Thank you very much. This is Paul Knight. Good afternoon. I'm the life science analyst at KeyBanc, and we have today Marco Dal Lago, the Chief Financial Officer of Stevanato; and Lisa Miles, investor relations. Stevanato went public in 2021 and listed here in the United States. Marco, where were you before Stevanato, and what have you learned being the CFO of a U.S.-listed firm from Italy?
It is a very exciting time for us. We decided in 2021 to go out from our comfort zone. The natural listing location would be in Milan. We are happy about the decision we took. It was mainly driven by the fact that there are many, many peers in the U.S. market, a lot of CMO companies, and also the level of knowledge of analysts and the overall environment is much higher than in Italy, where there are no similar companies like Stevanato listed in the Milan Stock Exchange. For us, it is a continuous stimulus to benchmark with the best in class in order to keep on improving. We are happy about the decision we took years ago.
Lisa, you've been in the investor relations business a long time, l ike I've been on the research side as well. What kind of investor feedback do you get from Stevanato, where European based but U.S. listed? What are the unique questions you might get?
I think that most of the investors are happy that we chose the path that we did in terms of going public in the U.S. I think that many of our peers who are traded here in the U.S., I think it really made sense for us. I think overall a lot of the questions that we receive from investors are consistent with what some of our peers get as well.
Obviously, with just reporting our 2024 results, many of the questions that we're getting while we're out on the road this week relate to 2025 and our outlook and some of the things that we see in terms of the long-term outlook of demand, particularly as it relates for biologics and syringes and cartridges, as we see significant demand in those particular areas.
Maybe, Marco, Lisa, the question really that first question people ask is what makes Stevanato different than SCHOTT, which is now public, or Becton Dickinson. What's your kind of unique advantage in the market?
We have a strong focus on pharma. We are only focused on pharma. We have a really differentiated portfolio of products. We can leverage an integrated value proposition. We have engineering also in our value proposition that is helping us to provide to the pharma companies an integrated solution.
Basically, we are number one in cartridges today. We are number one in sterile vials. We are number two in syringes, where we have been able to grow significantly in recent years, and where we can see very strong demand and where we are investing in this period of time with expansion in Latina and Fishers. In a nutshell, what is making us different is probably our ability to consistently generate organic growth. We have a long track record with respect to the organic growth of the company and the integrated value proposition.
One thing that we learned about Stevanato, in Europe, there used to be dozens of companies involved in glass. Now there's you, SCHOTT, Gerresheimer, very, very limited market. What happened over these years to create the few players that we have?
First of all, the need is to be very consistent in quality because the market is moving more and more toward biologics that are requiring more sophisticated type of glass containment solutions. Only if you keep a consistent level of quality, you can play in that field.
The other thing is the ability to grow through the investment we have been constantly doing to expand our capacity throughout the years. You need to become a global player if you want to serve the larger pharma companies because basically they are asking us to be domestic in many different places where they have their operation. Matter of fact is a game for a few players and not a large number of small players.
If I can add, Paul, I think if we go back 50 years, that is when the company decided to really focus in pharmaceuticals. We moved away from some of the other cosmetics and beauty and wine bottles that we had been producing to focus exclusively in pharmaceuticals. I think that was a really important step in the company's evolution. Obviously, that focus has really helped to cement our space, our position in the space globally.
Can you update us on the progress in Indiana and then also in Latina? Starting with Indiana, I know that when you went public, I think the plan was $200 million of capital expenditure. I think now it is $500 million. Where are you with opening of that facility?
Yeah, you're right, Paul. First of all, we started from a much smaller plan. We basically decided to double the size because of strong demand and strong commitment we received from our large customers. We had the agreement with BARDA when we further decided to expand the capacity in bulk and EZ-fill vials. We add also recently some capacity for the CMO space in drug delivery system.
We are happy about the expansion. We started generating commercial revenue in Q3 2024. We are keeping on progressing. We are happy about the validation we received from main customers. We have five customers validated now, and we are keeping expanding the capacity. It's a long process. We cannot take shortcuts in the end. Our plan is so far expected. Our plan is to fully ramp up the facility by 2028.
And [crosstalk].
We are a little bit in advance compared with Fishers. We started generating commercial revenue in 2023. We kept on installing lines and growing capacity. With that, we generated positive gross profit in Q3 2024. We further expanded in Q4, and we are progressing. We believe we will be fully ramped up at the beginning of 2027, there, end of 2026, beginning of 2027.
Overall, the two plants are in line with our expectation. The only fact it's taking time to fully ramp up them because we are dealing with high-value products for biologics mainly. We have large customers to serve with a multi-year agreement in place. When you play in that field, we need to be careful to do each and every single step in order to guarantee the quality and the ability to serve the customers.
Latina, Southern Italy was not, I think it was a longer-term plan in 2021. Now it seems to be a very active project. Can you talk about the amount of capital expenditure in Latina and what drove that?
First of all, I need to go back, y ou are right, to the plan in 2021. The decision at that time, the plan was to accelerate Asia-Pacific investment. As usual, big decision driven by customers. Our customers asked us to accelerate the expansion in North America and Europe rather than in Asia-Pacific. This is the reason why we are creating this second hub in Latina close to Rome.
About CapEx, we did not disclose the exact amount. What I can tell you is that it's a large investment but smaller than Fishers. It's a brown field. It's not a green field. It's a large investment for us. Recently, we decided to further expand Latina because we signed an important contract with one of our key customers to install capacity in easy-fill cartridges.
For us, it's an important step because today the penetration in sterile is relatively small in cartridges. We are below 5%. This is a very important opportunity to switch the market to sterile following this contract. We decided to further expand Latina recently. This is the main reason why in 2025 we are having more CapEx than anticipated.
When you talk about number one in cartridges and easy- fill cartridges, are cartridges for pen and auto injector?
Cartridges primarily are used in the pen injector. As you know, we are the global leader in pen cartridges. The pen injector is the global standard for diabetes care today. We are really leveraging our strong diabetes franchise and history in that particular treatment area to further broaden into, obviously, GLP-1s as well.
If you look at the auto injector versus the pen injector, the auto injector will take a syringe. If we think about the types of syringes that we're supplying for auto injectors, that would be the Nexa syringe. It has a high mechanical resistance, so it's ideally suited for the force of an auto injector.
Okay. Got it. The easy fill market, I know, is it driven by Annex 1? Is that the primary driver for easy fill?
It's helping, for sure, because the purpose is to reduce the risk of contamination. So our EZ-fill solution is really suitable for the purpose. We don't expect this very rapid change. It's a tailwind, but it's not happening overnight. It has to do with the decision of the customer to change their technology. We can see a strong signal to that direction, but it's something that is taking time.
Moreover, what I can tell you is that there are many factors that are pushing the pharma company to move to sterile configuration, not only the Annex 1, because we believe we can improve the quality providing sterile products, ready-to-fill products, but also the total cost of ownership is another advantage the pharma company can take from selecting this type of solution. So it's not always a matter of, yes, it's because of Annex 1. Sometimes a lot of factors are combining and helping the pharma company to take the decision.
With respect of that, we can see that overall we are in line with our trajectory to, as a share of revenue in high-value products, we reached 38% in 2024. Our guidance is to reach 40% as a set point in 2025. You probably remember we announced two or three years ago our goal to be between 40%-45% as a share of revenue by 2027.
Marco and Lisa, a question we have had here is, what were the problems in Engineering, and are we past getting those problems fixed?
I'll start. It was, frankly, a bit of a high-class problem. In 2022, we won record orders. As we started to execute on those orders, we ran into challenges as it relates to being able to secure electronic components that are necessary to build these large complex manufacturing lines. As a result of that, we ran into delays, and we did struggle to move some of these lines along from a project perspective.
We took a number of actions. As we've been discussing the last couple of quarters, we have launched an optimization plan that is beginning to bear fruit, and we've seen some positive results as we moved into the fourth quarter. This includes things such as we did increase some resources. We've moved some resources.
We have restructured some of our activities and streamlined processes to better harmonize, I would say, the overall cost structure within the Engineering Segment. I will hand it off to Marco now to talk about where we are going and how we anticipate Engineering will continue to improve.
Yes, thanks, Lisa. We have a good signal. Sequentially, we improved the profitability in Q3 and Q4 compared with Q2. Where we are now with respect to the recovery of the delays, we are doing relevant progresses. We plan to complete the recovery of the delay by mid of the year.
In the meantime, we are taking new commitments with customers because we believe we have a ready robust plan to deliver the machines. Matter of fact, we expect to increase significantly the revenue generation in the second half of 2025. Overall, the year is expected to be flat or low single-digit growth compared to 2024 because it's still a year where we need to focus on execution and satisfy our key customers.
Who do you compete? Who does engineering systems? Who's the competitors globally?
It depends on the application. In assembly and packaging, we have some competitors in visual inspection. Other I can mention, Brevetti , Körber, and other players. We are not talking about huge players there. We are well positioned in both assembly and packaging and visual inspections.
Okay. Thank you. Just reading a question here. Sorry. With these customer contracts, what's the average lifespan?
When we talk about multi-years agreement in glass containment solutions, normally we have a three years contract. When it's time to install new capacity dedicated for customers, we can go from five to 10 years. It depends on the situation. In this period of time where there's capacity to be created for securing the supply chain for customers, it's not uncommon to have a five- to 10-year contract in place.
How big is the GLP-1 business for you? Do you talk to how percent of revenue?
We disclose the revenue in biologics. GLP-1 is part of the biologics in our disclosure. We are growing. We are growing biologics. We moved from 30% as a percentage of revenue in BDS to 34% in 2024. We are happy about the presence in biologics. It's not only GLP-1s there. We can rely on monoclonal antibodies and also biosimilar. We play in the future an important role to further expand our biologics revenue.
Paul, we've provided some qualitative details on our GLP-1 business. Essentially, we are providing all products across the glass portfolio: h igh-value syringes, bulk cartridges, easy- fill cartridges, vials, and ultimately some bypass syringes as well. If we turn our attention to the Engineering Segment, we have also sold manufacturing lines specifically for final pharmaceutical visual inspection as well as for the assembly and packaging of devices.
When I talk pricing in the industry, when I talk with Stevanato or Gerresheimer or SCHOTT, etc., pricing is not coming up as an issue. What is pricing like when you were working with a biotechnology or Lilly or Novo? Is price even brought up? O r how do they decide on you and your contract? O r how do they decide how much you have, how much maybe a SCHOTT has? Is that ever a discussion?
When we talk about blockbuster, for example, pharma company who wants to mitigate the risk and have more than one supplier, the big focus is on reliability of the partner and the quality the partner can provide. We are happy about the quality we provide to our customer. We have a global footprint. We produce 7 billion, 8 billion pieces per year with really consistent quality all over the world.
This is, together with the delivery time, a much more important factor for the pharma company because the cost of the container is mission critical, but the cost compared to the overall cost of treatment is pretty low. The customer wants to have reliability rather than pushing down the price. We can play in this field. E specially, the more we move toward biologics and high-value products, the more is the quality and the consistency rather than the price.
Certainly, Paul, the number one decision is going to be on performance of the primary packaging with the specific drug treatment. They need to ensure, obviously, stability, integrity, no delamination or particle generation. That really is the primary driver for their decision. As Marco notes, there is then a number of factors as well. What does the footprint look like? What type of supply chain is there? That is typically how the decision is made from the primary packaging side.
Has your expansion in Indiana allowed you to take share, do you think?
If I heard you correctly, did you ask if our expansion in Indiana has helped us to take share?
Yeah.
In Indiana at the moment, we are just ramping up syringe capacity. We are still in the very early days of ramping up at that location. We would say that our goal is not to take market share, right? Our goal is to win our fair share and more. The market is growing across the board for syringes and cartridges. There is high demand in these areas, really principally driven by biologics and obviously the trend towards the self-administration of medicine. We do not view this as taking share. We view it as really winning our fair share [audio distortion].
Sorry. Do your customers want Stevanato as the sole supplier, or do they want two suppliers or more?
[As we're saying before], especially for blockbuster, they want at least two suppliers. We are happy about being part of the main products and blockbuster, trying to play as number one. Sometimes we are number two supplier, but we are pretty happy about the relationship we have with our customers. That is a long-term relationship. Especially in high-quality products, we can play [in both of them].
It's fair to say, Paul, that particularly in our market area, pharma does prefer to dual source most of the time. In blockbusters, we can see even more than dual source.
Okay. We hear a lot of news around dual chamber. Is Stevanato involved in dual chamber?
Yes, we are. We mastered the technology of the glass forming for dual chamber, s o it's one of our products. And most importantly, we mastered the technology in the glass forming. S o we are very well positioned because we can rely on the [process of forming the product].
Yeah. Paul, what's really neat and a fun fact that I find about our manufacturing lines for dual- chamber products is that they're modular. The dual chamber module of the glass- forming line can be removed. It is a highly flexible manufacturing line, which I think is a really exciting piece of that particular business.
Meaning when we hear good or bad news on the new generation of therapies, it shouldn't drive the stock, meaning you could go to a single, dual chamber.
Exactly. Those manufacturing lines have sufficient flexibility to allow us to go in either direction.
I'll know how to answer the five emails the moment that comes out now. Thank you. On the biosimilar market, what's the growth rate there? I mean, I think the growth rate of biologics, according to consensus, is maybe 10%. What's the biosimilar growth rate, in your opinion?
Probably consistent with the biologics. I mean, we view biosimilars, obviously, as a big opportunity for us. I think, as we talked about at Capital Markets Day in particular, as we think about biosimilars and drugs coming off patent, we think that there is a really strong opportunity there, particularly in device platforms, which, as you know, we have been investing in over the last several years.
If you look at large pharma, many of them have their own proprietary platforms, and that is not where we want to play. We want to focus in those areas where we see real opportunity for platform devices for those mid-size biotech where we know they are looking for those types of solutions because they spend the bulk of their resources on drug development. We think it's a really exciting time in biosimilars, I mean, not just here in the U.S. but around the globe as well.
Also for glass containment solutions, the tendency is to use the same solution the originator is using to gain speed in the go-to-market. We are really covering commercially all the opportunities, not only with the originator but also in the biosimilar, to be ready as soon as they are ready in order to take the opportunity.
I'm getting the question of destocking less and less. Maybe you are too. I think your view is destocking is finally starting to subside.
Yeah. We saw positive signals in Q3 and Q4 last year that were better with respect to the first half of the year, both in orders intake and also in revenue generation. Q4 was better in revenue generation compared to the previous quarters. We still see a mixed situation where some customers went back to normal already, providing the long-term forecast of suppliers. Other customers are still reducing the level of inventory. It is a mixed situation.
We see signal of improvement. Our view for the next quarter is a sequential improvement throughout the year, with bulk vials accelerating and going back to normal before sterile vials . This is for 2025. We believe it is not a matter of if the vial market will recover but more when it will be fully recovered. We see sequential improvement throughout the year.
Yeah. I mean, I think there was a little misunderstanding on destocking. You've given us insights. I mean, it wasn't just COVID vaccine vials, right? It was everything used in a hospital. Is that the better way to think about the big vial demand?
I think that's right. You have to remember, during the pandemic, there was a lot of concern that there would be a shortage in vials. Naturally, from a risk mitigation perspective, those companies that had any treatment in a vial took steps in order to ensure that they had the appropriate primary packaging that they needed. As a result, that's how you ended up with a lot of product within the channels. It was really a risk mitigation from pharma companies just with the concern that there was going to be a vial shortage.
Okay. Thank you. With that, I think we are wrapping up the end of this session. Thank you very much, Marco, and thank you as well, Lisa.
Thank you for having us.
Thanks, Paul.
Okay.