I could ask, can we close the door in the back, please? Great.
Good morning, everybody. Thank you for joining us for Jefferies' 2024 London Healthcare Conference. We've had an overwhelming response and interest to the conference this year, and so really appreciate your interest and attendance. And for the folks that are listening either webcast or replay, it's snowing here in London, so we got a nice weather welcome this morning with the snow, but it's a nice day inside at the Waldorf. So, I'm Dave Windley with Jefferies Healthcare Equity Research based in the States, actually in Nashville, Tennessee, and cover the pharma services space, CROs, and contract manufacturing, supply chain related for the biopharma industry. In that space, we have joining us Stevanato Group and the company's Chairman and Chief Executive Officer, Franco Stevanato, and the company's Senior Vice President of IR and Chief Communications Officer, recently named, I understand, Lisa. So, congratulations and welcome.
We appreciate your supporting our conference and being here to talk to us about Stevanato and also mention that we took a small group of folks to Piombino Dese to the headquarters yesterday, and I can vouch for you that it is still there. It is there and operating full speed, so Franco, again, thank you for being here. I wanted to start off with, let's start kind of big picture and then we'll work down into some of the details. Your long-range targets are aimed at low double-digit revenue growth and 30% EBITDA by 2027. Maybe talk to us about, you know, we're in for the industry broadly, we're in kind of a lull period with destocking and the like. Talk about what needs to happen to accelerate the business toward those targets.
Okay. Thank you, Dave, for the question. Thank you to you at Jefferies for hosting us to your, your event. We are really honored and proud to be here. So, for those who don't know Stevanato, Stevanato Group is a company that has more than 75 years of history, was founded in 1949. In particular, in the last 20 years, we focus on the pharmaceutical industry. Today, Stevanato Group is present through close to 20 plants in nine different countries, and we are really focused to serve our top global key account, in particular in biologics. In 2020, we decided, together with the board of directors, to list the company on the New York Stock Exchange in order to raise money and to fulfill this growing demand that we are having together with our top bio customer.
In particular, today, we serve the most important biologic customer, and we are deeply involved together with them to build the supply chain for the next year on the different therapeutic drugs, in particular on biosimilar, on biologic like monoclonal antibody, like a GLP-1, and all, in particular, the new molecules that our customers are doing. This is the reason why we have decided in 2021 to launch the construction of the big greenfield plants in Fishers, Indiana and to more than double our capacity in Europe, in particular with the plants in Latina, south of Rome. Why? Because our customers want to share with us in advance, many years before, what are the future trends in order to secure the supply chain.
Today, in order to answer to your question, David, we are deeply involved in the construction and building up heavily capacity on syringes, Nexa, for everything that is related to chronic disease, where there is the adoption of the autoinjector. We are deeply building capacity on cartridges ready to fill. We are building capacity for several hundred million cartridges ready to fill for our biologic customers. And also, we are in building capacity what we call ALBA technology on syringes for what are related for certain potent drugs in biologics. On the top of this, we continue to invest in vial ready to fill because the market is growing and we are already validated.
We are ahead of the FDA for most of the molecules our customers, and this is the reason why once all this heavy cycle of investment that we are doing in Fishers, where we are investing approximately EUR 500 million in building capacity for our customers, and in Europe, we are investing more than several hundred million EUR in order to build capacity for our customers. Once we are, we will, we will scale up. We are already in the process of scaling up capacity. We are more than confident to deliver this double-digit growth at 30% of EBITDA because all the investment that we are doing are all in direction of what we call high-value solutions program, where we have an estimation of target of gross margin between 40%-70%. So in order to pass the message, the market, the demand on biologics is robust.
We have a big long-term commitment with our historical customer. For example, on GLP-1, our main insulin customer that we serve since more than 30 years, they involve us in a huge program for this type of new therapeutics macro driver. But on the top of this, we are deeply involved in many other programs with our U.S. customers. The reason why we decided to build these greenfield plants in Fishers is because our main American customer, they have asked already in 2020 to Stevanato to become domestic.
Dave, just to add additional, one additional comment to that. I think as everyone is aware, destocking has been a challenge for the industry across the board. And so as we think about the path to 2027, we obviously think that vial destocking will be in the rearview mirror, and obviously we'll continue to leverage and gain scale from our new facilities in both Fishers and Latina. And so obviously all underpinned by, as Franco noted, the growing biologic market, aging populations, and big, macro trends that we see. So as we think about that path, we believe, and we have big confidence in the fact that, we can achieve that double-digit growth and hit that adjusted EBITDA target in 2027.
Great. That's a good segue into my next question. So to get into a little detail, let's talk about the destocking status. It seems like that destocking has been not exclusively, but more heavily centered around vials. And you've talked about bulk vials coming back a little sooner than high-value vials. So maybe talk about why that, you know, why the bulk before high-value, and then where, how would you describe the status of that recovery?
Today, the issue of the destocking we are facing only on vial bulk and vial ready-to-fill. And everything is strictly connected to when the customers start to build the inventory for COVID. Outbreak of COVID in 2020, in the first six months of 2020, in particular the second part of 2020, customers start to raise a lot of inventory for COVID potential vaccine was 5 mL at the beginning, and then they moved down to 2 mL. And then also for security, all our customers, they build inventory. Usually we have done estimation they build more than one year inventory. Just to give some number, the vial market have, based on our estimation, an annual consumption of 13 billion vial consumption per year. And the bulk market is growing 2% per year.
The EZ- fill market is growing approximately in double digit. Of these 13 billion, more around 95% is bulk configuration, 5% approximately we think that is via ready to fill. At a certain point, customer in 2023, they dropped the demand. So they stopped to order vial. They reduced drastically the demand. In fact, if you look at Stevanato in 2024, we have minus 38% on the demand for vial. Just for simple reason that customer, instead to make a new order, they want really to clean all the inventory. Where we are today, we see that in the second part of 2024, small and mid-sized customer, more located in Latin America and Asia and certain parts of Europe, they are going back to normalize order.
More international customer, for our international customer, the top global key account that they have many therapeutic drugs that are present with many plants all around the world and have huge facility, or most of the time they use CMO, they are still soft on demand in 2024, but they are starting to reactivate more normal volumes, more in Q1, Q2 next year. So all overall, we see positive signal that the market is recovering. We have also, we still have some cautious optimism that is recovering, but we are not back on track in 2025. So this is more or less the positive trend that we see on the vial. On the vial. What I would like to reassure to everybody that vial market is still one of the best primary packaging configurations that the pharma company is using.
It's moving from 2 mL up to 30 mL to 50 mL. Where syringes is more isolated to from 0.5 to 3 mL and cartridges from 1 mL to 3 mL, maximum 5 mL. And it's a huge market. And so it's not a problem if the vial market will be back, it's when the vial market is going to be back. So today we are confident that in 2025 it will be the year of normalization because after two years the customer has started to do the stocking activity.
To your question, David, about vial ready to fill, vial ready to fill, most of the customer, also if they see the benefit in using the vial ready to fill because all the customer that have purchased the new flexible line that is able to fill vial ready to fill, and today, just for your information, there are approximately 350 lines installed in all the market that are able to perform vial ready to fill. Today the customer, before starting to order vial ready to fill, they are just cleaning their stock. They have a few tens of millions EUR of bulk vial in the stock before to place new order on vial ready to fill, they want to use this bulk vial.
Got it. And so just to clarify on your point about the progression in 2025, so did I understand correctly that you're saying you see orders building for the first half of 2025 from your international customers, kind of getting back to normal, and so the progress toward what you might call a normal environment or getting back toward your long-range double-digit target would be something that would build through the course of 2025? Is that the right way, so not starting at the beginning of 2025, but.
We see on vial, we are starting to see a recovery on normalization that, for based on our estimation, our exchange with our customer is going to require maybe still Q1 or Q2 of next year. For the rest of the demand that we have in syringes, we have on cartridges, in other products, the demand is robust. So this is the reason why we see more confident to say double-digit growth; it will be from 2026 and beyond. We have a cautious optimism that overall the demand is robust with our customer, but on vial, the recovery is not back from day one of 2025. We need maybe a few quarters more.
Understood, so it's again a good transition to a discussion about the momentum toward high value. You mentioned the 350 lines. I think when we discussed we talked yesterday that you had assessed maybe 50 lines have been installed in the last year or more recently.
In the last two years.
Yeah, last two years that are capable of handling ready-to-fill. So maybe talk about the momentum toward high-value and the alliance that you've created and what impact does that have on driving that momentum?
Today we see that all overall there is a positive trend from the market based on many, many, many input. Syringes market is already established, ready to fill. More than 95% of the market of syringes is ready to fill configuration. Even more, the customer is upgrading their requirement, is moving to Nexa because more and more they want, they use high-speed sophisticated line, and more and more the syringe is going to be inserted in autoinjector. So they must have a very special type of syringe with a particular siliconization system. On vial, we see more and more customer, when they purchase the new high-speed line, is moving directly in the direction of easy fill or combi line. To say that the, like I mentioned to you, the vial market is much bigger than the syringes market.
Syringes market is between EUR 4-5 billion consumption per year, growing double-digit. Vial market is more than EUR 13 billion. And there are already existing capacity installed on bulk. But customer, every time that is changing the new line, is going in this direction. This information we are exchanging through the machine builder and external opinion leader. Just to make an example, today approximately 20% of the established bulk capacity line that are in the pharma company, they have an average age between 10-20 years. As you already know, every time that the customer, after a certain number of years, is going to renew their process, they go directly in this direction. Why? Because of the new technologies, the quality requirement, the regulatory requirement also are going to improve more and more.
This is the reason why Stevanato, together with our big partner on the pharmaceutical industry, we build also an alliance in order to better explain, to better communicate into the market which are the existing capability in thermo process and thermo product that the market can easily adapt in order also to be in line with this, what we call, for example, Annex 1. We have launched this alliance in the last exhibition in Europe more than one month ago. We received very positive feedback. The result is that today many pharma companies and many other partners of the supply chain of the biologic space, they want to be partners of this alliance in order to do what? To communicate that this must be the standard in order to enhance better product and better process for the pharma company.
It's exactly the direction that is quite normal in the industry.
Let's talk on that topic. So as your clients are willing to move in some cases maybe push to move by regulation toward higher quality, easy fill or ready to use type products, you're building this capacity. You talked about that at the top, to support that. Let's go into a little more detail about the status of your ramp in Fishers. Remind us, I believe you're spending about, you said EUR 500 million. I believe that half a billion, we should think of that as translating to about $500 million in revenue capacity. So talk about the status of your ramp there and the opportunity.
I said from the last point, we expect at the end of 2028 to generate EUR 500 million revenue. That is exactly approximately the investment that we have done in our Stevanato Group. Our ratio is one euro CapEx has to correspond to one euro revenue for what is related to the high-value product. The plants in Fishers, when we decided to do together with the board in 2021 the investment, the target was to put syringes there and also to do vials ready-to-fill. Then fortunately, because of the increase in demand of the opportunity, we increased the scope of these plants. We have done also the BARDA agreement. We put also some other capacity for vials in order really to secure some capacity for the U.S. market.
But on the top of this, we have further increased our capacity on syringes, syringe with bypass in order really to fulfill the full commitment of the U.S. market. Where we are today, today we are already producing, delivering commercial revenue to our customer. We have one high-speed line installed. We have installed in the second one. The third one is already coming. And we are in an intense program of internal validation, audit with the customer, and validation to the customer. The concept is to replicate the same journey that we have done with our greenfield plants, brownfield plants in Latina last year where to just for example in the Q3 of 2024, this brownfield plant in Latina has turned positive in terms of gross profit because when you start to take off with the revenue, immediately you spike in terms of revenue marginality.
And Dave, just to give a little bit more context around Fishers. So validations will continue throughout 2025 and into early 2026, including the continued installation of additional manufacturing lines. And so from that point thereafter, we would anticipate, as Franco noted, hitting that full revenue run rate sometime in probably mid to late 2028.
Okay. I think so, on that, because I think this gets into, you know, some detail that's important to understand. Fishers is a very large plant. I believe you're bringing on capacity in modules over several years. When you talk about validations continuing, I think you said into 2025 and 2026, will the full building be built out by 2026 or is that validations on what's already been built? Does that make sense?
To look, today, at the end of the game, we have to transfer, let's say, approximately 30 big customers, and we have to add the different competence in terms of vial syringes and also autoinjector. This mix of activity, it will include that I think in 2025, 2026, part of 2026, 2027 will be in this activity of validation. It's also true that one thing is to install a very big high-speed line that maybe this is required a few months of validation from us. One thing is maybe to perform an audit and validation by the customer when the line is already installed. This can be the setup change of the line that can require a few weeks plus the sampling. So this we can move from months of validation to weeks or maybe one smaller period when we do validation with the customer.
The trend had to be, had to improve step by step in the next years.
Okay. And then you mentioned, as you said on the third quarter call, that Latina had turned profitable. What, when should we consider the start of Latina to have been? So how, in other words, how long did it take for Latina to get to that point of profitability?
It's three to four quarters.
It was a little bit longer than that. So, it was probably about seven quarters. I'll go back and double-check on that specifically. But it's important to remember that the timing of break-even will also be depending on the size and the type of the investment. And so Latina, as an example, was really a brownfield and a much smaller investment. So the phasing is a little bit different compared to a Fishers, which is a greenfield investment considerably larger. And so as we think about the trajectory over the next five years, we should anticipate that revenue will grow over time as we continue to validate additional lines, additional customers, and bring on additional capacity.
Got it. Thank you for that. So moving maybe to margin, thinking a little bit near term, your guidance for the full year of 2024, which we obviously only have one quarter left, implies a fairly substantial EBITDA margin pickup in the fourth quarter sequentially. Can you talk about the drivers of that sequential change and your confidence with being on track to hit that?
Yes. We have a robust demand, David, on high-value product that we have to deliver invoice to our customer in the. We are just doing now until the end of the year. The engineering, he started to have a program to invoice a certain number of lines in order to generate proper revenue. And also we have the greenfield plant, the brownfield plants in Latina that is continuing to generate revenue. So this quarter have a positive indication that is going to be better than the first part of this, the 2024.
Okay. And then, we mentioned engineering there. So it's a good segue to finish here maybe with the last question on engineering. The business has tracked through some, I think, throughput challenges early on that seem to be a supply chain challenge, perhaps with silicon chips. I think you've also been looking at areas to drive better productivity in that business. So talk about some of the restructuring that you're doing in the engineering business to bring it back to the targets that you expect out of that business.
Correct. The engineering business that from 2021 to today more than doubled the revenue and the number of people inside of this division, but even more also the complexity of the line change because we received a new order from our customer, what we call high-speed line. In practically what we have done, we have tried to approach this increasing complexity, reinforcing the governance of the people. We have the Chief Operating Officer that is taking care about this division. And also we have the head of this division that we moved to Asia is back on track to run the business. And practically what we are doing, we are resizing the plants in order to prepare for the complexity.
This company received a big number of orders in the last years, and we really faced the complexity to deliver in time to all, all these customers. But even more in particular, when we received this new complex order, we faced some delay. Today we reviewed the governance, but even more we reinforced the project management from each product line in order to be in track and to deliver on time. We count that in Q4, Q1, and Q2 of next year to be back to normalize gross marginality.
Okay, and Franco, your Ompi business or glass business segment is a big customer of the engineering business. Has the engineering business been able to deliver the lines that you need in the glass segment on time, you know, kind of on time, on budget to support the ramp of your production, you know, in your new facilities?
Yes, Dave, because, inside of the engineering, there are one organization that is focused for the glass formula in this technology. There is one organization focused for the inspection that were more located in Denmark. Today we are expanding this capacity into Italy. And there's one organization in Denmark specialized on assembly technology. Today there is a clear separate organization supply chain. So there is not, there were not issues around this.
Excellent. Okay. I think, we're within 30 seconds of our end here. So why don't we wrap it at that? Thank you, very much to the Stevanato team for your attendance and for the folks here in the audience for listening in. Hope you enjoy the conference. Thanks so much.
Thank you.