West Pharmaceutical Services, Inc. (WST) on Q3 2022 Results - Earnings Call Transcript
Operator: Good day and thank you for standing by. Welcome to the Q3 2022 West Pharmaceutical Services Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakersâ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Quintin Lai, Vice President of Investor Relations. Please go ahead.
Quintin Lai: Thank you, Gigi. Good morning, and welcome to West's third quarter 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, provide an update on our financial outlook for the full year of 2022 and an introduction to a preliminary 2023 outlook. There is 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 law. 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 net sales, 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'd now turn the call over to our CEO, Eric Green.
Eric Green: Thank you, Quintin, and good morning, everyone. Thanks for joining us today. We'll start on Slide 5. I'll begin by covering three main topics, first, examining the drivers of lower than expected Q3 results. Second, examining the impact to Q4, and third, providing color on our current view of market demand and projecting a preliminary sales outlook for 2023. Let's begin with Q3. As expected, we had a few drivers in the quarter that materialized. We had headwinds from FX. We had declining sales in contract manufacturing, and we had a decline in COVID-19-related sales of about $20 million from last year. If we exclude the headwinds from COVID, proprietary organic sales grew over 11%. However, this performance was below our expectations for the quarter. When we provided guidance on the Q2 earnings call, we projected that we would be able to shift resources, formerly dedicated to pandemic-related production to other HVP products that are experiencing increased demand. Specifically, we plan to successfully address this transitioned by accelerating customer orders for NovaPure plungers and fulfilling customer HVP orders originally requested for this year but pushed to 2023 because of longer lead times. These two factors were the underlying drivers to our guidance of strong double-digit base organic net sales in Q3 and Q4. Instead, as the quarter progressed, we underestimated the complexity of the transition and were impacted with a series of setbacks related to capacity constraints and mix shift productivity. Much of our vaccine stoppers were going to fewer customers with fewer SKUs. This enabled high productivity and throughput with our HVP network. When transitioning to NovaPure plungers, we now are addressing demand coming from numerous customers, addressing drugs across numerous diseases and more SKUs. The end result is lower throughput through our existing HVP manufacturing sites. And compounding this situation further, as the quarter progressed, we had a reduction in capacity in our HVP operating network through a combination of equipment downtime and project delays related to the installation of HVP processing equipment. We estimate that the total negative impact to Q3 was $30 million. While we see these issues as temporary and expect full resolution in 2023, they will continue to impact us in Q4. As we look at the capacity constraints, we project that additional HVP processing capacity will come online early next year based on the time line to install and validate the newer technology. Since we are already running at full capacity, we also are unable to address the additional demand coming from long lead time items in Q4. Altogether, while we still expect our base business ex-COVID to grow more than 10% in Q4, we will not be able to offset the expected $80 million reduction in COVID-19 sales. While I'm disappointed that we're lowering our forecast for the rest of 2022, I want to stress that these issues are all supply-related and not demand related. Moving to Slide 6. Our robust order book of committed orders, excluding declining COVID-19-related demand grew 20% year-over-year. Our customers have reiterated that they're looking to West to deliver the critical components and devices to address the growing injectable drug demand. And we have several customers that have notified us of potential upside demand, especially for NovaPure plungers beyond our current order book based on future drug launches. As we look at 2023, we are confident and expect most of the capacity issues will be resolved early in the year. Taking a reasonable view on capacity expansion and customer delivery timing, our preliminary look at 2023 includes the following projections. First, we now assume that COVID-19 sales will decline to a full year 2023 sales of approximately $90 million or a 75% decline from 2022. This is based on current customer forecasts, which we believe assumes a continuation of current trends and COVID booster demand. We expect non-COVID-19 overall base business to grow in the double digits and in excess of our financial construct of 7% to 9%. Base proprietary products are expected to grow in the low teens led by biologics, and we expect CM sales to rebound to growth next year. Our participation rate in recently approved new molecular entities in the U.S. and Europe remain strong. Our components by West or our partner, Daikyo, are expecting almost all the biologics and biosimilars approved so far in 2022 and majority of small molecules approved. Adding it all together, our prelimited view is that we will have positive organic sales growth in 2023, despite an anticipated decline of approximately $280 million of COVID-19 sales. We will provide more detailed guidance on our Q4 call in February of next year. Now shifting to Slide 7 and some highlights from the quarter. I want to first thank our team members who continue to focus on our purpose to deliver superior value to customers through our high quality products and solutions to make a meaningful difference to patients' lives. An example of this dedication and resiliency was evident in the recent response to the hurricanes that devastated Puerto Rico and Florida. Despite the personal impacts to our team members, they ensure their plants continued to produce and ship product with minimal impact. Just another great testimony to the strength of our One West team. We continue to make good strides with the opportunity to improve at-home management of diseases. I'm pleased to share that earlier this month, our customer, scPharmaceuticals, received FDA approval for FUROSCIX delivered via on-body infuser, utilizing West SmartDose on-body drug delivery technology. This brings us to four FDA-approved drugs using our SmartDose technology. Our strategic collaboration with Corning is moving along. We anticipate that in Q1 2023, West Ready Pack System with Valor glass vials, a ready to use sterile packaging system for use with NovaPure stoppers will be available to customers. Lastly, our West experts are pleased to be back in-person at recently held PDA Conference and upcoming CPHI worldwide showcasing our leadership with new scientific insights and technical developments across our portfolio of high quality drug delivery and devices. Moving to Slide 8. With the capital spending investments initiated in 2020 for the larger capacity expansion, we continued to drive forward to complete the installation of our 2021 expansions and initiated the next tranche of investment earlier this year. You can see from the pictures how impressed of the ongoing expansions are across our sites. While they do not happen overnight, we are making good progress and expect all these investments will result in several billion units of increased capacity for our HVP components. Now, Iâll turn the call over to Bernard.
Bernard Birkett: Thank you, Eric, and good morning. So letâs review the numbers in more detail. Weâll first look at Q3 2022 revenues and profits, where we saw mid-single digits organic sales growth led by performance in our biologics and generics market units. I will take you through the profit drivers in the quarter as well as some balance sheet takeaways. And finally, we will provide an update to our 2022 guidance. First up, Q3. Our financial results are summarized on Slide 9 and the reconciliation of non-U.S. GAAP measures are described in Slides 18 to 21. We recorded net sales of $686.9 million, representing organic sales growth of 4.3%. Looking at Slide 10, proprietary products sales grew organically by 5.5% in the quarter. High value products, which made up approximately 72% of proprietary product sales in the quarter, grew mid-single digits and had growth across our biologics and generic market units in Q3. Looking at the performance of market units, the biologics market unit delivered mid-single digit growth. We continue to work with many biotech and biopharma customers who are using West and Daikyo high-value products. The generics market unit also experienced mid-single digit growth led by sales of Westar components. Our pharma market units are low single digit growth with sales led by high-value products, including NovaPure and Westar components. And contract manufacturing declined 1.2% for the third quarter due to a reduction in sales of components for diagnostic devices. We recorded $268 million in gross profit, $20.2 million or 7% below Q3 of last year and our gross profit margin of 39% was a 180 basis point decline from the same period last year. We saw a 2% increase in adjusted operating profit with $186.4 million record at this quarter compared to $182.8 million in the same period last year. And our adjusted profit margin of 27.1% was a 120 basis point increase from the same period last year. Finally, adjusted diluted EPS declined $0.03 for Q3, excluding stock-based compensation tax benefit EPS increased by approximately $0.05 and foreign currency negatively impacted our EPS by approximately $0.16 in the quarter. So letâs review the drivers in both the revenue and profit performance. On Slide 11, we show the contributions to sales decline in the quarter. Volume and mix decreased by approximately $1 million in the quarter net of approximately $20 million decrease in COVID sales. Sales price increases contributed $31.1 million or 4.4 percentage points in the quarter. Foreign currency generated approximately $49.8 million headwind on revenue in the quarter. Looking at margin performance, Slide 12 shows our consolidated gross profit margin of 39% for Q3 2022 down from 40.8% in Q3 2021. Proprietary products third quarter gross profit margin of 43.6% was 270 basis points lower than the margin achieved in the third quarter of 2021. The decline in proprietary products gross profit margin was caused by a few key factors. Delays in equipment expansion projects, which led to production bottlenecks in certain â in meeting certain customer demand, customer demand mix shift led to a greater than anticipated impact due to the delays mentioned above, as well as continued inflationary pressures on our plant costs, including raw materials, labor, overheads and transportation. Partially offsetting these headwinds on our margin were sales price increases of a 180 basis points of benefit associated with one-time fees from COVID supply agreements. Contract manufacturing third quarter gross profit margin of 17.3% was 120 basis points above the margin achieved in the third quarter of 2021. The increase in margin is largely attributed to price increases in the period and production efficiencies. Now letâs look at our balance sheet and review how weâve done in terms of generating more cash for the business. On Slide 13, we have listed some key cash flow metrics. Operating cash flow was $493.2 million for the nine months ended September 2022, an increase of $70 million compared to the same period last year, a 16.5% increase. Our operating cash flow in the nine months period benefited from a working capital performance. Our third quarter 2022 year-to-date capital spending was $189.7 million, $12.8 million higher than the same period last year. Working capital of approximately $1.27 billion at September 30, 2022 increased by $129 million from December 31, 2021, primarily due to increase in inventory and reductions in our accounts payable. Our cash balance at September 30 of $729 million was $33.6 million lower than our December 2021 balance. The decrease in cash is primarily due to our share repurchase program, a $43.7 million scheduled payment of debt principle and interest in the third quarter and higher CapEx offset by our operating cash flow in the period. Turning to guidance. Slide 14 provides a high level summary. We are updating our full year 2022 net sales guidance and expect net sales to be in a range of $2.83 billion and $2.84 billion compared to our prior guidance range of $2.95 billion to $2.975 billion. There is an estimated fourth quarter headwind $60 million based on current foreign exchange rates. We expect organic sales growth to be approximately 7% compared to prior guidance of approximately 11%. We expect our full year 2022 adjusted diluted EPS guidance to be in a range of $8.15 to $8.20 compared to a prior range of $9 to $9.15. This revised guidance includes our $0.16 EPS positive impact of tax benefits from stock-based compensation during the nine month period. Also we are updating our CapEx guidance to $300 million to $320 million compared to a prior estimate of $380 million for the year. There are some key elements I want to bring your attention to as you review our guidance. Estimated FX headwind on EPS in the fourth quarter was approximately $0.17 headwind. We expect full year COVID-19 related sales to be approximately $85 million lower than 2021 sales, unchanged from our prior guidance. And our guidance excludes future tax benefits from stock-based compensation. I would now like to turn the call back over to Eric.
Eric Green: Thank you, Bernard. To summarize on Slide 15, looking ahead with a sharpened focus, we continue to ensure our growth strategy is bringing value to our customers. Our committed order book remains robust. We continue to capture the benefits of the globalization of our operating network and delivering products in this complex environment. And we continue to drive forward the capital investments across our operations to meet current and anticipated future growth. Gigi, weâre ready to take questions. Thank you.
Operator: Our first question comes from the line of Paul Knight from KeyBanc.
Paul Knight: Hi, Eric. On the CapEx, itâs now $300 million to $320 million verse $380 million prior is that a signal that you see lower demand? Is it difficulty getting equipment? Whatâs behind that lower CapEx guidance?
Eric Green: Yes. Paul, the lower CapEx guidance is really two things. One is delivery of equipment thatâs been delayed in a couple instances and also longer duration of capital build up projects. So weâre seeing that as the impact, not demand. We still need the capital in place to really get caught up to the demand we have in our hands today.
Paul Knight: And then you mentioned that the transition from COVID and a few customers to many customers on the plunger side. Are there also some â weâve also seen some huge prescriptions out of recent approvals. Are those also surprising you in terms of some of these large prescription trends that are being seen in the market?
Eric Green: Yes, Paul. Thatâs one of the drivers of the healthy order â committed order book. And that is particularly in the biologics area, weâre seeing out size growth than we anticipated working with our customers.
Paul Knight: And last on the plunger side, where will that product be made?
Eric Green: Well, we have really five key high-value product plants. The two that have probably the most constraints right now are here in the United States, Kinston and Jersey Shore, and weâre currently working to have that resolved as we speak.
Paul Knight: Okay. Thanks.
Eric Green: Okay. Thank you.
Operator: Thank you. Our next question comes from the line of Larry Solow from CJS Securities.
Larry Solow: Good morning, guys. Thanks for taking the questions. I guess, first question, Eric is just â I know you normally I guess to give some a little preliminary outlook this time of year, but just sort of trying to gauge at your confidence level. Obviously, a little bit of a surprise in terms of looks like customer inventory management is skewing your numbers a little bit and obviously some of the capacity issues. Just curious like your confidence level today to give pretty good guidance for next year, some nice clarity on the revenue side. Is it just you felt like you had to put that out today? Or what kind of gives you that extra confidence sort of in a â looks like a little bit of a challenging short-term period?
Eric Green: Yes. Larry, thank you for the questions. So thereâs two things to give you insights on. One is, when you think about inventory management, the only part of our business where thereâs fluctuation, I would say is around the COVID-19 vaccines. That has been quite volatile in the last several months. And I would argue that transition to lower volume has been a little bit faster than we anticipated. But when it comes to demand for our other products, particularly base, think about our high-value products, weâre not seeing that inventory management. In fact, just meeting with customers more recently, they are very keen for us to get the installed equipment thatâs currently being worked on and validated and up and running to really alleviate some of the bottlenecks that we have today. So we donât see that large any major movement. We did, however, for clarity, I did say in the script that as we went through 2022, our lead times were extended because of the demand we had on COVID at the time, and therefore, we had orders that we were committing to customers in early 2023. But that wasnât driven by any inventory management that was driven by our visibility to make the order in a timely fashion. Now, on the second part â Larry, the second part on giving guidance or giving visibility of sales, I think itâs important to give context with what we just described about installation capacity and the current demand to give visibility what weâre seeing thatâs going into 2023 with a high degree of confidence.
Larry Solow: Got it. Okay. No, I appreciate that color. And it sounds like youâre â thereâs no real change, it sounds like in terms of customer demand and you guys are continuing obviously to build out capacity. It doesnât feel like â it just feels like itâs a completely a supply issue. Is that fair to say, no ambiguity?
Eric Green: Yes, Larry, thatâs fair to say. So as we transition from very long runs of NovaPure stoppers to shorter runs of NovaPure plungers as an example. The equipment that we had intended to be ready to go halfway through this year, which is thatâs the delay that weâve been discussing as caused that mix shift, lack of productivity. And so once thatâs up and running, we will be in a good position to fulfil those orders in a timely fashion.
Larry Solow: Okay. Great. And just last question perhaps for Bernard. And I know you guys are not ready to a little early on giving full guidance. But in terms of just high level margin outlook, what needs to kind of go right or wrong? What could happen? Could you keep margins flat with overall revenue growing? Although COVID, probably little higher margin revenue coming down from a very high level. Is that â do you think feasible?
Bernard Birkett: Yes. Just on the margin, weâll provide more color on the margins and earnings on our usual timing on our Q4 call here in February. But there are a number of things that we are monitoring really closely, just like everybody else at the moment. Weâre looking to figure out how FX is going to settle in for early 2023, and itâs really â itâs much too early to make a call on that given the volatility that weâre seeing today. And then secondly, weâre looking at monitoring the inflationary costs right across the spectrum for materials, energy, labor. And again, itâs early to make a call on many of those. And then thirdly, weâre in the process of preparing our price increases for next year, especially in light of that second topic around the inflation rate costs. So thatâs evolving. And so then, the fourth point, weâll examine again, how fast we can get that extra capacity online to generate those demand â currently demand at HVP sales. So if we can do it sooner than our guidance, thereâs upside there to our sales and associated profits with that. I mean, the growth in our base HVP business and HVP margins that will come with that weâre looking to offset that decline around C-19. But again, we have to manage through a lot of these issues at the moment. So, the big positive for us is, is the demand is there and weâre seeing increasing demand around high-value products, particularly around plungers that Eric just mentioned. So as soon as we are on that call, weâll give you more update.
Larry Solow: Yes, fair enough. I appreciate those points. Thanks guys.
Bernard Birkett: Thank you, Larry.
Operator: Thank you. One moment for our next question. Our next question comes in the line of Derik DeBruin from Bank of America.
Derik DeBruin: Hi, good morning. Just like clarify the comment, I mean, youâre talking about seeing positive organic revenue growth next year. I mean, is that â are we talking 1%? Are we talking to sort of back to this 7% to 9% range? And along those lines, to get to positive that sort of implies that your overall HVP next year â proprietary products next year have to grow well in excess of that 7% to 9% range. I mean, are those â can you just sort of provide a little bit more color in terms of how we should think about? I mean, the big range to sort of think about.
Eric Green: Iâll start and Bernard, if you want to add. So youâre right, the non-COVID related based business and proprietary is going to have very strong double digits, and itâs be led by biologics. But weâre also seeing strength in both generics and pharma. But the key drivers can be the biologics and the portfolio thatâll support that is mostly around our HVP higher end of the portfolio NovaPure and FluroTec and particularly around plungers. Bernard you want to give more color?
Bernard Birkett: Yes. As Eric said that we would expect to see on our base business double digit growth, within that base thatâs going to be north of our construct that we put out there. So weâre looking at that base business to be able to offset the C-19 and decline that we potentially could see here. And then, again, looking at the timing of capacity, there could be some upside there also for us.
Derik DeBruin: Got it. And back to the margin question, I mean, we sort of look at the â I guess itâs the question of whatâs the worst case scenario that youâre sort of looking at for next year? I mean, is there a situation where you canât get the capacity online further push out? I guess thereâs some fear that the fourth quarter number that you put up, if you sort of annualize that going into next year, itâs pretty ugly in terms of an EPS perspective. I mean, is that a worst case scenario? Just sort of help us sort of understand what the parameters are around the risk to you not being able to sort of bring capacity online? And going back to sort of like the margin profile, sort of thinking about how this all goes through.
Eric Green: Yes. On getting that capacity online, thatâs actually in progress. And as we mentioned in the comments at the start, we would expect to see that early 2023. So, we are reasonably confident around having that uplift.
Derik DeBruin: Got it. And just to sort of reiterate rhetoric point, youâre not seeing any inventory-related issues, but can you give us sort of like any indication of what some of the drugs youâre like scaling on for â are you involved in obesity drugs that are coming up and coming online. Just to sort of give us a sense of where some of the demand is coming from?
Eric Green: Yes, weâll give you a couple areas. We donât give specific customers or drug molecules, particularly on the elastomers unless our customers will articulate that publicly. But they do tend to be â first of all, we're seeing, as I indicated a little bit earlier, success is some very drug launches, particularly in biologics that were over the last few years, and that's quite positive. We are obviously in discussions around the obesity drug launches that are being looked at in the marketplaces, diabetes, obviously, those are the key large volume areas that where West is part of those conversations. But going any further into specific drug molecule or a specific customer that would be â we just simply don't go down that path.
Derik DeBruin: Thank you. I will get into queue. Thanks.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Dave Windley from Jefferies.
Dave Windley: Hi, good morning. Thanks for taking my questions. Bernard, you mentioned in your prepared remarks, I think I kind of missed it, but 180 basis points in reference to COVID supply agreement and we had in our notes that there was some carryover take-or-pay related revenue or payment that you were expecting had it in 2Q expected some again in 3Q. Was that the same thing? And could you elaborate, quantify that for us, please?
Bernard Birkett: Yes, it was the same. It was relating to the same customer. It had to get split over two quarters. So that's what we relate to and then there were some other smaller bits that were not really material, but it was primarily related to one customer.
Dave Windley: And the 180 basis points, I missed the detail that was a benefit to gross margin. What was the 180?
Bernard Birkett: Yes, it was to gross margin.
Dave Windley: Yes. Okay. In thinking about your fourth quarter guidance and kind of dovetailing on both Derik and I think Larry's questions on margin, it looks like the fourth quarter gross margin proprietary product is probably down in the mid-30s, maybe lower. And so I wondered if you could help us to understand, is that just basically unutilized or underutilized capacity because so much COVID is coming out and before you're really able to ramp high value for these other products, it sounds like plungers mostly? Or what other factors should we be thinking about relative to fourth quarter margin? And how much that does or does not set the baseline for thinking about 2023?
Bernard Birkett: Yes. So in the fourth quarter, as a carryover from the issues that we experienced in Q3 with the delays and after getting equipment in place and then the impact that's having on our throughput and then also has been able to work through this mix shift change at the same time. When we layer in the capacity in early 2023 and that will resolve a lot of that problem. So it's really down to having that increased capacity and throughput. So we don't believe it will reoccur.
Dave Windley: So pardon the follow-up. So I know you probably don't want to get into too much operational minutia, but adding capacity doesn't sound like something that levers margin. That sounds like something that adds more cost. It seems like you would want more volume on the same capacity to get the margin backup so maybe you could help us to understand kind of how that flows and how that works?
Bernard Birkett: So it's not â it's actually going to enable us to clear more products through or end of lines with the capacity will actually help our HVP sales and help distribute fixed cost and improve our absorption. So it's not that we're going to layer in more cost and it's going to be detrimental. It actually gives us the ability to sell more high value products and get it through our plants actually quicker. So we can realize those revenues faster.
Dave Windley: And zooming out a little bit on high value, I think, we probably been slow to absorb it in the market, but your COVID product mix, you'd consistently highlighted that FluroTec and NovaPure were popular in that market or to those customers. It sounds like NovaPure is â you're still calling out NovaPure and NovaPure plungers, I'd ask if we should be thinking that those plungers are purely NovaPure or if it's more of a mix. But the general question here is, how should we think about the mix within the high value products as you move out of COVID heavy period and into this period where as you described, the customers and the SKUs are much broader?
Eric Green: Yes. So when you look at the portfolio, it's going to be mostly â you are right. So when you look at COVID-19, mostly it was NovaPure and FluroTec stoppers and high â nice margin associated to that. And but you think about the plungers demand that we currently have. It is a mix but mostly is NovaPure. And that is when you think about the investments we're making right now, it is around that NovaPure corridor. And so some are laminates from not laminated, but it's a NovaPure platform that we're working with.
Dave Windley: Okay. And then a final question for me. You mentioned the Valor â the packaged Valor go-to-market product or system is available in January, which strikes me is pretty early, pretty quick so good news there. But I guess I wanted to ask, what does availability mean? Does that start some kind of early-stage development sampling and testing? Or what does that availability really mean?
Eric Green: Yes. That's early stage. We think about one of the benefits we have with our ReadyPack portfolio is that it has been known to be a great accelerator of seed in the market, so particularly around the smaller pharma and smaller biotechs. They are looking for an off-the-shelf solution and we are able to provide with all the technical data to support it, so this is feet in the pipeline, large and small customers and itâs really around the early drug development phase. Just want to use us as an example as when we launched NovaPure in 2016 time frame, our avenue was through the ReadyPack, same channel, same approach, seed in the market. And today, you can sense from this call, we spent a lot of time talking about NovaPure is becoming somewhat now the new standard of biologics. That's the intent with the collaboration between Corning and West and Iâm very pleased on both technical teams are really continuously driving that differentiation of what this means in the market for our customers and ultimately the patient. So it's early stages, but we will keep you updated, but I'm excited about the launch in the first part of the year.
Dave Windley: Got it, thank you.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Jacob Johnson from Stephens.
Jacob Johnson: Hi, thanks. Good morning. Maybe a follow-up on Derik's question around kind of 2023 revenue growth, obviously, a little bit of a change this morning in your 2022 kind of revenue dollar expectations versus where you were three months ago, but that seems to be due to some kind of one-off issues. Is there any change to kind of your 2023 expectations today versus where you were a couple of months ago because obviously as we think about 2023, you will have a little bit of an easier comp given kind of the revenue decline in the 4Q. So I'm just kind of curious how much of that strong growth next year is something that's easy comp versus kind of strong demand I don't know if that's possible to answer, but I'll try asking.
Eric Green: No, thanks, Jacob. So I think there's a couple of levers to look at. One is, this puts COVID to the side after saying that I think in the last call, we talked about roughly around 50% reduction in 2023 over 2022. Right now, what we're saying it's about a 75% reduction. So that equates to that $280 million we discussed. On the growth, the underlying growth of the business, we're relatively the same as what we were looking at about mid-last year, but maybe a little bit stronger than the biologics than we anticipated. So net-net, about the same, I would say. If we are able to get capacity online sooner, I can assure you that we're laser-focused on really those two sites right now to get this equipment validated with our customers so we can produce product. But we're just conservatively saying right now, we're looking at a benefit of early 2023. But if we can get on in the next several weeks, we will do so because we do have demand and we have customers asking us to produce as much as you can in the short-term. I think one last thing about the last change, I would say, is a small piece, but see them return to growth. We didn't really talk as much about that in the last quarter, but we're seeing that starting to come back to that mid-single-digit type corridor, if not a little bit better for next year. So that's where we stand with the changes from three months ago.
Jacob Johnson: Okay. Super helpful, Eric. And then just I know COVID is going to be a smaller piece of revenue next year, but on kind of the transition that single dose vials or prefilled syringes. I think Pfizer highlighted some of this in an announcement last week. Just curious your latest thoughts on the shift towards single dose vials in terms of kind of timing and the mix of COVID doses that could be single dose maybe as we look into next year or what's contemplated in your guidance?
Eric Green: Yes, just a quick comment. I mean, if you talk about a lot of variability thatâs one area but there is lot of variability and COVID in the last six months. So yes, there is a â if you think about there's a transition, trying to get lower doses per vial and a single dose use obviously, prefilled syringe. That shift is still occurring but itâs not as fast as we anticipated.
Jacob Johnson: Okay, got it. Thanks for taking questions.
Eric Green: Thank you.
Operator: Thank you. I would now like to turn the conference back over to Quintin Lai for closing remarks.
Quintin Lai: Thank you, Gigi. Thank you for joining us on today's conference call. An online archive of the broadcast will be available for 30 days in the Investors section. That concludes todayâs call. Have a nice day.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
