Participants

John Sweeney; Vice President, Investor Relations; West Pharmaceutical Services Inc

Eric Green; Chairman of the Board, President, Chief Executive Officer; West Pharmaceutical Services Inc

Bernard Birkett; Chief Financial and Operations Officer, Senior Vice President; West Pharmaceutical Services Inc

Paul Knight; Analyst; KeyBanc

Larry Solow Solow; Analyst; CJS Securities

Justin Bowers; Analyst; Deutsche Bank

Michael Ryskin; Analyst; Bank of America

David Windley; Analyst; Jefferies

Daniel Markowitz; Analyst; Evercore ISI

Thomas DeBourcy; Analyst; Nephron Research

Doug Schenkel; Analyst; Wolfe Research

Mac Etoch; Analyst; Stephens

Patrick Donnelly; Analyst; Citi

Matt Larew; Analyst; William Blair

Kyle Cruise; Analyst; UBS

Presentation

Operator

Good day, and thank you for standing by. Welcome to the West Pharmaceutical Services first quarter 2025 earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, John Sweeney, Vice President of Investor Relations. Please go ahead.

John Sweeney

Good morning, and welcome to West's first quarter 2025 earnings conference call. We issued our financial results early this morning and the release has been posted in the Investors section of the company's website located at westpharma.com. On the call today, we will review our financial results, provide an update for our business, and present our financial outlook for FY25.
There's a slide presentation that accompanies today's call, and a copy of the presentation is available on the Investor page of West's website. On slide 4, there's a safe harbor statement and statements made by management on the call and in the accompanying presentation contain forward-looking statements from the meaning of the U.S. federal securities laws. 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 statements 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 sales growth, adjusted operating profit, adjusted operating profit margin and adjusted diluted EPS. Limitations and reconciliations 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'll now turn the call over to our CEO, Eric Green. Eric?

Eric Green

Thank you, John, and good morning, everyone. Thanks for joining us today. I'll begin today's remarks with our performance in the first quarter. Then I'll provide some context on the trends we are seeing and share how the company is positioned for long-term growth, followed by Bernard's detailed financial review. I will then wrap up with some closing thoughts.
Starting on slide 5. I'm pleased to report that we delivered a solid start to the year as both revenues and adjusted EPS exceeded our expectations. This was largely driven by solid contributions from GLP-1s and a reduced impact from industry-wide destocking. Our results reflect the West team's operating execution in the areas where we maintain competitive advantages and strong customer relationships. Moving to slide 6. Our Proprietary Products business, which includes HVP components, standard products, and HVP delivery devices was up 0.6% or up 2.4% on an organic basis. In the past five years, HVP components have grown at a CAGR of 13%. And overall, we expect HVP components revenues to grow mid-single digits in 2025, down from our previous expectations of mid- to high single digits, a change driven by mix and timing. A key driver of HVP components growth is our ability to capitalize on the significant opportunities in the GLP-1 market.
Our HVP GLP-1 elastomer business is performing well, growing to about 7% of total revenues in the first quarter. Furthermore, we continue to make progress with our biologics customers solidifying our position as the global leader in this space. There are two parts to our biologics business that I would like to address individually. First, delivery devices is a small portion of the portfolio within Biologics and is the current source of growth as we installed a new production line in Q3 of 2024. However, the growth will reverse in the second half of 2025 when we comp against the significant incentive payments we received in Q3 and Q4 of last year.
The largest portion of the portfolio within biologics is HVP components, and this has a positive trend. These are pacing negative in the first and second quarters of 2025 of function of tail and destocking. We anticipate that this trend will reverse and expect a high single-digit growth rate in the second half of 2025 for biologics HVP components.
On an aggregate basis, we expect biologics growth of low single digits in 2025. We are encouraged with the progress we're making with Annex 1. In Q1, Annex 1 revenues were about 200 basis points of total revenues. This was stronger than our expectation of 100 to 150 basis points for the full year, driven by favorable Q1 timing.
To date, we have approximately 340 Annex 1 projects in various stages with our customers, up from the 280 we mentioned in the last earnings call. Importantly, Annex 1 increases the value proposition of our HVP portfolio with a positive mix shift.
Moving on to a discussion of our HVP delivery devices business on slide 7. The growth in this area was driven by a continued volume ramp in SmartDose in the first quarter of 2025. We have a two-fold strategy for this area of our business. First, we are working hard to drive significant margin improvement as we move forward. This incorporates driving scale for the business, introducing an automated line later in 2025 to early 2026 and we're working to improve the economics around this business in the near term.
Second, we continue to evaluate the best path forward for this business and all options remain on the table. Finally, standard products were relatively flat year over year. Overall, we are seeing improvements in the proprietary products business driven by strength in GLP-1s in line with our expectations in 2025.
In our Contract Manufacturing segment on slide 8, revenue growth in our GLP-1 Auto-Injector business is offsetting the CGM contract exits. We continue to work towards filling the space and onboarding new contracts as we continue to execute on this business. We believe that for the full year, our investments in GLP-1 facilities will continue to deliver low single-digit growth for this segment. Our goal is to continue growing our contract manufacturing business and moving into drug handling, which we believe will be higher margin and comes with lower capital intensity.
In the near term, we are executing on our capital allocation strategy, which involves investing in the overall business to drive future performance, returning capital to shareholders through our stock repurchase program and dividends.
Before I turn the call over to Bernard, I'm sure you have seen the press release this morning regarding the executive leadership changes. I know that Bernard's decision was not made lightly. And we appreciate the note has given the company in order for us to seek a successor and ensure a smooth transition of his goal.
Bernard has been a valuable partner and adviser to me in the entire organization. His contributions and leadership over the past seven years have been instrumental to our success. He will be missed. We have initiated a search process to identify Bernard's successor, and he has committed to be part of the selection process where his insights will be beneficial.
Additionally, I am pleased to highlight an outstanding new addition to our executive leadership team. Shane Campbell is joining us as the Senior Vice President of Chief Proprietary Segment Officer. He comes to us from Carlisle Company, where he served as the Chief Commercial Officer of the Construction Materials business. As an accomplished leader, including a 20-year career at DuPont, Shane brings extensive global management experience in areas of elastomers, polymers, building materials, chemicals and packaging. We look forward to working with him in the vast experience we'll bring to West. I'll now hand the call over to Bernard. Bernard?

Bernard Birkett

Thank you, Eric, and good morning. I appreciate your kind words. As you know, I really enjoyed our partnership working with the West team, and I am proud of what we have been able to achieve.
Now let's review the numbers in more detail. We'll first look at Q1 2025 revenues and profits where we saw a low single-digit increase in organic sales, an increase in adjusted operating profit, and a reduction in diluted EPS compared to the first quarter of 2024.
I will take you through the drivers impacting sales and margin in the quarter as well as some balance sheet takeaways. And finally, we will provide an update to our guidance. First up, Q1.
Our financial results are summarized on slide 9 and the reconciliation of non-U.S. GAAP measures are described in slides 17 to 19. We recorded net sales of $698 million, representing an organic sales increase of 2.1%.
Looking at slide 10. Proprietary products organic net sales increased 2.4% in the quarter. primarily driven by positive sales price slightly offset by mix. High-value products, which made up 73% of proprietary product sales in the quarter increased by low single digits, led by customer demand for self-injection device platforms.
The biologics market unit delivered mid-single digits organic net sales growth, driven by an increase in sales of self-injection device platforms, partially offset by lower sales of FluroTec products. The pharma market unit saw mid-single-digit growth primarily due to an increase in sales of standard products and Westar products, while the generics market unit declined mid-single digits, driven by a decline in sales of standard and FluroTec products.
Our contract manufacturing segment experienced low single-digit net sales growth in the first quarter, primarily driven by an increase in sales in self-injection devices for obesity and diabetes. We recorded $231.9 million in gross profit, which was $1.7 million or 0.7% higher than Q1 of last year. And our gross profit margin of 33.2% was a 10 basis point year-over-year increase.
Our adjusted operating profit margin of 17.9% was an increase of 20 basis points from the same period last year. Finally, adjusted diluted EPS declined 7.1% for Q1. Excluding stock-based compensation tax benefit, EPS improved by 1.4% compared to the same period last year.
Now let's review the drivers in both our revenue and profit performance. On slide 11, we show the contributions to organic sales increase in the quarter. Sales price increases contributed $23.3 million, 3.4 percentage points of growth in the quarter. Offsetting price was a negative volume and mix impact of $9 million as we saw higher sales of self-injection offset by a decline in FluroTec and a foreign currency headwind of approximately $11.7 million.
Looking at margin performance, slide 12 shows our consolidated gross profit margin of 33.2% for Q1 2025, up from 33.1% in Q1 2024. Proprietary products first quarter gross profit margin of 37.3% was 30 basis points higher than the margin achieved in the first quarter of 2024. The key drivers for the increase in proprietary products gross profit margin in addition to sales price or production efficiencies, partially offset by a negative shift in sales mix from HVP components to HVP devices.
Contract manufacturing first quarter gross profit margin of 16.1% was 90 basis points below the margin achieved in the first quarter of 2024, primarily due to increased spend and production inefficiencies. Now let's look at our balance sheet and review how we've done in terms of generating cash for the business.
On slide 13, a we have listed some key cash flow metrics. Operating cash flow was $129.4 million for the three months ended March 2025, growth of $11.2 million compared to the same period last year, a 9.5% increase primarily due to favorable working capital management. Our first quarter 2025 year-to-date capital spending was $71.3 million, $19.3 million lower than the same period last year.
Working capital of approximately $931 million at March 31, 2025, decreased by $56.9 million from December 31, 2024, primarily due to a reduction in our cash balance. Our cash balance at March 31, 2025, $404.2 million was $80.4 million lower than our December 2024 balance. The decrease in cash is primarily due to $134 million of share repurchases and our capital expenditure is offset by cash from operations.
Turning to guidance. Slide 14 provides a high-level summary. We are increasing our full-year 2025 revenue guidance for the impact of foreign currency exchange. We expect net sales in the range of $2.945 billion to $2.975 billion compared to prior guidance of $2.875 billion to $2.905 billion.
There is an estimated full-year 2025 headwind of approximately $5 million based on current foreign exchange rates. We continue to expect organic sales growth to be approximately 2% to 3%, unchanged from prior guidance.
We are increasing our full-year 2025 adjusted diluted EPS guidance to a range of $6.15 to $6.35, up from the previous range of $6 to $6.20. Full-year 2025 adjusted diluted EPS guidance assumes no impact based on current foreign exchange rates compared to an FX headwind of $0.23 from prior guidance. The updated guidance also includes EPS of $0.02 associated with first quarter 2025 tax benefits from stock-based compensation. Our guidance excludes future tax benefits from stock-based compensation.
Here is our assumption about tariffs in our EPS guidance. Based on the tariffs that have been set, we believe the net impact to our business will be $20 million to $25 million for the remaining three quarters of 2025. However, there is a lot of uncertainty here, and we appreciate that this number could be more or less depending on retaliatory tariffs and other factors.
We continue to monitor the situation, and we are utilizing every available mitigation lever to offset this impact. The tariff headwind is more than offset by the strength we saw in the first quarter. Foreign currency improvement and the first quarter stock comp benefit. We are not currently incorporating any estimate for tariff-related pass-through revenues in our guidance at this point.
Moving on to our second-quarter guidance, we anticipate revenue to be in the range of $720 million to $730 million, which translates to approximately 3% to 4% of second quarter organic sales growth. And second quarter adjusted diluted EPS is expected to be in the range of $1.50 to $1.55. Lastly, our 2025 CapEx guidance of $275 million for the year, unchanged from prior guidance. I would now like to turn the call back over to Eric.

Eric Green

Thanks, Bernard. As you have heard today, 2025 is off to a solid start. We look forward to building on this momentum as we move throughout the year. Our team is steadfast in meeting the expectations to drive our growth. To that end, today, we have increased our adjusted diluted EPS guidance for 2025.
You can expect us to continue to capitalize our competitive strengths and make decisions that improve our overall margin. We're laser-focused on returns on invested capital and will have more to share in the coming quarters.
Over the past few months, we were fortunate to have the opportunity to speak with many shareholders and our analysts. There seems to be a general consensus among those who we spoke with on those challenges and opportunities here at West, and we're committed to delivering on those goals and objectives.
Lastly, I would like to thank all the team members at West, who contributed to our successful first quarter. Operator, we're ready to take questions. Thank you.

Question and Answer Session

Operator

(Operator Instructions) Paul Knight, KeyBanc.

Paul Knight

Thank you. Great quarter, Bernard, thanks for everything. We'll miss you a lot. Two questions are, what percent utilization are you assuming in the new site in Dublin, Eric, in your guidance? And then the follow-up is for Bernard, and that is your margin seems to have been a little bit better on the adjusted op margin in 1Q. Are things -- is it business mix or are things getting a little improved delivery devices?

Eric Green

Yeah. Thank you, Paul, for the question. Yes. And specifically in our Dublin site, which is for contract manufacturing, we are initiated ramping up earlier this year. And that will continue throughout the year. So the utilization percentage is quite low as we speak, and that's incorporated into our guidance.
As we mentioned before on that site, it will handle drug handling, and that will be available towards the end of the year, early next year to launch and for commercialization. So low percentage at this point in time, Paul, Bernard?

Bernard Birkett

Yeah, Paul. On the operating margin, we actually saw better efficiencies within our E&PC business compared to what we had originally forecast. So that was a positive. We also saw an improvement in the margin within contract manufacturing versus the forecast that we have for Q1.
So again, very positive there. And then on our SG&A and R&D, the spend was a little bit lighter in Q1, again, versus what was forecast. And we have made some adjustments in those areas to control costs. And then again, some of that was related to timing.
And again, that's updated in the guidance that we've given. So a lot of positives for us around the cost base, and we just need to maintain that as we go through the year.

Operator

Larry Solow, CJS Securities.

Larry Solow Solow

Great. Thank you. I'd echo Paul's comments, Bernard, I wish you best of luck as well. I guess, first question, just on the guidance and the high-value product mid-single-digit growth. Is that purely a function of just the -- you mentioned timing, is that -- and discuss inventory destocking.
Is that primarily a function of that? It does feel like as you run through the year, you -- it sounds like you continue to expect that to track upwards. So is there really any other change outside of the timing? I know you mentioned Annex 1 was a little bit better in Q1 or contributions from that, but that sounds like that might tail off. So I'm just trying to get a little more color just around the high-value product outlook.

Bernard Birkett

Larry, there's a couple of factors impacting that. One is on pricing, we're seeing pricing come in a little bit lower than we originally anticipated. Not overly material, but it's -- we just want to make sure people understand that in the report in the next couple of quarters. And you'll see it a little bit lower.
And we also have a constrained situation in one of our facilities where a customer has switched to the product that they want to take from us. So it's put a lot of demand into one facility where originally we had that demand spread out number across a number of sites.
So we do see a constraint here in the short term. So it's more of a short-term supply issue rather than a demand issue. So what we are actually seeing is increasing demand, but we have to be able to deliver on that. So when Eric called out timing, that's what that relates to.
So we do expect in the second half of the year to see a step-up in HVP components across all our sites. And again, that's embedded in the guidance.

Larry Solow Solow

Okay. And then just second question. You mentioned sort of the impact of -- or the unknown impacts obviously of tariffs and geopolitical. Why not just -- any thoughts on -- obviously, with the reduction in government spending going on and lots of headlines on the impacts of health care. And you mentioned some also on the macroeconomic stuff there in your prepared remarks.
Eric, do you see any real significant impact outside of some of the direct tariff impacts. But just on demand or concerns on demand in your business because of some of the sort of government headwinds going on?

Eric Green

Yeah, Larry, it's a very good question. As we talked about tariffs, we feel we have a good view of where we are today based on the current factors. And as you know, that landscape could change. And we do have several programs that we are implementing and haven't committed to mitigate those expenses such as pass on some of the cost to our customers. and also a fortunate part of our business that we created is network of operations across the globe to be able to support more in the region.
So regional support. Therefore, there's a lot of less cross-border movement of our goods for our customers. While it's not a 100% peer, I think this global network that we've created HVP as an example, a couple of sites in the US, a couple of sites in Europe, one in Singapore, is great leverage to bile to support our customers.
The other factor is macroeconomics, there are other levers that we'll keep an eye on. But right now, we don't see that impacting our volume and demand commitments that we are going to fulfill for our customers throughout the year. We're not seeing patterns change.
In fact, as Bernard talked about a little bit earlier, the one change we're seeing is an increase. We're seeing a visible increase in demand as we go through this year, which is a positive sign, which is consistent with what we talked about in the last quarter.

Operator

Justin Bowers, Deutsche Bank.

Justin Bowers

I just wanted to follow up on the last question related to timing and sourcing. So it sounds like that's related to HVP. I just want to confirm that. And then part two of that would be -- would the increase in demand and the timing shift is -- should we defer that some of that demand spills over into 2026?

Eric Green

Yeah. So you're correct, Justin, that very good question. The demand that we're talking about right now, the constraint is in one of our HVP plants that we're working through those constraints as we speak to be able to support our customers. But with the lens that we have today, we would just want to make sure we called that out.
There are a number of initiatives to address that. And as the demand continues to climb, there might be some that goes into 2026, but we'll keep you updated as we go throughout the year.

Justin Bowers

Okay. And then just a quick follow-up on the tariffs. Is that mostly -- how much of that is impact us from component sourcing versus maybe something that's going cross border in terms of like the finished good.
And then the follow-up to that is, does that all drop through? Or is there any -- should we just assume like kind of like the overall tax like the effective tax rate or is there any tax offset there?

Bernard Birkett

Sorry, I couldn't actually hear the question very much.

John Sweeney

Just I think I have it. You're asking about tariffs and you're saying, is it in finished goods? Or is it in the sourcing? And it's actually in a little bit of both. And then you're also, I think, asking about the proposed US manufacturing tax rate of 15% and if that's something that could potentially be an offset. Is that correct?

Justin Bowers

That's right.

Eric Green

Yeah. So we have -- as we've looked at the tariffs, we've looked at it from multiple different perspectives. One is on components, as John said. The second is on other sourcing where our suppliers would pick up the tariff, but then potentially pass it on to us. So we've embedded estimates of that into our guidance. We're also looking at where we, on the ankle terms, where we ship product to and is -- we're the importer do we pick up the tariff costs at that point.
Again, all of those elements are built into our guide the -- but based on what we know today, again, it's a very fluid situation. There are various mitigations that we're actually working on at this point to reduce that number over time. But again, we want to see those materialize before we call those out and say what they are. So we're giving you the clearest picture that we have today.
And then when we look at any future tax benefits that could come in the US, yes, if the tax rate lowers, it is a benefit. But again, we have to wait and see when and how that materializes.

Operator

Michael Ryskin, Bank of America.

Michael Ryskin

Great. quick follow-up question. I thought to an earlier question. I think you said that one of the factors was that price came in a little bit lower than expect. I want to make sure I heard that correctly because I think you did 3.4% price contribution in the quarter for the business overall. And that was a little bit more than we thought it would be. So just if you could clarify your comments on price and sort of where it was a little bit better ?

Bernard Birkett

Michael, when we look at it for the year, and we expect it to be a little bit lighter than originally estimated.

Michael Ryskin

Okay. Okay. But in the quarter, did it come in also later?

John Sweeney

The quarter we were happy about it, it's more of a forward-looking.

Michael Ryskin

Okay. Okay. All right. And then just the other question sort of related to tariffs and your customer behavior. One of the things we're thinking about is that some of your customers may be looking to speed up some manufacturing or maybe accelerate and plans to try to get ahead of tariffs on their products on pharmaceutical products as that comes in during the year.
There are some reports of elevated levels of manufacturing or product shipments in the first quarter. Did you see any of that? Do you see any weird timing of maybe things pulling forward a little bit or customers moving around timing plans for the year from their perspective?

Eric Green

No, Michael, that's a very good question. For us, since most of our transactions our manufacturing processes are made to order, the answer is no. We didn't see any changes to the demand profile and the order cadence that we're seeing throughout the balance of the year. So we're seeing -- at this point in time, we're not seeing any adjustments or any change of behaviors due to these tariffs.
And then again, just to reiterate, a lot of our manufacturing sites are not 100%, but the majority of it is co-located in the geographies where our customers reside where they want to take shipments. So therefore, that's a net benefit. So we're not seeing the change of behaviors at this point in time or their demand profiles of their own products.

Operator

David Windley, Jefferies.

David Windley

And congrats to both Bernard and Mr. Campbell going out and coming in. The first question I have is around utilization, I guess, or margin trade-off, so to speak. When I look at your year-over-year comparisons, P&L comparisons, they are surprisingly similar revenue, gross margin, operating margin, basically the EPS difference comes down to SBC tax benefit differences.
And yet within the P&L, I think we know that as you're calling out, very, very high-margin FluroTec is down and low-margin self-injection devices is driving the growth. So you have some offsets in there and otherwise that are helping to mitigate that mix trade-off.
And I wondered if you could explore or better elucidate what some of those things are. And in that, maybe Annex 1 is potentially one of them? And I wondered on that, if you could comment what the typical upgrade or step-up in economics is that we should think about when a client goes through one of these Annex 1 projects and moves forward to a change in their component sourcing?

Bernard Birkett

Yes, Dave, I'll take that to start with. On Annex 1, it's not having a very material impact at the moment. It is growing the -- as Eric said, the level of interest is increasing. What we would typically see if we're moving to Annex 1, you're moving from standard type product margin to HVP margin, probably a little bit north of our corporate average.
So what I would say -- so it is a pretty significant step up. And then that can vary depending on how far customers want to move up that HVP curve. But really, when we have been looking at our business and managing the P&L as we've been moving into 2025 and looking at the growth challenges that we have been facing. And trying to get back to that LRP, there's been a lot of focus on utilization and efficiencies within our manufacturing operations.
We're starting to see positivity there. I called it out earlier, I think when the question was asked about operating margin improvement, that is one of the key drivers. We're also seeing it across our contract manufacturing business and also looking at our spend within OpEx. We're seeing really a lot of control around research and development and SG&A. So it's really managing our P&L on an active basis to make sure that we're at least maintaining the margin in this period as we transition back to the LRP.

David Windley

Got it. My follow-up, Eric, is for you. The couple of announcements today from a management standpoint, it seems like you're in the process of perhaps rebuilding your management team on a broader basis. There was an 8-K about a Chief Commercial Officer departure, and I think some others. So I wondered if you could comment on where that stands and how you're thinking about the leadership team that you need to build for the next, say, five years of your company's growth?

Eric Green

Yes, David, thanks for the question. I've been fortunate to have a 10-year career here at West, been in work with some phenomenal people. And there's been a lot of tenure with the leadership team. And there does come times where individuals have made decisions to do other next steps of their careers.
And for example, Bernard has been a phenomenal partner, and I've said that many of times. But this is an opportunity at this point to continue to -- as opportunities present themselves as bring new leaders into the organization. So I wouldn't characterize it as a change.
I would just say there is a natural evolution of leadership over long periods of time. And I think that's what you're seeing. But again, very, very appreciative of the partnerships we've had over the years. And as we move forward, we'll continue to bring leaders in that have seen where we want to go and be part of that journey.

Operator

Daniel Markowitz, Evercore ISI.

Daniel Markowitz

So the first one is on Annex 1, I think that's a really exciting part of the bull case for investors, and I appreciate all the disclosures there. They're very helpful. There was better performance in 1Q, and this is now the second quarter in a row with double-digit percent sequential project growth.
Can you discuss the potential upside you could continue to see from Annex 1 over the coming quarters and years? And if there are any customer anecdotes that would suggest we could see more upside?

Eric Green

Thank you for the question. Very good question. I mean we're obviously excited about the prospects of Annex 1. As you know, it's an element of a regulatory change that fits well with the thesis of West particularly on the HVP portfolio. This is what we've been driving for a number of years. And that's been giving us great confidence of future growth and margin expansion. That gives us that mix shift effect that we're looking for.
You're right, there has been an increase of number of projects that we have taken on since the last call. We anticipate that to continue to grow. I won't articulate the numbers we're targeting. And Bernard was right to call out earlier. It's not a significant number now. So the way I would characterize this is in two-fold.
One is, one customer is not just one project, it could be multiple projects. And it also means that could be large and small. But the general thesis of moving from a lower margin, lower ASP to a higher ASP, higher margin because these services and capabilities we're providing and leveraging the existing assets we have in place for HVP processing is a perfect fit of the growth algorithm for long term. And it's not just a one- or two-year event, but more long term.
And the second area I'll just comment on is there are -- it tends to be more around the pharma in the generic space than biologics. As biologics, when they enter into the market the new molecule, we tend to be already in the mid- to high end of our HVP spectrum.
So that's how I would kind of characterize it. But it is long term, initial traction as looks strong, in line with our expectations. And the team is very much focused on executing this initiative for a number of years ahead.

Operator

Thomas DeBourcy, Nephron Research.

Thomas DeBourcy

So I just had a question first on your transition in contract manufacturing as CGM revenue rolls off at GLP-1 contracts. You build that pipeline. And so I was curious just in terms of the level of demand and your ability to capitalize on that opportunity and actually feel that supply that, I guess, left open by the previous CGM manufacturing.

Eric Green

Yeah. No, thank you for the question. And I would say that since we've had some discussions in the last couple of months, we continue to see interest with a number of customers to identify new projects -- long-term projects. Remember, the agreements we tend to sign within contract manufacturing are seven-plus type years. These are very long contracts with clear sharing of capital deployment between our customers and ourselves as we move forward with these business arrangements.
We have transitioned more of our focus towards the delivery devices like auto injectors and pens and also moving downstream with drug handling, which will take time. But it has higher margins and lower capital investments.
We have engaged with a number of customers, and we're excited about the prospects we have in hand. So not just leverage the space that's going to be vacant when the CGM has moved out, but also even future growth. So I think we're positioned well right now. 2025, we still have ramp-up of GLP-1s and some more ramp-up in Rapids from a utilization perspective.
As I mentioned to Paul's question earlier, in Dublin. We have -- we're basically starting earlier this year of manufacturing commercial product, which will take us throughout the year, and then move it into drug handling. And that's pretty typical. It's 12 to 18 months to get to utilization levels that we're very comfortable with, that is the intended installed capacity.
So that gives you kind of a framework where we are with CM. But yes, a lot of interest with our customers, and we will continue to report out as we get more clarity and signed agreements over the next couple of quarters.

Thomas DeBourcy

And just as a follow-up question on SmartDose. I know in the second quarter, you mentioned all options on the table. I know SmartDose margins currently are below typical HVP margins. And so in terms of, I guess, your valuation of options, do you see a pathway for SmartDose to become close to HVP component margins? Or do you just view that maybe as a separate business or you would need a significant increase in the volume in order to have similar margins? That does it for me.

Eric Green

Yeah. No, thanks for the question. Our view hasn't changed on SmartDose. We will as a two-pronged approach that we have our team that's running that business is focused on driving cost out of that production process. And they're making good strides. However, it really does require going from a manual two-line process to fully automate it.
As you can imagine, the yield, the output productivity and just the cost structure does change. That will not be validated and commercialized until the end of this year going into early next year, it will take time to ramp. So that's the first lever and focus that we have for the team and the organization. While the demand continues to increase, we'll build support our customer.
And secondly, as we have -- as discussed in the last call, we have been reviewing options on what's the best path forward with this product within our portfolio. We do have a belief where we should be going. But at this time, I'm just going to leave it as that. We'll just say that all options on the table to make sure that the best path forward is the best result for our customers, but also for our shareholders and for our team.

Operator

Doug Schenkel with Wolfe Research.

Doug Schenkel

I just want to, I guess, take the opportunity to ask a few follow-ups or just maybe do some cleanup. So following up on the SmartDose question, could you share anything in terms of what are the -- what's the status of discussions pursuant to getting the price that I think you hoped to get.
Essentially, I think you would hope to turn those incentive payments into durable pricing that obviously hasn't happened yet. So what's the status of those discussions? I just want to confirm there's nothing in guidance for pricing benefits related to SmartDose. So that's the first topic.
The second follow-up I want to ask is on tariffs. I just want to confirm there's no pricing or tariff surcharge benefit factored into your new guidance assumptions. And you talked about working towards further mitigation efforts. Those, I think, could be amongst those. I just want to make sure those aren't in guidance right now.
And then lastly, on operating margin guidance for the year, which I don't think you provided, which is normal. And sorry if I missed that, but it looks like mathematically, you're targeting around 19%. I want to make sure I'm in the right neighborhood. And if so, then looking ahead, how far away sitting here today? Are you from getting back to that? I think it's 23% LRP target.

Bernard Birkett

I'll try and take those in sequence. So from the SmartDose, we have not embedded anything in our guidance related to price get at this point. So if there's anything there, that's upside. And then on the tariffs, we've given a net figure.
There's a lot of mitigation work that we're doing around customers and looking at passing through some of those tariff charges, again, not embedded in the guidance at this point until we actually get an agreement on that. So we're not overextending ourselves.
We're giving you the clearest picture we can. And again, they appreciate it's a moving target at the moment given what's happening. So essentially, we're trying to be relatively conservative around the tariff approach. Operating margin, we typically don't guide, but I don't think you're a million miles away based on the assumption that you made.
And then getting back to the higher operating margin, I think you called out 23%. For us to get back to that margin, we need to be at LRP. And we would typically be targeting a similar mix profile compared to what we experienced, I would think in the early part of destocking in the 2023 time frame. And that will get us back to that margin.
So it's really getting back to LRP, seen biologics getting back to that double-digit growth rate. We've called out in the past, and obviously, both the Annex 1 and mix shift and GLP-1s. And we are starting to see traction in some of those areas. As we've said, we believe it's going to take some time to transition back to LRP. It's not going to be overnight or a hockey stick based on what we see today.

Operator

Mac Etoch, Stephens.

Mac Etoch

Just a few, but I appreciate the color around. It seems to be a little bit of outside of what the Street was modeling and what I was expecting as well. So maybe can you just discuss what your -- how the year is progressing as compared to your internal expectations thus far? And yeah, we'll go from there.

Eric Green

Yes, Mac, thanks for the question. The year is progressing as we anticipated. The one area that we did call out was around the HVP products components, and that was really what Bernard discussed earlier around a little bit of lightness in the price.
And also, we're working through a shifts in demand into one particular plant, but that will be -- it's a near term that we will work through. But in general, we're seeing the trends that we anticipated for the rest of the year.
I would say -- to be clear on biologics, as I mentioned, there's two elements to that. What you're going to see, especially with HVP, is that in the back half of the year, the reason why we're calling out strong high single digits on HVP components is because that's when we see the biologics continue to escalate based on the demand that we're seeing with our customers. And then the offset of that a little bit is in the biologics space is around this SmartDose, we called out were the incentives that we had in Q2 and Q3 of last year --

Bernard Birkett

Q3 and Q4.

Eric Green

Q3 and Q4. I think don't plan to be repeating at the end of this year. So that kind of gives you a perspective, but really consistent as we discussed a couple of months ago.

Mac Etoch

Got it. And given the costs associated with the restructuring, it appears you may have already accounted this in the investments in R&D and SG&A with the original guidance. But is it fair to assume these costs will not reoccur and secondly, at all to the restructuring entail?

Bernard Birkett

Yes, because like once the costs are out, they're not going to reoccur. And then we have some various smaller levels of consolidation at some of our sites. Most of that restructuring work is done at this point. And the cost savings come from that are embedded in the guidance.

Operator

Patrick Donnelly, Citi.

Patrick Donnelly

Maybe another one on the high-value components piece. Certainly appreciate that shift in demand to the one plan you talked about. Just curious in terms of the ramp, what are you guys seeing on the order front? Just wondering on the visibility, if you're continuing to see the orders improve, destocking lift, and just the confidence in that second half ramp given again some of the stuff seems temporary. Just wanted to talk through the order trends there.

Eric Green

Yeah, Patrick, very good question. Yes, to both of those elements. The destocking, it's consistent with what we anticipated throughout the year. Obviously, pharma has subsided. We're comfortable in the pharma.
In the biologics, we commented that a while back, there will be -- stock can continue in the first part of 2025. But as I just mentioned earlier that we'll see a ramp up in the second half and the demand profile based on orders that we're receiving supports that statement.
And then generics will persist throughout 2025, but again, no change to what we discussed before on the destocking side. So the order patterns are -- we're feeling good about the demand. And it's consistent to what we anticipated and guided that it will be a sequential improvement as we go throughout the year. And then I'm not going to give guidance going forward, but it's a favorable view that we see today on the order patterns.

Patrick Donnelly

Okay. That's helpful. And then maybe one for Bernard, just following up on Doug's question on the pricing. It sounds like you guys are working with customers to pass through some of the pricing on the tariff piece. Can you talk about how those conversations are going?
And then it doesn't sound like it's embedded in the guide, at least on the revenue side. So what would the impact be if you did pass along some of this pricing, it feels like maybe the offset is built into the P&L, but not the revenue. I just want to make sure we're understanding that appropriately.

Bernard Birkett

Yeah, the offsets, there are additional offsets that we are working on that are not embedded in the P&L today. At this point, given that it's a very fluid situation, I'm not prepared really to give a number on that until we get a clear line of sight as to what that would be an agreement with our customers.
What I would say is based on how we've been able to guide tariffs and assess it, we believe there are mitigation factors on a number of different levels that we can work through over the next number of months to help mitigate some of that number. And on our Q2 call, we'll give you a greater level of clarity around that when we have it ourselves.

Operator

Matt Larew, William Blair.

Matt Larew

The first is a follow-up to your progress on the automated line. Obviously, that's something you've been speaking about and working towards for the last couple of years. Eric, at this point, do you have enough pieces in place that made enough progress that the timeline you've cited that you feel confident won't slip? Or are there sort of additional hurdles remaining that potentially could put that timeline at risk?

Eric Green

Yeah, Matt, good question. No. We're on schedule in line with the schedule that we communicated towards this end of the year, we'll have validation and start moving towards commercialization. So pleased with the progress more recently.
You're right. A couple of years ago, we had some delays, but we are in a good position today as we move towards the schedule for the end of the year.

Matt Larew

Okay. And then the second one is kind of a broader question around GLPs and long-term growth. Obviously, as you are emerging from this period of destocking and hopefully getting back to longer-term growth. Relative to perhaps a couple of years ago, GLP is as a percentage of revenue. And I think you just on the component side, not even factored in contract manufacturing.
It's a bigger piece of the revenue book. And maybe 18 months ago, if consensus would have been that would have been growth-accretive. And perhaps with Eli Lilly oral readout and others coming, maybe there's some debate as to whether it might be growth-dilutive.
So just curious how you're thinking about GLP growth in the future. What you're hearing from customers, including those that may have molecules delivered both using your products and potentially oral? And then beyond GLPs, thinking more broadly in other products in the category play and whether you still feel confident in the longer-term growth plan you've outlined?

Eric Green

Yeah, Matt, that's a great question. And I know there's some recent news that stimulated more conversations about oral. But let me step back a moment just simply to say the benefit that -- the position we are in the market right now is our HVP portfolio and how we're able to support multiple customers, a very diverse portfolio of customers, very diverse portfolio of which type of molecules we're touching in regards to our primary containment and delivery devices.
So while GLP-1 is a fast-growing area, we still are excited about other areas of the business too as we continue to see new drug launches. And I'm very pleased with the results of the Q1 with the approvals that we've seen and what we're participating on.
So to answer your question directly, though, in the GLP-1s, we have been in discussions with our customers for a period -- a long period of time in regards to oral versus injectables. And our position, I'd rather have our customers talk about how they see the market shifting. But when we modeled our investments when we modeled our forecast, we took that in consideration of these various inputs of the potential impact of orals.
We do still believe majority of the delivery of GLP-1s in the future will continue to be injectables. However, there will be a space at one day in regards to oral. And I would say our customers are in a better position to say that.
But we're positioned well what's really good about the GLP-1 growth for us is the assets we put in for COVID are fungible for GLP-1s. If you think about HVP processing the washing and sterilization and et cetera, in our HVP plants. So we're leveraging existing assets. And again, as I said, we modeled our future growth based on some assumptions of a shared market between injectables and oral.

Operator

Kyle Cruise, UBS.

Kyle Cruise

With regards to the updated adjusted EPS guide, if you walk through the FX adjustment, tax benefit and the headwind, it seems like core EPS was increased by $0.15. Is that a result of the restructuring efforts? And then secondly, could you talk to the incremental opportunity you see from drug handling and attempt to size it?

Bernard Birkett

On the guidance, not specifically around restructuring. We did see an improvement in efficiencies and profitability across a number of our businesses, our proprietary business. We saw improvements in contract manufacturing. So the beat was really operationally driven. And so we passed on a certain amount of that beat and then there's an element regarding timing of some spend, particularly around R&D and SG&A that we expect to move into future quarters. But really, it's business performance rather than restructuring.

Eric Green

I'll address your question in regards to drug handling. It's an exciting opportunity for us. It's very early. We do have a few customers in a smaller scale that we're working on adopting the technology and start that capability. We do have it in our Dublin facility, we have a significant portion of that asset will be to support drug handling. So it's early for us.
But what's exciting about for us West is just a continuum of downstream. And it just shows you the confidence of our existing customers have with us. And that just providing the components or the devices for their drug molecules, but also now handling -- some of the drug handling and then going into the market. So it's early. We'll update you as we go forward.
We're excited about the prospect. It's leveraging our competencies, it's leveraging our existing customers. And it's just a continuum of what we do today in the marketplace.

Operator

Thank you I'm showing no further questions at this time. I would now like to turn it back to John Sweeney for closing remarks.

John Sweeney

Thank you so much for joining us today on the call. An online archive of the broadcast is available on our website at westpharma.com in the Investor Relations section. Additionally, you can access a replay for 30 days following the presentation by using the dial-in numbers and the conference ID provided at the end of today's earnings release. That concludes the call. Thank you. Have a great day.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.