics reflect this favorable mix shift. Consolidated gross profit margin expanded by 120 basis points to 36.6% in Q3 2025 and by 150 basis points to 35.3% for the first nine months of 2025. Proprietary Products' gross profit margin increased by 1.60 percentage points in Q3, driven by higher plant absorption from increased customer demand and sales price increases. Operating profit also saw healthy increases, rising 3.9% in Q3 and 4.4% for the nine-month period.

In the Contract-Manufactured Products segment, Q3 2025 net sales increased 8.0% to $157.1 million, with organic growth of 4.9%. This was primarily due to increased sales of self-injection devices for obesity and diabetes, with GLP-1s in this segment accounting for 8% of total company sales. However, the segment's gross profit margin decreased by 0.60 percentage points in Q3 due to increased production costs, partially offset by sales price increases. West is strategically exiting two continuous glucose monitoring (CGM) contracts by mid-2026, a deliberate decision as the economics did not meet its financial thresholds. This exit will create a $40 million headwind in the second half of 2026, but the company is actively pursuing higher-margin business to refill the available capacity. The Dublin facility is ramping up production of delivery devices for the obesity market, and drug handling capabilities are expected to commercialize in early 2026, adding an estimated $20 million in revenue for 2026.

Liquidity remains robust, with net cash provided by operating activities increasing 9% to $504 million for the nine months ended September 30, 2025. Free cash flow surged 54% to $294 million in the same period, benefiting from a decrease in capital expenditures.

Capital expenditures are on track for $275 million for the full year 2025, down from a peak in 2024, aligning with the company's long-term target of 6% to 8% of revenues. West maintains a strong balance sheet with $628.5 million in cash and equivalents and $497.7 million available under its revolving credit facility.

Outlook and Risk Considerations

West's management has expressed confidence in its forward trajectory, revising its full-year 2025 guidance upwards. The company now anticipates reported revenue between $3.06 billion and $3.07 billion, representing 3.75% to 4% organic growth. Adjusted diluted EPS is projected to be in the range of $7.06 to $7.11. For Q4 2025, revenue is expected between $790 million and $800 million, with organic growth of 1% to 2.3%, impacted by a $25 million incentive fee from Q4 2024 that will not recur.

Looking ahead to 2026, management believes destocking is largely behind the company, and demand for key growth drivers will continue to improve. The HVP components business is expected to lead growth, driven by GLP-1s and Annex 1 upgrades. The Dublin drug handling facility's projected $20 million in revenue for 2026 represents early stages, with peak volumes and revenues anticipated in 2027 and beyond. Management also expects a return to expanding margins, supported by the favorable mix shift towards HVP. This outlook aligns with the company's long-term organic growth construct of 7% to 9%, which Eric Green, CEO, believes the company is well-positioned to achieve.

Despite the positive momentum, several risks warrant investor attention. Macroeconomic factors and tariffs, while not expected to materially impact 2025 results, remain dynamic. West is actively working to mitigate tariff-related costs, expecting to offset more than half in 2025 and fully mitigate them in 2026. The ongoing conflict in Israel, where West has R&D and manufacturing operations, is being monitored. The securities class action lawsuit filed in May 2025, alleging issues related to destocking and SmartDose profitability, introduces legal uncertainty, though the company intends to vigorously defend against the allegations. Operational challenges, such as constraints at an HVP manufacturing site in Germany, are being addressed through increased hiring and equipment installation. The SmartDose delivery device, while seeing improving profitability, is currently margin dilutive, and the company is evaluating strategic options to maximize its value, alongside planned automation in early 2026.

Conclusion

West Pharmaceutical Services is demonstrating a compelling investment thesis, grounded in its specialized technological leadership and a strategic focus on high-growth, high-margin markets. The company's robust performance in HVP components, propelled by the secular tailwinds of GLP-1 therapies, biologics, and Annex 1 regulatory upgrades, is driving strong financial results and margin expansion. While navigating the transition out of lower-margin CGM contracts and optimizing its SmartDose platform, West is actively reallocating resources towards more profitable ventures like drug handling, further solidifying its competitive position. The company's disciplined capital allocation, commitment to operational excellence, and a clear roadmap for technological innovation underscore its potential for sustained, long-term value creation for discerning investors.