Stevanato Group S.p.A. (STVN) Earnings Call Transcript & Summary

Good morning, and thanks for joining us today for Stevanato Group's Inaugural Capital Markets Day. Quick housekeeping items before we begin. Some statements being made today will be forward-looking in nature and are only predictions. Actual events and results may differ materially as a result of risks we face, including those discussed in Item 3D entitled Risk Factors in the company's most recent annual report on Form 20-F filed with the Securities and Exchange Commission. Please take a moment to read our safe harbor statement included in the front of this presentation. Let's turn to the agenda. For those of you joining us in person today, we kindly ask that you hold your questions until our formal Q&A sessions. The first Q&A session will follow our customer case study and then we'll break for lunch. [Operator Instructions] Following Franco Stevanato's closing remarks, we will split into 2 smaller groups for our product breakout sessions. They will be held on the floor below and we will run the session simultaneously, and then each group will switch. So you'll have an opportunity to visit both sessions. And with that, I'd like to hand the floor over to Franco Stevanato, our Executive Chairman. Thank you.

Thank you, Lisa. Good morning, everyone, and welcome to our meeting. I'm Franco Stevanato, the Executive Chairman of Stevanato Group. I am pleased to welcome you together with our leadership team here in New York for our first Capital Market Day. I want to say we are very glad. Also I'm very excited today to have this opportunity to speak about the future of Stevanato Group and the role we will play in the health care industry in the future. Stevanato represents a tremendous growth opportunity at this key moment of the development of the biopharma industry. We are a science and technology-driven company with a unique value proposition, combining systems, processes and service fully integrated to meet the need of the biopharmaceutical industries. We are fundamental to our customer success by the nature of what we do. We provide safe and stable containment delivery solution to bring our customer products to patients. Our business model has created a foundation for long-term sustainable growth. Our business fundamentals are strong. Leveraging our 70th year of history of excellence, we have delivered consistent growth and expanding margins. For more than 20 years, Stevanato Group has delivered steady double-digit revenue and marginality growth, driven mainly by our high-value solution products. Our unique value proposition provides us with a strong competitive advantages to meet the increase in demand, driven by secular tailwinds in high-growth end markets such as biologics. Our demand-driven capacity expansion projects are progressive, as planned. And we are in an excellent position to keep growing this business for the many years to come. Our track record of excellence put us in a leading position in our core markets. We are a market leader worldwide in Pen Cartridges and EZ-fill vials and we are #2 in prefilled syringes. We are also the market leader in glass converting, the critical technology for manufacturing containment solutions. Owning these technologies represent for Stevanato a key competitive advantage that is unique in the market. We are also #2 in visual inspection system for the pharmaceutical industry. We are a global partner of choice, working with a top high-growth client of the biopharma, pharma and diagnostic industry all around the world. We are serving more than 700 customers globally, including the leading player in the market. We have a long history of success. We've been in business for more than 70 years. The company was founded by my grandfather, Giovanni Stevanato that was an inventor in 1949. Allow me to tell you a little story about the dynamic between my grandfather and myself. When I was child, my grandfather often used to take me to the company on Saturday morning. I was always very excited for this. I remember, I used to visit the production floor and then go to the engineering department where they used to develop a new idea for the forming technology. These were the 2 things he used to love the most. And I learned a lot from my grandfather. And it's still today one of my model of example in my life. Because still today, I used to go on Monday -- Saturday morning in the production to talk with the people because of what I really learned from my father that the human relationship with the people is the key driver for the success of the company. Sorry. In the last 50 years, we focused on the pharmaceutical industry, and that is why -- sorry, in the last 50 years, we focus on the pharmaceutical industry. And that is why in 1971, we made a strategic decision to internally develop the technology for developing the glass container. This in order to -- on the technology, improve speed to market, have more flexibility and more quality and productivity for our customers. This is still today one of our main competitive advantages recognized as an industry standard. Over the last 25 years, Stevanato Group has become a global company in response to the demand of our global customers. First, we focus on people and a big portion of our time has been dedicated to put together a leadership team and the Board of Director that can guide Stevanato into the future. Then altogether, we've been accelerating our growth through 3 main axis. First, we've been developing an integrated research and development, and we expand our offering on proprietary drug containment solution and drug delivery systems. Second, we have been performing successful acquisition and integration of competencies in high-precision injection molding, inspection and assembly of drug delivery systems. Third, we've been expanding production worldwide, building state-of-the-art greenfield plants -- technological scientific center all around the globe. Then, together with the Board of Directors, we have decided to bring the company public in 2021 in order to raise capital through primary offering to invest in the business to meet the increasing demand of high-value solution products for our pharmaceutical customers. We have Stevanato global diversified manufacturing footprint through 16 sites in 9 different countries. We are able to offer outstanding security supply, one high-quality standard from all the plants, and we offer scientific analytical service at our tech center in Boston and Piombino Dese, Italy. Today, we are focused on building our new facility in Fisher Indiana, expanding our capacity in Italy in 2 different locations, and longer term, progressive our new development in Asia. Franco Moro will discuss our expansion strategy more in detail shortly. All this acceleration is driven by customer demand for high-value solution products. Our wide range of capabilities and expertise, combined with our expanding global footprint will help us to meet the growing customer demand. We are targeting high-growth end markets where large-scale macro trends are driving demand growth, especially for high-value products. The biggest of these trends are aging population, increasing prevalence of chronic disease and expanding access to the health care all around the world. Alongside that, there is a considerable growth in biologics and biosimilar that have more sophisticated packaging and delivery requirements. Next, increasing self-administration and the movement from health care delivery from home, hospital to home environment are driving the needs for high-performance containment and delivery solutions. Finally, biopharmaceutical companies, more and more are choosing to outsource noncore capabilities, allowing them to focus on drug development of the product. This is where our EZ-fill standard is going to have even more success in the industry. All of these factors are driving demand for our products and services. We are well positioned to capitalize on these secular tailwinds. Thank you to our unique integrated value proposition in term of process, product and services. This is a crucial moment in the biopharmaceutical industry, and we are ideally placed to meet the growing demand for high-value drug containment, drug delivery and engineering solution. We aim to become the global partner of choice to support our biopharmaceutical alliance with customers all around the globe in their supply and manufacturing needs end to end from the first stage of the development through the entire life cycle of the drugs. Our people in Stevanato are fully committed to realize this ambition, and we are investing our time, energy and passion to meet the needs of our customers and make the most of this opportunity for growth. Let me hand over now to our Chief Executive Officer, Franco Moro, to tell you more about our business, maybe more the plans that we have to grow in the future. Thank you very much.

Thank you, Franco. Good morning, everybody. Welcome to our first Investor Day. I'm excited to stay with you. I see in the room many familiar faces. But I see also people that maybe are less familiar to our company, to our value proposition. So today, let me to -- work you through our -- an overview about our business, about our strategy. And later, I will provide also you an insight in the dynamics of injectable market. Let's start from business overview. We play mission-critical role in pharma value chain. We can support our customers from the early development of their projects down to commercial scale. To perform like that, we have different capabilities. We have a containment solution. We have a scientific services in terms of development, analytical methods. We have drug delivery devices. And then in our engineering, we provide them also machinery to run their processes. In specific, visual inspection system, assembly line, packaging system. Altogether, this value proposition follow the needs of customers along the entire life cycle of a project. In the meantime, our products and solutions become embedded built in the drug master file. So we are able to stabilize our long-lasting relationship with the customer for each single drug. Now we can move to have a deeper look in how we see our business at Stevanato. We have 2 segments. First one is a biopharmaceutical and diagnostic solutions segment. The other one is the engineering segment, but the 2 segments work really with a very high level of integration, and we have many synergies in between the 2 segments. In BDS, we have our core historical business in containment solutions. We have different formats. We have the syringes, vials and cartridges. The fact that we have all these formats available is very important for our customers because we can match their needs when they decide to move from one format at the first stage of the commercial distribution to another one later on. This is very often the case when to be faster, they start with vials and then they move to prefillable syringes later on. But we can give them the same opportunity if they consider to have a different format for different therapeutic needs or if their geographical market distribution needs to have different formats for the entire life cycle of their project. We have our containment solution, both in sterile and bulk configuration. And in BDS containment solution, we have also our premium quality products like Alba and Nexa. And in vitro diagnostic, we delivered to our customer plastic consumable for the immunodiagnostic, let's say, the standard dynastic tests. But we are more and more delivering them more complex cartridges that are needed for the system in molecular diagnostic tests. So you can find our products in hospital lab, in analytical labs, points of care all around the world. Our engineering segment allow us to deliver to customer very high sophisticated technologies that we develop internally and we manufacture in our engineering department. I'm referring to high-speed automated visual inspection systems, complex assembly line for devices also for diagnostic packaging solution. In the meantime, we maintain also our technological leadership in the glass converting manufacturing lines for the specific business. The power of this integration is strong because it deliver advantages both for customers and the company. In terms of the customer, we can adjust their needs very fast because we can transfer, for example, an upside in demand very easily in an increasing capacity in production of our departments because we leverage on the internal capabilities in engineering, then we develop day after day the technology to grant the customer the highest level of quality and safety for the product. And we play the same advantages also in diagnostic also in engineering. For the -- our own for the company, the integration of the 2 segments is also very valuable, because you can consider we are, at the same time, the user of a technology. But in the meantime, we are also the designer and the manufacturer of the same technology. So the learning core, the possibility to learn in production, something that transferred new ideas to the designer and the manufacturer of the production line is a very important loop for continuous improvement, and it runs very fast in our company. I want to give you also a practical example in the real life, how this integration deliver value to customers. I'm referring to a specific real case history. A few years ago, one of our customers, Merck Serono, a big customer, involved us in one of very important projects, they wanted to deliver worldwide a new drug, biological drug. That presented 2 main challenges. I am talking about a biologic. So the quality requirement for these biologics were very high. The sensitivity of the molecules asked from specific performances of the container solution. At the same time, they have designed a presentation to be a pen injector. So the cartridges that is inside the pen injector had to be very specific in terms of mechanical resistance performances. They added the 2 challenges. On top of that, they have the need to deliver to the market not a single pen, but the same pen with slightly different configuration depending on the therapeutic regimen of the patient. What we did? In this case, we delivered to customers, first, the development of testing methods and quality control methods to identify the proper solution and then also for the quality control in commercial production. Second, we have the right solution to meet the 2 needs that prove to be our Nexa cartridge. And so we started delivering at scale this kind of cartridges. Third, we develop with them according to their needs, a very flexible assembly line in our engineering department to allow them to be very flexible in matching the variability of the volume in terms of different therapeutic application, different therapeutic regimen of the patient. I believe this one is a very good example how the integration works every day in our company when our people, our colleagues in production and our colleagues in engineering work shoulder to shoulder, looking at the final result to satisfy customer needs. Let's move now to our strategic priorities. Global expansion. The growth of high-value solution, continuous effort in R&D and innovation and building a strong pipeline of new opportunities working together with customers in many, many different projects. My colleagues shortly will cover the HVS solution, growth, R&D and also the pipeline. So now I wanted to focus on global expansion to see something more as anticipated by Franco. Our CapEx are all demand-driven. Almost all of our CapEx for growth are dedicated to high-value solutions. Now we are in the completion phase of the multiyear plan of investment in Piombino Dese, where we have our headquarters. This expansion of capacity in Piombino is fully dedicated to EZ-fill products, including also the premium quality Alba, Nexa products. In the meantime, we decided also to prepare the stage to the growth in EMEA region in Europe, strengthening our data setup in this region, and we decided to start up a new facility close to Rome, nearby also an existing historical facility for back production. And now these new facilities is in the last validation steps for their first modules, and we expect to have revenue generation in the last quarter of this year. That is exactly according to our initial plans. I'm glad to say that we are also on track in Fishers, Indiana, where we are executing a big investment. Stepping back, customers love to have us in proximity of their network of filling facilities for many good reasons, streamlining the logistics, closer interaction between us and them in terms of planning, in terms of addressing possible improvements together and also in terms of the sustainability. So we decided to replicate the industrial setup that we developed for EMEA region in the same way in the Americas, where we have already bulk production but we are adding EZ-fill high-value solution production. This big facility, I hope sometime you revisit the facility is now in the last validation step -- installation qualification, sorry, step for the first modules, and we are approaching the validation to have the first revenue -- commercial revenue generation in the first half of 2024 according to our plan. We keep also a strategic focus on further opportunity for growth in China and Asia Pacific. Nevertheless, we decided to post a little investment in that region, and we expect that in 2024, we can have a new decision for a possible restart of the project. But we took this decision for very good reason, also in this case. Because we are enjoying a growth in demand that is outpacing our expectation at the time of our IPO. So we decided to accelerate investment, having more modules in the bigger facility in Italy and in Fishers to increase the demand according to the updated expectation of our customer. So to secure good timely execution of these big projects, we decided to temporarily slow down the ideas about it as a Pacific, to focus on the capacity expansion in the 2 main regions that are proving to have a very high expectation in term of the needs of our customers. There is a very clear idea behind focusing our CapEx on high-value solutions. The value of our high-value solution is linked to the real value we produce for the customers and also for the company. For customers, high-value solution deliver many advantages. I want to mention the most important one. First, the reduction of the total cost of ownership. Then, second, higher quality, higher safety of the products. Third, higher flexibility that the results in the possibility to reduce the time to market. And fourth, we are derisking their supply chain and risk mitigation in the supply chain is one of the main goals for pharmaceutical companies. At the same time, high-value solutions delivered big benefits also for the company, because there are higher price per unit associated to high-value solutions, so they are beneficial for growth. And there is also higher marginality. And the 2 elements together are [ pushing ] the results, the financial results of Stevanato Group in the recent years. The growth of the share of high-value solutions in the last years was consistent. We landed 2022 with 30% of revenue associated to high-value solutions. And now in 2023, we expect to land in between 32% and 34%, in line with our guidance. Behind the success of high-value solution, there is the trend of the injectable market. Let me step back to the full scenario of drug under development. Today, there are more than 21,000 drug under development, 21,000. The majority of this big amount of drug under development, 61% of them are injectables. The fast growth of injectable market is driving opportunities, not only for the mid and long run, but also in near term. In 2022, FDA approvals, new approvals were 50% biologics. Stepping back to the big picture of the drug under development, more than 21,000 drug under development, 44% of them are biologics. It means that they require superior quality in time of the container solution and very optimal in a project related to biologic drugs also drug delivery, the vials are involved. So you can understand that this situation perfectly matches our value proposition and also is perfectly in line with our product portfolio strategy. This market is highly concentrated with very high barriers to entry. I wanted to walk you through the main barrier to entry. First, you must have the right, the proper know-how. I'm not just talking about patents that are obviously important. I am talking also of industrial know-how, industrial secrets; something that you have to build working hard for years, even the case as we did. Second, pharma companies are risk adverse. They don't want to take risk to address something that represents still a minor part of the cost of a treatment, in case of biologics, a very minor part of the cost of a treatment. Third, we are in a highly regulated market. Regulatory agency are enforcing more and more stringent requirements in terms of quality of product and quality of processes. So it's very hard for a possible newcomer to afford these challenges. And there is another outcome of the high standard of quality and the requirements coming from regulatory agency. There are the switching costs. If a pharma company would consider to change the supply chain because the drug is filed in so many countries around the world, they have to consider very high switching costs. Obviously, pharma company are not keen to afford this cost. On top of that, we are also talking about a capital-intensive industry. Overall, if you put all these factors together, it's easy to understand that it's very difficult, nearly impossible for a possible newcomer even thinking about entering this market, overcoming these huge barriers. And I am glad to say that Stevanato Group is one of the few leaders that are already in this market, protected by the huge barriers. So in closing, I want to summarize with you the most important drivers that are setting the stage for sustainable, long-term growth for Stevanato Group. First, we play mission-critical role in pharma value chain. Second, we have a unique value proposition that support customers at every step of their projects. Third, we are in a highly concentrated market with high barrier to entry. Fourth, we have clear strategic priorities to capitalize on secular macro tailwinds. And fifth, demand-driven expansion of high-value solution support sustainable organic growth. With that, I thank you, again, and I call my colleagues, Mauro, Riccardo, for the next presentation. Thanks so much.

So good morning, everyone. My name is Mauro Stocchi. I'm the Chief Business Officer of Stevanato Group. So very welcome to our Capital Market Day.

Good morning, everyone. I'm Riccardo Marcon. I'm the Senior Director of Strategic Marketing, Alliances, M&A. Welcome.

So Riccardo and myself today will guide you through the fast-growing demand we see in the market and also the latest market and regulatory trends. Together with this, we will also explain why Stevanato Group has a very well-suited portfolio to support this and to respond to this market demand with high-value solution. Of course, after this, there will be a case history with the customer. And then, of course, there will be enough time to respond to any questions you might have. Riccardo, please.

So Stevanato Group serves a larger and rapidly growing direct markets. Such direct markets were totaling approximately $15.5 billion in 2022 across the 2 main divisions that we have, the Biopharma and Diagnostic Solutions Division and then the Engineering division. Drug containment solutions such as EZ-fill vials, EZ-fill cartridges and EZ-fill syringes are still our core market. However, we have a strong and also expanding positioning in the other markets through our integrated offering that we're going to see throughout the day. So direct market growth is driven by the end market growth. So let's take a look at the projected volume growth in the key end market. You can see that within injectables, biologics is the fastest-growing market with a projected growth of more than 15% in the next two years. Biologics growth is driven by the strong innovation that is happening in this space, which is leading to more complex treatment requiring more sophisticated solution in terms of containment and delivery of drug product. This containment solution we're going to see later. Our -- we built our high-value solution just to deliver this. So the biggest growth driver in biologics are 3: the GLP1s, the antibodies and the proteins and the mRNA product. We're going to have a deep dive session in our presentation to deep dive in each of those biologic class. So now let's zoom in on the growth in biologics and also our solid position to capture this growth. So there are basically 2 elements. Number one, 98% of the growth in biologics is coming from commercial stage biopharma, where we already have deep embedded relationships since a long time. The second one is that of that volume growth that you see in biologics, we are already serving 70% of the company that are driving 70% of the growth within this space. And we see, of course, further opportunity to expand our presence. So the key takeaway of this slide is that we have a very deep established footprint and also relationship with the key companies that are driving the growth in biologics. Now within this context, we also have a very solid view about future customer demand that actually represent the backbone of our investment plan that has been presented by Franco. So we work with customers, as you see on different level, on multiple level. So we work, of course, with purchase order. This purchase order, they have a coverage, which can range from 3 to 12 months. We also work with rolling forecast with a much wider horizon. The rolling forecast is normally composed by a frozen part, so a fixed part and then, of course, variability as far as you go in the future, more and more into the future. Then we also have multiyear commercial agreements. These agreements normally range or cover a period from 3 to 5 years. Then we are also working with agreement related to customers that are investing to increase their own manufacturing capacity. Of course, when we talk about this area, we talk about engineering, but this is a very, I would say, preferential view about demand evolution at our customer side, which completed the picture. Then we also work with the early-stage agreement. We saw the pipeline, how we addressed the pipeline before, together with our customer. This is also providing additional visibility on molecule and pipeline that together with our, of course, DCS solution will imply DMF registration, but this will have probably an horizon, an effect on an horizon which is wider than 5 years. So all this together really provide us a structural overview about future demand evolution on the customer side. So to capture the growth in biologics that we saw earlier in the slide, Stevanato Group has developed a full set of high-value solutions, which are addressing the most challenging needs and demands of biologics in particular, our HVS are typically solution with the highest product quality and driving and delivering the highest value for our customers in terms of drug product integrity, in terms of time to market, in terms of total cost of ownership. Stevanato Group high-value solution have been developed either through proprietary know-how or Stevanato intellectual property. And this represents really the key differentiator in the market for SG product in front of our customer. So let's have a look a few of these high-value solutions that we present in this slide. So starting from the high-value solution that we have in the drug containment part, we have containers with the Nexa and Alba quality, for example, both in bulk and ready-to-use, where ready-to-use are the high-value solution where we can drive the much more value to the customer because they come presterilized, ready-to-use for the customer so they don't need to invest money in their washing, depyrogenation and siliconization infrastructure that can just take them and fill the drug product inside. Then we have high-value solution within drug delivery systems. So for example, we have proprietary device, Alina, Aidaptus and Vertiva, we're going to see more details in the next upcoming slides and then in IBD as well. So really high-value solutions are solutions that are driving the most of the value for our pharmaceutical and diagnostic customers, but they're also driving value for Stevanato Group because they have a higher price and higher marginality in compare with standard product. On average, what we can say -- so on average, for example, on drug containment solution, the average price mix of high-value solutions are 10x the average price mix of the standard solution. So as you can see, the price upside is very important. So let's have -- as we say, let's have a deep dive on each biologic class, starting from the GLP1s, which are the fastest-growing segment that we see within biologics. As you can see here, the market reports are projecting more than 35% future growth in the next few years. And this growth has been, let's say, accelerating in the next -- in the recent years, we see this acceleration also in the next few years because basically, there is strong pharmaceutical innovation happening in this space. So GLP1s have been around for a long time, but they were mostly focused on the diabetes area with a daily administration. Why now pharmaceutical innovation is bringing GLP1s on other indications such as obesity and they're moving to a weekly administration, which, of course, is posing much more convenience for the patient. So the market, we expect to drive an accelerated demand in the next few years. Today, we see that there are only a few leaders that you can see from this slide, driving this demand, while we expect in the upcoming years, more innovators to come and also more biosimilar in the midterm. Sorry. So let's have a look at what are the main presentations of the GLP1s. There are 2 main presentations. There are the Pen Injector presentation where basically cartridges are the drug containment solution, and there are the Auto Injector presentation where prefillable syringe is the containment solution. So we see strong demand coming from both presentation because both presentations have benefits for the pharmaceutical customer for the patient. So for example, Pen Injector has the benefit that they are multiple dose, so they don't contain just 1 dose, but they have multiple dose. So of course, in terms of sustainability, for example, they are -- they have this benefit. While on the Auto Injector side, they are single dose, but the end user experience is much better than the Pen Injector, so there are benefit driven by that. So Stevanato position today in this market is as a leader in the cartridges position and as a second player in the prefillable syringe container. And on top of that, we have an established position in the engineering side because these devices needs to be assembled. They need to be final packaged, and the drug container needs to be inspected before getting to the market. So we build through our SG engineering, the equipment that pharma companies are using today to do those activities.

And now we believe comes something interesting. So in addition to what Riccardo just said, we also have a tremendous runway to build on with our diversified portfolio with our integrated offering. So starting where we are today, as Riccardo explained today, we deliver vial cartridges, we deliver EZ-fill cartridges, we deliver syringes, high-value syringes, and we deliver on the engineering side, the inspection, the assembly, the final packaging. But on top of this, there are multiple upsides that are here in the picture that fits with our strategy to further increase the high-value solution. So as you see on the right part, the first is the transition to sterile cartridges and the ability, of course, to follow mix change because this is something that is also happening on the market. And with our portfolio, we are ready not only to follow this, but also to drive this with the additional capacity we are investing on. Then we have the contract manufacturing for devices. Devices are also growing very fast. Of course, this is connected mainly to originators, but this is something that where we can build value on top. Last but not least, also proprietary device will play a role in this area. There are a certain number of biosimilars that are also step-by-step coming out in the market. I believe nowadays these are around 200. So our proprietary solution in pen and auto-injectors will play a big role, helping, of course, this customer to be faster in reaching the market and in reaching the patient. So still talking about GLP1, for Stevanato Group this does not just provide, as we said, the demand for our DCS portfolio. It is also really an opportunity for our engineering system and also for the services. So as demand grow and we see it growing day by day, customers are willing to bring products more quickly in the market, and we can help them to be effective and increase the speed to market. So our equipment, as you see here on the slide, can help our customer to bring more treatments more quickly to more patients. Since we can support the go-to-market process, starting from the early development stage with our benchtop solution and then, of course, to follow on down to commercial pretty fast.

So after having seen the GLP1 session, let's have a look at the second fastest-growing area within biologics, which is monoclonal antibodies. So as you can see from this chart, we picture what are the expected blockbuster, which are the top 10 recently approved drugs ranked by 2027 volume. So as you can see, 7 out of 10 of those drugs are monoclonal antibodies. So this is a real opportunity for demand of our high-value solutions. As these drugs have specific requirements that, in particular, our high-value solution commit. So let's have a look at what are the most critical parameters. Monoclonal antibodies are among the most sensitive drugs in the space as they -- and because of that, they demand the solutions in terms of containment and delivery that have the highest standard. Why is that? Because basically, the antibodies, when they are in interaction with the drug containment or the drug delivery, they are very sensitive to specific points, such as tungsten residues, silicone oil, et cetera. You can see the full set from this slide. So to make an example, silicone oil, which is present in prefillable syringe, can lead to protein aggregation. So basically, the drug is altered and the efficacy of the drug is diminished, can be diminished. So antibodies challenges. They are bringing challenges that not only reduce the drug shelf life, but more importantly, can pose a serious risk for the patient because eventually, these drugs are injected inside the patient. So this is why we developed the most advanced containment and delivery solution like the ones that you see here on the different presentation such as our Nexa vials, our Alba and Nexa PFS, the adaptive salt injector, the Nexa cartridges and the Vertiva wearable device. So we have a full set of solutions that can meet the challenges coming from the antibody drugs.

So we are one of the leader in the [ maps ] sector today for 3 reasons. The first one is our cutting edge in R&D that Franco anticipated and Paolo will talk later about. The second one is our integrated offering, as we have been explaining. And the third is our engineering advantage. So starting from the first. In R&D, our Alba PFS, prefilled syringe is really the leading solution because of its injection performances. And you will learn more than later on, on the presentation, on the R&D side from Paolo. Then our integrated offering, the second one. So customers are choosing our integrated offering because we can provide, of course, as we mentioned, the container solution, we can provide the device solution, we can provide the equipment to pull them together and to inspect them. So all these components will help customer to bring the treatment to patients faster and also more cost effectively which is also important. We also reduced supply chain risk for obvious reasons and also an optimal production environment at their side, because the combination between the device and the primary packaging is proven. So at the end, we also offer support from our tech services in order to find the best combination, which is actually the one that is a right first time serving the molecule they are developing. Then finally, with our engineering advantage, we can help our customers to scale up their production fast because of the capability we have to develop, build and deliver commercial lines. So today, to conclude this, we are really the only company in the space that can do all these 3 things together, and this is our big competitive advantage. Here, we get a little bit more technical, but it's just an example to explain how we did, for example, the scale-up of Nexa. So SG Nexa, as you understood from the presentation is one of the most popular container solution for [ maps ]. And it's also the one we invented and now we produce at scale, thanks to our integrated offering. So we have developed our proprietary forming process in order to build this. And our research team invented this proprietary technology, not only for the vial, but also we developed the process and the capability to produce it at scale. So this has an advantage, a big advantage for the customer. And it is also as well, of course, an advantage for Stevanato Group because we are using our own proprietary technology for the production and this gives us a competitive advantage in terms both of price, but also margin. So basically, again, we are really the only company out there that cannot only develop solution, but also the process and the equipment to bring the solution to scale.

So let's have a look at the let's say, third segment, fastest-growing segment within Biologics, which is mRNA. So basically, mRNA is an emerging segment because it started in 2020 with COVID. But what we see now is that there is an expansion of the number of programs beyond COVID to other respiratory viruses, but also beyond vaccine to therapeutics and oncology, for example. So we see mRNA as a true opportunity for the future. And just like [ maps ] mRNA has a special requirements that SG solution can meet.

So one of the key trends on the mRNA, for sure, you know is the shift from multi-dose vial to single-dose PFS. In other words, what does it mean for Stevanato Group? For Stevanato Group, it means a shift from standard product to high-value solution. So thanks to our engineering, again, we are not only ready to support this trend in the market, but also to drive the scale up. So investment in new plants, like the one you saw before in Latina, in Fishers are really the one that will be driving this growth trend, and we can support and post this transition. Another relevant requirement of mRNA is also the cold storage. In the transition from vial to syringes, this, of course, require high-performance drug containers. So thanks to R&D, and we will touch this point later on with Paolo. We have developed specific high-value solutions that grant the container closure system integrity. And this solution are available both in glass with our Alba solution, we mentioned several times, but also in polymer with our Nexa Flex solution. this is a tech transfer technology that is the result of the latest partnership we did with Transcoject.

So we know that advanced biologics are driving demand for our high-value solution, but it is only one of the demand driver. Let's look now how also supply chain and regulatory trends are driving demand for HVS and in particular, for our EZ-fill ready-to-use products. So let's look at the first driver. So we see an accelerated and increased adoption of filling line at the pharmaceutical customer able to process ready-to-use vials and cartridges. And adoption and acceleration, which is much faster than the nominal growth of the market because, for example, as you can see from the chart, in between '22 and '23, we saw a 32% increase in filling lines able to process ready-to-use vial. And a similar trend on the cartridges, we saw a 42% increase in ready-to-use line able to process ready-to-use strategies. Again, a volume growth of the basic market of vial and cartridge, which is around the low single digit. So this, for us, is the leading indicator of potential future ready-to-use conversion, and we are seeing considerable opportunities as a result of these changes.

Sorry, it's not working.

Okay. So underpinning the demand in entire industry, there is also a very recent trend, a very recent change in the EU regulation and in particular, in the GMP Annex 1, which is coming into effect since August 2023. So it's a very recent change. So this change basically is putting stricter and higher regulation for what regards the safety and the contamination of sterile products within the pharmaceutical manufacturing. So for example, it's putting stricter requirements in terms of premises and barrier systems that pharmaceutical customer needs to adopt to control contamination and to control particles, higher barrier and regulation in terms of quality risk management and most importantly, a higher regulation and stricter regulation for what regards contamination control strategy. So ready-to-use container, simplify compliance to this Annex 1 revision, how they optimize the investment that the pharma company needs to do on their filling line. They reduce the risk of particle generation. They simplify the quality risk management and basically, the pharmaceutical company can externalize part of the contamination control strategy to the ready-to-use supplier easing their life. So the supply chain trend compounded with the regulatory trend and changes that we just saw basically are fundamentally changing the market, and we expect this to drive an accelerated demand for our EZ-fill vials and cartridges.

So to better understand this growth, which actually is a growth, of course, for high-value solution. Let's go back in time and compare to what happened with RTU syringes. So RTU PFS were launched back in the '80s. When those products were introduced, you can see here, the market volume was less than 0.5 billion. Today, the penetration of RTU syringes is bigger than 95%, and this is worth the market nowadays more than 4 billion units. So what's on the RTU vial and cartridges? So when they first came to scene, this was early 2010. And today, they stand below 5% market penetration. But the adoption is going to happen based on what we have seen. Actually it is already ongoing. So with the changes that we saw both in the end market demand and the installation of the RTU filling lines, and also the regulatory screening and demand, we really expect a rapid growth in RTU as it becomes the new standard in the industry. Let's look at those numbers. These are third-party numbers. So if you look here, this suggests an expected growth of about 13% between now and 2030 in RTU vial and cartridges. So what does it mean? It means that by the end of the decade, this is supposed to become a $1.5 billion market. Where in this space today we are the market leader. And we are in the market every day, what we can maybe also tell is that I really believe this expected growth, as you see here, is pretty conservative. Now to summarize the takeaways of this session. The first one, Biologics is a key growth market for Stevanato Group where pharma customers require high-value solutions that meet the need and the specification of these advanced and sensitive products. Second, Stevanato Group has a broad and integrated portfolio that is matching all these requirements. Number three, our combined offer really sets Stevanato Group apart from the competition, and make us unique in the market where we can really act as a true partner for our customer to develop and deliver this high-value solution and help them on the scale up, so to contribute, of course, and help them to reach the patient faster. And finally, we are also the key juncture of the industry, as we shift toward RTU vial and cartridges as the new standard. The conversion of the supply chain towards RTU is a powerful indicator of future demand. And the new regulatory standard we saw from Riccardo before, applied across the industry makes really RTU solution like EZ-fill, even more desirable for our customers. So in a few minutes, to make this more concrete, we will hear from Sebastien in more detail about one of our key customers transitioning to RTU. So changing their operation and converting to EZ-fill. And then right after that, we will be, of course, more than happy to take your questions. Thank you for your attention. Thank you. Seb, please.

Good morning. I'm Sebastien Lebreton. I'm the Head of the Global Key Account Management at Stevanato Group. And today, I will share with you a story about our key partners. We embarked upon a multiyear project to assess their long-term needs and decided to adapt the ready-to-use technology. So as mentioned, our customers have numbers of path into high-value solutions. The increasing complexity of biologics and supply chains, as well as regulatory environment is creating a natural path into Stevanato Group high-value solutions.

Okay. So which are the key entry points to this high-value solutions. As we mentioned, just right now with Mauro and Riccardo, highly sensitive and demanding drugs, products which needs high-performance containment solution, so notably the biologicals. Adoption of ready-to-use configuration. Here, the customers are actively considering their legacy bulk capacity into RTU format because it solves them many issues that they are facing. And as I mentioned, that will be the focus on the case study. And then the trend towards the self-administration of medicines, which is requiring a growing demand of devices. So now, let's deep dive into our case, which is addressing 4 major challenges. The first one is how to support an extensive pipeline with multiple potential presentations. The second, how to be more agile to manage market demand viability. The third, how to manage insufficient fill/finish capacity, and the fourth how to manage increasing regulatory constraints. So being an historical preferred partner, serving the customers with large numbers of bulk, vials and cartridges, we naturally had access to the large pipeline of new drug in development. And by 2016, we supported the development and then the commercial launch of a new product in prefilled syringes and auto-injectors, thanks to our Nexa platform. And we already had to support a significant ramp up with increasing volumes year-over-year. But during the same period, the product had access to a new indication and the demand for this new treatment is increasing -- sorry. No, I'm getting, okay. Yes. Here we are -- sorry. So the excess of this new indication and the demand for this new trend is increasing by an order of magnitude. This means that our clients need solution to keep pace with the new market demand and needs to deliver to the patient in a timely manner to not leave space to the competition. Unfortunately, the current setup is not able to support this new scenario. Basically here, the question is how to increase the number of doses you put on the market quickly. And the solution and the answer is you need to increase the number of doses per container. So which are the alternatives we have here? We can have vials, yes, you can fill vials with multidose. But it's too far from the intended scenario of use. Here, we are referring to a self-administration application. You can have bulk cartridges. It works as well. You can fill multi-dose in a cartridge. And the customer, by the way, is used to deal with bulk cartridges. The problem is having a saturated capacity, so it will need an incremental capacity in order to follow this direction. But the bulk setup is expensive, it's complex to validate and it takes time to be implemented. So it will not fit with the time constraints that the customer is facing. So finally, you have EZ-fill cartridges. It's still filling with the needs. The format is already available, supported by the flexible RTU fill-finish capacity that the customer has already set up to support the launch of the product and is actually increasing as part of this manufacturing footprint. At the same time, you have SG, who is the market leader. With the largest installed capacity, we are already extending this capacity significantly as part of what Moro -- Franco Moro presented to you. And on top of that, we have the technical expertise to characterize right first time to design and to support potential external CMOs as well. Okay. So by choosing RTU 2 cartridges, the result for the customer is to increase dramatically its ability to deliver doses to the new area of magnitude the market is asking for in the shortest pathway, anticipating consequently the revenues generation. It is also gaining flexibility for future drugs from the pipeline, flexibility to support variation of market demand between the 2 different market presentation, improvement of the total cost of ownership compared to the bulk cartridges scenario. And finally, an improved compliance compared to the new Annex 1 requirements. So now let me show you an illustration on who our customer is approaching the transition to RTU cartridges and managing its fill-finish capacity. So you can see the first phase where you have the legacy bulk capacity. Then second, you have the adoption phase. So here, the customer is implementing a new incremental flexible RTU capacity. The first part is the conversion phase of the bulk capacity into the RTU capacity, either by replacing the bulk capacity with new lines of RTU or by retrofitting the bulk capacity to RTU formats. Of course, this overall process is complex and is not happening overnight, and that's why we are supporting this partner on a [ multiyear ] basis. In conclusion, what do we have? We have a customer being able to come to market quickly and efficiently, and with the needed supply to meet the demand of the dramatically growing patient population. This is just an example of how we are helping our customers to address change and seize opportunities. This case study is representative of what we hear from our key accounts and what we are seeing into the marketplace today. Customers are increasingly dependent on reliable partners to support them. And this case demonstrates also the importance of partnership and customer intimacy. Across the board, customers are seeking help to streamline their supply chains and reduce complexity to deliver at scale. They operate in a complex environment with strict standard and regulation, and the adoption of ready-to-use configuration is helping to ease those many burdens and challenges. And with that, let's open the Q&A session. Thank you.

[indiscernible]

Patrick Donnelly from Citi. Maybe one on the GLP side. Can you just talk about, I guess, what those multiyear commercial agreements look like with GLPs? Are there minimums in there? And then Mauro, I know you commented that you have good visibility into customer pipelines, developments. One of the questions we get and I'm sure you get is the future of GLPs, does it flip to oral? How do you think about that dynamic and what it could mean for Stevanato when you think about the GLP market.

Sure. So -- thank you for the question. I'll start with maybe the part related to contract, if I got the question right. So yes, I mean, we work with our customer on a multiyear level, so the GLP-1, as you know, formats are basically aligned with our portfolio of DCS, Drug Containment Solutions. So there is, no, let me say, basically a difference between the long-term contract that we have with such customers in our portfolio and the one on GLP-1, of course. The quantity are different. The horizon is different because we are working on a longer horizon. But GLP-1 is embedded into the contract that we normally have long term with this customer, if I got the question right.

Yes. And then maybe just on the oral piece, how you think about that?

So on the oral piece we got from our customers, also third-party data suggests that by the end of the decade, oral should be around 20% of the market. So we feel that injectables is still there. The way -- the major, let's say, presentation for those GLP-1s, especially because they are delivered on a weekly basis posing much more convenience for the patient.

Okay. And then just a quick follow-up. Just on the Fishers capacity, how much of that capacity is going to be spoken for as that opens up in the first half of '24. Just trying to think about how quickly volume could ramp there. And is that going to be all high-value solutions? Maybe is it a lot GLPs? It would be helpful just to think about how that ramps.

Yes. Starting for the last part of your question, yes, I confirm that the capacity of Fishers is for high-value solution. It's a multiyear investment. We project that to have the completion of this fees of investment in '27, with a couple of years more to ramp up to full capacity. You know that -- most probably, you know that we continue to execute our CapEx with this modular approach, we are ready also to speed up a little bit. If the demand proved to be even higher than the current view we have. But it is something that we will deploy in some years. At the end, in the same plan, in the same area, we have also a space enough to think about a second step of this big project for further needs and for further growth of capacity. But in this time, we are focusing on the execution of the first phase that corresponds to the first big building that I hope you will visit some time.

Tim Daley from Wells Fargo. So I -- Slide 28 was really interesting that chart that showed the 2022 to '27 growth split by current customers and existing. I think it was 70%, 30%. Just -- how confident are you that you're able to achieve that 30% of that growth from new customers? Like is this simply just opening Fishers? And now that you have a domestic presence, you are able to win more accounts, gain more share. Just kind of help us understand that piece.

Yes, I was looking for the slide.

We are working on it.

[Foreign Language]

Yes. I mean -- so this is clearly related to the existing portfolio of customers we have. So we are in long-term relationship, we are embedded with the customer. So we are actually working in order to support them and to respond to this demand growth on one side. What we are also doing, we are clearly working on the remaining 30% because some of these are new comers. And there, we are working on an earlier stage on the pipeline in order, of course, to increase our coverage. But for what concerned the 70%, I mean, it's a relationship that are consolidated in place since a long time, and we see this as an evolution of the existing customer relationship.

Dave Windley, Jefferies. I have several. Your highlight of your leadership in cartridges, is that in both ready-to-use and bulk?

Yes.

So both. Okay. And given that ready-to-use is more penetrated in prefilled syringe, is your #2 position in prefilled syringe, a bigger revenue generator than cartridge or vial either one. I mean I'm wondering what kind of the rank order of contribution is to your revenue base?

But basically, we don't split the revenues in this as you expected in my answer. What I can say is that, yes, we are the leaders. There is a slight difference in between the 2 markets because the market for cartridges is more concentrated than the vials. So the possibility to ramp up volume with customers that use cartridges converting -- shifting to sterile configuration could provide faster opportunity than a vial market that is more fragmented one.

Got it. For -- on the multiyear agreements going back to kind of part of Patrick's question. On that slide, you detailed several characteristics of those multiyear agreements, which included take-or-pay, among other things, what percentage of your revenue is bound under those multiyear agreements? .

So thanks for the question. This is also an information we don't release, but I mean...

But today is your opportunity to do it.

No, about that. I mean, what we can say is that consolidated relationship with key accounts, like the one Seb was referring to, are all covered with multiyear agreement. So all our strategic customers are -- we are working in that direction.

Last one for me, and I'll hand it over. You highlighted in one of the slides, the amount of the production footprint that has put in place ready to use -- the ability to accept ready-to-use, right? And that -- in vials and cartridges, that's a pretty significant increase. And you've talked since -- we started talking about this at the IPO that vials and cartridges are only, I think at the IPO, you said 5%, today you're saying even less than 5%. I assume that's kind of a rounding error essentially. But it's still basically the same. The footprint is getting ready to do it. It has -- it apparently hasn't moved in the 2 years since you've become public, what's waiting on? What will catalyze that conversion to ready-to-use for vials and cartridges?

So if I may say, in general terms, this was part of our presentation where today we put on the table additional element, which, in our opinion, will contribute not only to support but also to accelerate this change. Clearly, as Seb also explained with the customer case, on the customer side, this was an example we started working in 2016. Today is 2023. There is a strong runway we see and we have agreed with the customer, but it takes time. So this is, of course, customer dependent because it's depending on the manufacturing assets that they have and whether they are investing in new capacity or thinking to retrofit existing capacity. So it's difficult to have a single view about that. But this, for sure, is ongoing.

Mauro, maybe I might add that the regulatory scrutiny, which is very recent are expected to accelerate this growth in the future.

And David, I take the chance for your question also for people that is less familiar with our processes, just to stress that converting to sterile configuration, we have to invest on the second step of the project because we can leverage on the existing bulk capacity that is still needed to have just the second step. So also in terms of capital investment, it is a different starting point compared to starting from scratch, obviously.

Great. Larry Solow, CJS. Can you just give us a little more color on the competitive positioning, clearly, you're #1 in vials and cartridges perhaps you can talk about change in win rates over the last few years or some kind of metric that will help us there.

Yes. Thank you. I'm not sure I got the question. Are you talking about vial in general? Are you talking about...

Vials and cartridges, just trying to -- you're the #1 market leader, right? Whatever that share may be. Can you just kind of discuss the trends in the last, say, 5 years? Has win rates -- have win rates changed? Have you been actually increasing those win rates? Just kind of getting a little evolution of that? And maybe you can also answer on that slide, I think it was Slide 35. The top 10 volume -- expected volume drivers in '27, perhaps you can share how many of those you're actually partnered with?

I think, Mauro, what we can share is that for the -- I think it was the top 10 blockbuster slide that we are in, in 3 out of the 4 of the top blockbuster in biologics. And that is, of course, representative of how strong, our, let's say, ability to win is.

And on top of that, we are not searching for shaving share in terms of competition, but we are focus on the expansion of high-value solution to follow the growth of the emerging part of the market that is linked to biologics. So this is the main driver, the shift of the -- to high-value solution of the emerging part of the market more than the competition on the current setup of the industry. So the driver is our focus on high-value solution overweighted in the biological space.

Yes. For what concern cartridges, I mean, we are a leader in the market since many, many years. One of the reason is, of course, our equipment side of the story where we are able to deliver a high-quality, high-performance container. We presented this during the IPO. We presented still today because we have this leading position. And thanks to this we believe we can be, of course, the protagonist of the next steps and the next growth.

John Sourbeer of UBS. Maybe just kind of expanding on the last one. I guess, I guess you are #1 ready-to-use vials, pens, #2 is prefilled syringes. When you look out to 2027 and you see your growth trajectory, where do you see the biggest opportunity here maybe to take share? And would you even want to quantify what your share is within these or where you think there's the biggest opportunity to gain?

So maybe we can connect this to the end market where we also follow a little bit the progress we are doing. So which is -- I mean, not rather than getting share, but it is how big is the penetration we have with the high-value solutions in specific market segment like biologics. So what we released, for example, is that in the first half of this year, 26% of our revenue are in that segment, while last year, 1 year ago, we were 19%. So this is how we measure the capability and the success we have on both high-value drug and high-value solutions. Which are, of course, supported at the end by prefilled syringes, prefilled cartridges and prefilled vials.

And I guess just a follow-up on China. Just any thoughts on the long-term opportunity in that market? I know you paused some of the expansions there. How would you see the positioning? And when do you think that you might resume some of those expansion projects?

We are already for people that is also not so familiar with the company, we are since many years in China with our [indiscernible] production. And we are present into different direction. One is the big players that have their own global players that has the production capacity there and then the local customer. We are in China and Asia Pacific to stay for the very long run. And so we don't consider that pausing for 1 year or something, the investment there may impact the long-term strategy in that area. And again, it's not because we are pausing something because we are shy to invest this because we have to need to follow the strong demand where the demand is booming, that is in Europe and U.S. to secure, to be confident about the execution of this capacity. It's not easy, but we are leveraging on the track record of greenfield facilities started along the year. The reason is the demand. The pausing of China is driven by the strong demand in the other 2 areas, more than any other consideration.

Maybe if I can add some more color on the answer of Franco. The fact that we are in the originator of the most of the blockbuster in the U.S. and Europe, automatically is giving a very fast access, a very strong success in winning new business in Asia, in particular, for what is related to biosimilar because the typical configuration of this company in Asia, they love even more our integrated value proposition. The fact that we are already registered in the originator will help us to give a very strong reference both in product, products in terms of service and processes. So this is why if you look at the CAGR of India, Korea, Taiwan, also China next 10 years is still strategic for Stevanato Group.

Dave Windley, again, I have a couple of follow-ups. On -- you had a slide where you showed your participation along the continuum, R&D provision of container, skip over fill-finish and then assembly and packaging. On the assembly and packaging, I wanted to confirm that in that regard, you're providing equipment for that not providing the services in packaging and assembly. Is that correct?

It is correct. Yes, you are right.

And not an interest in getting into those services because my follow-up is going to be, you skip over fill-finish. I just want to confirm you're not interested in -- you provide the containers for it, but you're not interested in getting into fill -- sterile fill-finish services, correct?

Correct.

That's correct. Okay. And then in the contract manufacturer, so thinking I guess it would be DDS. You have your -- I don't know if I'll pronounce it right, Aidaptus, auto-injector that is proprietary to you. When a customer that wants to present their product in an auto-injector format comes to you in contract manufacturing, are they using their IP? Or are they using Aidaptus IP? How do you insert Aidaptus into the conversation and get that as uptake on -- so kind of interested in that is particularly as it relates to the GLP-1 market.

I think Mauro may give color about that. This is a very good question because actually these are 2 different offerings that respond to different needs of customers. So the Aidaptus is a proprietary solution, which respond to customers that do not want to develop their own device. They are looking for an off-the-shelf solution. which can also be customized. But at the end, it's an off-the-shelf solution already developed, which is available to this kind of customer. Then you have customers that prefer to have their own device for differentiating reason, whatever. So these customers are the ones that are coming to us in order to have a CMO support or CDMO support in the sense that we can also support the industrialization part of this. But basically, who does not want to take on the risk of developing a device is looking for the shelf -- off the shelf solution. The other one have their own internal development.

Matt Larew from William Blair. You referenced the looming biosimilar opportunity for GLP-1s. But thinking more broadly about biosimilars. Just curious what your experience has been with those customers, the types of packaging that they've used relative to the originator molecule. Has it typically been -- maybe I would ask it, the percentage of biosimilars that are high-value solutions relative to the originator molecules.?

Maybe what I can say, Mauro (sic) [ Matt ] is that biosimilars tend to copy the type of drug packaging that the originator has in terms of performances and in terms of specification. So if a customer -- the originator is on, for example, the Nexa prefillable syringes -- prefillable syringes usually, they were similar is on the same performance level.

Yes. So they're both basically high-value solution because at the end of the game, what these customers are looking for is a quick access to the market. And if you go there with containment solution, which is already approved in a regulatory -- from the regulatory standpoint, you can be faster than with a new one. So basically, they are both utilizing high-value solution, DCS.

And we can drive speed to market, given that we know how the originator configuration is so we can drive this speed to market to biosimilar as well.

And if you consider the trajectory when there is a patent cliff of a drug you must remember that also in case of biosimilar, the container solution represent a minor part of the cost. So there is no reason for them to take a risk if the container solution, targeting what, targeting what they have and they need to be very fast to the market. In the first year after patent, not years, but also months after the patent cliff. They have the opportunity to gain the most of their advantages. So be fast is the concern. They are not thinking about taking a risk on the container solution.

Yes. I was almost asking it from the opposite perspective that I presume there may be originator molecules with bulk solutions where biosimilars are coming online, with much higher value solutions.

Sorry, I didn't get the question.

I can follow up. So the second question is, you referenced the capacity that has shifted to RTU. You described the customer who converted some of that capacity. The fill-finish capacity that's coming online today that you're aware of, do you have a sense for what percentage of new fill-finish capacity is RTU compatible?

There was a slide showing the duration that it has in our -- I think it's plus 32% either vials or cartridges.

Yes, it was more than 30% on vial and 40% on cartridges. The growth, let's say.

Yes, what is also interesting maybe to complement what Riccardo was presenting is that also the speed of the ready-to-use line is increasing. Because at the end, there was a -- I would say, significant difference between the 2. Now they are basically on the same page. So now also the RTU filling line are at the same speed of traditional backline. So the number of lines you see here, the plus 32%, you have also to multiply by the speed increase, which happened in the same time. So the capacity is growing much faster than the number of lines that you can track. This was the -- I hope I explained myself.

So Matt's first question is about those originators that are in bulk format and as they transition the biosimilars come out, what is the expectation that they remain in bulk or they may transfer over to read-to-use?

Okay. Sorry, I didn't got. Also here, it depends on the customer, and it depends on the manufacturing asset. So reconnecting, for example, to the regulatory requirements. There might be customers that are willing to switch to RTU for certain need to review the process in view of the new regulatory requirements. So it's a mix depending on the customer and their manufacturing footprint.

I think the ready-to-use and not ready-to-use is more dependent on the customer infrastructure rather than the product quality.

Any last questions before we break for lunch? All right. And with that, we're going to take...

May be there's a one.

One there.

[ Vic Zimmerman ] from Invesco. I think in your IPO documents and then today, you talk a little bit about services potential on the engineering side. Could you just talk about exactly what type of services that encompasses and how you think about the potential for that over time?

Yes. In business of engineering after-sales services are very interesting for us because you know that's also a higher profitability associated to this part of the business, benchmarking with other competitors, we recognize that there is a room for expansion of after-sales services that includes a different deliver board that are retrofitting of existing capacity, bringing existing line to the state-of-the-art with the last innovation. We can help the customer to optimize the performances of our machine. We can introduce the artificial intelligence tools that we developed recently in visual inspection. And then we can provide them changes, the lines already installed in terms of the ability to have different formats in terms of different size of vials, cartridges or something. So that there is a mix. Obviously, the regular maintenance is also something. The delivery of spare parts is also interesting business. Overall, we can -- we say that we expect to improve the results in that segment by expanding aftersales more than now to increase also profitability.

And I will say it's also part of the engagement model with the customers, create intimacy. It's part of the customer experience. So we are following up along the life of the machine. And this gives us this close contact in order to continue to understand their future needs in the direction that they are looking for in order to increase our ability to serve the market in a better way.

Just one quick question [ Shaan Fye ] with Styrax Capital. Obviously, both Lilly and Novo and every person in the GLP-1 space right now is doing both prefilled syringes and cartridges. So just thinking through how that affects you guys on a unit basis, on economic basis depending on that mix, right? Like obviously, it seems better with more prefilled syringes total because that's more glass. But at the same time, you guys have better share in cartridges. So I guess if we fast forward to 2027, what's an ideal scenario for Stevanato, if you like, break down that cartridge PFS mix?

Well, we do not disclose these kind of metrics in terms of different formats. What I can say that -- and then Mauro may complement the market view is that our strategy is based also on the high differentiation of our product mix and our customer portfolio to grant stability of the growth and not to become dependent from a single franchise or a single customer too much. In that direction, I believe that our growth will continue to be balanced among different containment solution shifting towards a high-value solution but without introducing the dependency from a single situation.

I mean I can add that the growth is there in the market. Both products are contributing in terms of high-value solutions. Our portfolio is matching perfectly both. So we don't see any difference between the one or the others. We are ready to follow both. And with the equipment part where we manufacture our own technology to manufacture both of them, I would say, put us in an advantaged position to follow the trend wherever it goes.

We are going to take one more question before we break for lunch.

Derik De Bruin from Bank of America. So can you just remind us on the revenue margin differentials between standard products and high-value solutions is one? Just a rule of thumb on how to think about that range of revenue margin on your portfolio? I think it keeps coming up in all of our conversations with investors, and I have to try. I have to ask. I know you're not going to answer it, but...

Derik, you put that question that normally you put it to Marco, but I try to give you the answer. No, we are still in line with what we delivered previously about marginality gap that is for high-value solution in the range between gross margin, 40%, 70% compared to the standard back production, not high-value solutions that range in between 15% to 35%. This is the split. Obviously, we expect that the profitability continue to grow in the future. But is the overall shift into high value solutions that will improve the profitability of the company and Marco will cover much more in detail this part in his presentation.

Okay. We're going to go ahead and take a break for lunch. We'll be back at about 1:00. Thank you. [Break]

Hello? okay, everybody. We are going to get started for our afternoon session. If everyone could take their seats and we'll get ready to go with our research and development team. Thank you very much.

Good afternoon. Welcome, and thank you for being here. My name is Paolo Patri, I'm the Chief Technology Officer of Stevanato. I'm very glad to be here today together with Odra in order to speak about the science that drive innovation behind our products. Research and development, future innovation are key driver of our growth at Stevanato. Our ambition is to partner with our customers developing safe and effective medicine for the future. It's easy to be mistaken in our business and think about our product like vial, cartridges and syringes to be a commodity. But today, we need to be very clear. Those are not. These are very highly specialized product that respond to specific need of new amazing medicine that our customers are developing. At Stevanato, we are constantly advancing our research and development effort to design new solutions that address the needs of innovative medicine. This is a market that requires cutting edge thinking. And I'm glad today that, that's what we are delivering to our customers. We have more than 150 employees working at this moment in R&D across 50 different projects. Our investment in 2022 last year was roughly EUR 34 million. We have doubled our investment compared to 2020. And research and development investment has been always a cornerstone of our strategy in Stevanato. And Stevanato R&D is a global presence of 7 different sites across the 2 main regions, U.S. and Europe. And this global R&D presence is creating a unique and fully integrated R&D group that is working not only a proprietary product, but is working across multiple different business model in order to support our customer development for them product, processes and also services. Finally, our R&D is closely connected with a global R&D lab. We are working according to the mission free of academia according to 2015 sustainable development goal. Our focus is the circularity of education for workforce development and continuous training of our employees. We have physical joint lab with university, and we are building training facility for professional in the parental industry. But more important here, we are working with world-class experts in protein formulation and pharmaceutical processes in order to anticipate the future innovation that our customer will need in the future. We are focusing our investment in 3 key pillars: drug container solution; drug delivery system; process excellence and digitalization Sustainability is not a set by pillar, but underpin all our scientific efforts. Our focus is decarbonization with a bold move in product packaging and processes. When it comes to drug container solution, our customers are developing amazing new medicines that are the most advanced that we have seen before. And those innovation require breakthrough solution also in terms of drug container solution. We are working to improve the quality to an even higher standard of purity compared to what exists on the market, and we are removing by design or reducing to the bare minimum, any product or process-related aspect that can impact the safety and effectiveness of a medicine. Our solution are central to the regulatory scientific data package of our customer. We are not just supplying a product, but we are providing to our customers scientific data that are essential for their registration. That means that our system are part of a customer license application. And when regulators will approve the medicine, we will be approved together with them for the entire product life cycle. That means that our solution and our customers are having more incentive to stay with us longer due to the high switching costs. But let me zoom it a little bit on our Alba solution. This is an example on how our science technology approach deliver breakthrough innovation for the entire industry. Alba is a high-value solution. It is an advanced coating that has a perfect match for a broad application in the biologics space. Can be used in ophthalmology for intravital application, can deliver innovative very sensitive monoclonal antibodies to an out injector, but can also be used for mRNA and viral vector gene therapy in cold storage. This is because Alba has the same product performance in stability over a broad range of temperature from cold storage up to 40 degrees. With our technology, we can ensure the benefit of the traditional silicon oil without having any risk in terms of silicon droplet particle release or in term of gliding force. Here on the left, you can see how the superior performance on Alba is able to reduce dramatically the silicon droplet particle release from an average of more than 120 particle per container in the 10-micron range for the traditional silicon oil to only 1 particle without any variability. But more important on the right, you can see how stable is the gliding force. So the extrusion force over several time points compared to the drift that traditional silicon oil is having in term of gliding force over time over the temperature. That means that together with Alba, we can provide a consistent, stable experience to deliver a monoclonal antibodies in an auto-injector. But let's have a look to also our second pillar, the drug delivery system. Today, Franco and also my colleague, has spoken about the key driver of transitioning the therapy from the hospital to the home care from IV to subcutaneous in order to allow patients for the sub-administration. And this is not only a huge financial implication but a very personal one for each individual because if you are a patient, you do want to forget to be a patient, and this is our crucial driver in developing a broad portfolio of drug delivery system. We have scaled many technology, and we already identified 3: a pen injector; an out injector; and a very exciting wearable device. In most of the cases, our customer have asked us to use our solution for day therapy. That means that our customers are funding our development. And in case their product will be approved by regulatory, they will commit also future production. With the wearable, we are looking to the future with a design that speaks for sustainability, for patient centricity and for digitalization. But what's really important here that in all the cases, customers are asking us to use our labs, our technology excellence center to test their medicine with our product. That means that we are moving from being a simple supplier of a product to be a partner in a development of a new medicine. And that's really our ambition in R&D. With our wearable Vertiva, we have a differentiated approach, and we have several competitive advantages to what exists today in the market. First of all, it's a very highly flexible, easy to be customized platform that can serve different use cases for different therapies in the biologics space. It can deliver -- this device can deliver full injection bottles and also an ultra accurate micro precise Basel administration or even a combination of the 2. It is a prefilled preloaded device that has been developed over a very wide range of cartridge format from 3 ml up to 10 ml. But again, what is really important here today is that it is a semi disposable device. It has a 2-part design that is really speaking for sustainability and patient centricity. Why? Because the patient is disposing every day only the mechanical low-cost part while it's using multiple time for the entire duration of the therapy, the smart controller. This means that the total cost of the therapy is spread over multiple days, and the patient enjoy a very reduced daily cost of the therapy. All the other products on the market are fully disposable electromechanical devices. And so the patient is disposing every day a high-cost device with a significant impact for the environment. Finally, for our customer, the free and the 10 ml format are sharing more than 60% of the component, meaning that they can enjoy a lower cost of goods and reduce capital investment. The third pillar is about process excellence and digitalization. Here is about how we are improving our customer operations through process excellence, thanks to our engineering. Here, the goal is not only it is important, but not only to be efficient or be cost-effective, but really to help our customer to reduce the risk of stock-out and medicine shortages to preserve the supply to the patient. And we are doing in many ways. First of all, with artificial intelligence, we are embedding in our automatic visual inspection system. The artificial intelligence that is a system that is deep learning every day how to reduce the false reject. And we have been able to reduce 10x, tenfold from 2% to up 2%. This has not only a huge financial implication again, but it's really reducing drug waste and the possibility to have more drug product to patient. Finally, we have also embedded in our development and in the customer development, digital twins, therefore prototyping. That is a way to reduce the time to market because we can accelerate the development, reducing lead time from several months to few weeks. And this is helping us to increase our intimacy with our customers. Here an example on how our V2 prototyping can match reality. Siliconization, we have already spoken a lot today, but siliconization is really a crucial manufacturing process for a syringe manufacturing because the prices of silicon is fundamental to allow the drug to be excluded out of our container. However, if suboptimal siliconization could pose a potential harm for patient safety. In intravitreal injection in ophthalmology could cause -- particles could cause infection. Or in case of sensitive protein like monoclonal antibody, suboptimal siliconization could create a protein aggregation that can induce immunogenicity. On the left movie, you can observe the prediction of how a silicon layer could spread over surface. And you can see how this movie can capture the quality trend of this [indiscernible] phenomena. But what's really important is on the right, because we have plotted the simulation that are the curve with against experimental data. It is quite amazing and interesting to see how our prediction could provide correct estimate in the different critical area of the container over time. And we have used that modeling in order to develop our advanced coating like Alba. And now Alba is really posing the question, is silicon free is really needed, and we do believe that we have found the holy grail. Finally, partnering with a world-class market leader like Nelson Labs, Transcoject, [indiscernible] and Thermo Fisher, we are able to provide our clients a full range of services that can help them throughout the development of a molecule from the drug product development up to the delivery to the patient. And we are complementing our offering to an unmatched range of opportunity for our customer. But let me now hand over to Odra that will present how our labs, our technology excellence center can help our customers gaining the value out of our innovation.

Thank you, Paolo. Hi, everyone. My name is Odra Pinto, Head of EMEA Technology Excellence center. Okay. Sure. Stevanato Group supports customers along the drug development journey with early testing. We have 2 technology excellence center where we can do that. These are basically laboratories based in Boston, Massachusetts, U.S. and in Piombino Dese, Italy, laboratories where customers can come and work with our research teams can work with our scientists using some of our equipment. Technology incentives are really the entry data from a scientific perspective, where the scientific driven is the pillar of our engagement model. But let me tell you more about our 2 main strengths. The know-how and the knowledge. So we combine the manufacturing culture with the know-how built, let me say, on the case of bridging together the glass science and the manufacturing technology. And the multidisciplinary nature of our teams with expertise focused on chemistry, on material and mechanical engineering on physics on biotechnology and also on pharmaceutical sciences. This allows the bridging of the knowledge between the drug containers and the drug products and the device testing, the mathematical simulation that are propedeutics for the device integration. So I just made the point explaining what technology centers are physically. So let's see them in action. [Presentation]

So we aim to integrate our capabilities along the pharma drug development process to anticipate the engagement of the pharma customers at the earliest stage of that process. Any to integrate in that process, acting as a one-stop shop as a strategic partner, not only as a provider. If we engage early, the advantage is to reduce, to mitigate the risk on the selection of a suboptimal drug containment configuration to speed up the decision making process and task the time to market. And that is very important for the new product. So our focus has tackling challenges that pharma companies face. So the big challenge, one of the big challenge as well as a key success factor is for the pharma company to streamline the integration of the primary packaging and the medical device, the delivery system. It needs to integrate to connect 3 dimensions, the glass with the related component, the drug with the formulation and the drug delivery system. So at Stevanato, we work, we act on the primary packaging as well as on the drug delivery system. So we can put together really something powerful to assess the complete compatibility. So from the early-stage formulation to the device integration, Stevanato Group through the technology excellence centers can assess 2 full levels of compatibility. The drug container with the drug product and the drug container with the drug delivery system through a full set of performance and compatibility testing. But let me say that finding the right combination between the drug product, the drug container and the delivery system is a very complex process with several different factors to be taken into consideration. So get it right requires a whole range all skills and science. That's why we bring our analytical skill and experience to have customers assess the right factors, the right ways. For example, the kind of chemical analysis that's necessary. If we look at the surface characterization, you have heard in our conversation today with Paolo the important in investigating assessing, characterizing the silicon coating and the silicon oil particle generation. So we help our customers to develop innovative packaging for innovating treatments. And that's what Stevanato Group through the technology excellence center can do for our customers. Let me give you an example. This is a case study. Let me give you an example of technology excellence center in action. So a customer came to us with a monoclonal antibody in development for the treatment of an immunological disease. Absolutely critical was to find the proper -- the right containment and delivery system that would ensure the quality, the CPP, the efficacy of the drug product, but also the time to market was critical for that customer. At the earliest stages, we combined our analytical testing with the build prototyping to find the right configuration, able to help customers accelerate the development time. And let me say that our collaboration has set them up to 2 years in the development time line. So this is just one example of how working with us as a partner is helping our clients.

So thank you, Odra, in presenting how the tech is able to help us increase our intimacy with customer. And in conclusion, with our science and technology approach, we can help and partner customer since the early stage of their development, and that is really our ambition. And thank you for your attention and I hand off to Lisa for the Q&A.

Three questions. Number one, how early before drug approval will you be involved? Is it 1 year, 7 years? What's typical years in advance of approval? Number two, do competitors do this level of research and development or do some just not? They are more manufacturers of product. And then 3 would be how do you work with the engineering systems group at the company and your research program?

Thank you for the question. I will start eventually, then Odra can complement. So first of all, we can start really from the early stage of development with some customers, we are starting to work really in the preclinical phase, in order to help them selecting the right container for the Phase I, and then we continue throughout the development. The second question is that, yes, some of our competitors are having similar labs, but they are not having the broad spectrum of the services that we are offering -- and now we are continuously expanding also with our collaboration academia, also internalizing preformulation screening. And what is really important at maybe Odra that now we present is that it's an entry gate of our broad capability. So we are not just providing services, but we can help connect our customers directly with our engineering to optimize eventually the integration of a container to a device, but also our drug delivery system and the manufacturing capabilities.

Paul, did we get all your questions? And then can you talk about the linkage with the tech, with the engineering side.

Yes.Well, let me say, we can help our customers with the filling operation. At the same time, we are leveraging also our engineering group to optimize through a bench top unit and visual inspection process. And this is the link to our engineering because through our engineering, we can have the bench top and the same technology, the critical uniperation can be replicated on a larger scale. So we can help our customers in optimizing the filing process, but also optimizing the downstream processes that are overly managed by our engineering. Another example is what also Franco has reported, is that in some cases, we need to integrate our container into a truck delivery system, and our engineering is helping with the automated final assembly. In that case, that has been presented, the lab order helped to optimize the cartridges. At the same time, we have worked also to optimizing the final assembly. And again, we have given input to our engineer in order to find the best process for their final assembly operation.

Does anyone have another question for Paolo or Odra? I'll hand the mic to Mr. Windley, Jefferies.

So a quick one. Just are your -- the services that you provide in the tech centers, are they revenue generating? Or how do you price those services if you do?

Yes. Thank you. They are revenue generating. They are a small portion compared to our general revenues because in some cases, we can have a direct contribution from the customer and others are linked to supply all our products. So sometimes it's subsidized in the unit cost of our product.

Jacob Johnson from Stephens. As mentioned earlier, you can work with customers as they work to develop their own drug delivery systems and then you're also working on your own delivery systems. I'm just curious for the ones you develop internally, what types of customers are you working with on that? Is that smaller biotechs, you can't afford to develop their own devices? Is it the biosimilar opportunity? Just how should we think about that?

We have a wide range of customer effective for your question. We are working with the traditional customer where we are already -- that are already the main key account, but we are also working with small biotech, especially in the biotech, especially the decision to stay in Boston was ready to connect with the broad ecosystem and we are working across the different services.

Tim Daley, Wells Fargo. So just I guess, following on to Dave's earlier question about the revenue-generating services within the lab. Are you like competing with other providers kind of when you are pitching the solutions and helping them figure out what they're going to be using for Phase 1? Or is it just a pure engagement with Stevanato?

No, we are having multiple approaches, and we can have a direct pitch with biotech presenting our services. In the vast majority of the cases, they are attracted by our prospectrum and also about our experience in manufacturing container, the knowledge about the container and how to customize to the specific need of the molecule. And in other cases, also with big pharma, they are having a potential issue with a new product or through a transition to a new container and they want us to help them selecting the right solution for the specific need. So we are embedding our services in the entire package of offering that Stevanato can offer to the customer.

Paolo, can you elaborate on the comment you made about silicone-free syringes versus Alba. Is that the Alba has the advantages of a siliconized syringe, but can be used in indications where a silicone-free syringe might typically be used? Just curious for more detail on that.

Thank you for the question because it's really interesting. I cannot be very broad. Let me say that Alba is the perfect solution for our wide range of application. Honestly, there are no silicon free syringe on the market. It is -- there is a problem for siliconization, sometime customer would love to have a solution like that. We have also recently compared innovative solution will have to add a comparison with our, and I can say that I'm very glad that Alba has been selected as a solution for this application. Typical applications are very low silicon droplet release is in ophthalmology space because there is a specific also USP requirement, and Alba is perfectly responded to this requirement, but also outside of ophthalmology that can be an issue. The new innovative medicine like RNA, but also monoclonal antibodies acquire a very well controlled siliconization. And that's the reason why we have worked to improve our Nexa over a level that really ensure a very stable siliconization over the different temperature, even in cold storage and also over more than 1 year and 2 year's time. We have now a full set of stability data that are responding to this specific question from customers.

Can you talk about how you allocate the R&D budget between containment, delivery systems, IVD and engineering?

That is a very good question that Marco will be happy to be answering. So we are increasing the investment in R&D. And at this moment, in terms of labor cost, but also external expenses, we have an equal balance of spending, both in direct container solution [indiscernible] system also because [indiscernible] system we are planting the seed of our future.

Thank you both for presenting on behalf of our research and development teams. Next up, we have Marco Dal Lago, our Chief Financial Officer. I will ask him to come up to the podium.

So good afternoon, everyone, and thanks again for joining us today. I'm Marco Dal Lago, the Chief Financial Officer, introduced by Lisa. So you have heard today from my colleagues how we are uniquely positioned to leverage our capabilities and for future growth and value generation. You heard about our unique value proposition and our differentiated set of products. I will walk you through the financial indicators and performances, not only with respect to recent years, but most importantly, about the goal we have for the years to come. So during the last 3 years, we delivered above our financial objectives. We have been able to generate robust double-digit organic growth. But as Franco was saying this morning, we have also been able to reposition the company to a high-value solution. The share of revenue in a value solution, in fact, moved from 17% in 2019 to 30% last year. And this is the #1 contributor for the margin expansion we experienced. You can see here that we have been able to expand more than 600 basis points our margin, both gross profit margin level and an adjusted EBITDA margin level. So this is not only about growth. This is about profitable growth. Today, we are reiterating our guidance for 2023. We expect revenue ranging from EUR 1.085 billion to EUR 1.115 billion. That means a double-digit growth also this year that is ranging from 10%, 4%, 14%. And this is important in our opinion because it's the year where COVID revenue went down by EUR 80 million. Our guidance for high-value solution, as anticipated by Franco this morning, is expected to be between 32% to 34%, further shifting to our value solutions. And our adjusted EBITDA margin is expected to be at the midpoint, 27.1%. So further expanding compared to last year. The adjusted EBITDA is expected to range between EUR 291.8 million and EUR 303.8 million. Finally, we expect adjusted diluted earnings per share from $0.58 to $0.62. We are taking today the opportunity to update our midterm guidance. We expect for the years to come, an average yearly growth in revenue in the low double-digit range through 2027. We expect to further expand the position into our high-value solution with a target to be between 40% and 45% by 2027 in High Value Solutions, mainly thanks to that, but also thanks to some efficiency, we will bring in. We expect to approach an adjusted EBITDA of 30% in 2027. So let's see how we plan to expand margin toward 2027. It's important to consider the various elements that are driving our margin expansion. We see 2 temporary headwinds associated to the ramp-up of the 2 facilities and the big investments we are doing. The first headwind is about the inefficiencies that will be associated to the growth in the 2 new plants. And the second headwind is about the temporary effect associated to the higher depreciation in percentage of revenue because we expect depreciation will grow faster than our revenues in ramping up the 2 new facilities. So starting from the left, we expect in '24 and '25 to further take advantage of the expansion of our EZ-fill and high-value solution, bringing more margin in but we expect this higher margin will be offset by the 2 headwinds I mentioned. So we expect in 2025 similar level of gross profit margin and operating profit margin that we are having in 2023. But we expect, at the same time, higher adjusted EBITDA margin for the reason that obviously depreciation not affecting our EBITDA. Moving into 2026 and 2027, we expect to take advantage again of the further shift into our high-value solution. We expect to bring in efficiency in operation, especially in the 2 new facilities, and we expect that the growth revenue will better leverage our fixed expenses, including depreciation. So we expect in 2027, margin expansion across the board each level of the P&L, a gross profit margin level at operating profit margin level and an adjusted EBITDA margin level that, as mentioned, is expected to approach 30% in 2027. To execute our plan, we have a clear capital allocation priorities to deploy. So our #1 priority is invest in the business to drive sustainable organic growth. As you're aware executing our plan to expand global footprint, expand high-value solutions and gain proximity to our customers. R&D is the second pillar of our capital allocation strategy. You heard right now from Paolo that we are focusing on high-value product in drug containment solutions, our proprietary solutions in drug delivery systems but also in process and digitalization. We are currently spending about 3.5% of our top line into R&D and we plan to keep on spending similar percentage in the years to come. That means more dollar invested into R&D to stay at the edge of the technology. We are currently having an opportunistic approach on M&A, but this is not today our #1 priority because we believe we have a complete value proposition. And finally, dividend. While we have a small dividend today, our intent is to keep the dividend at approximately 10% of the profit to give back some value to our shareholders. And we'll continue to evaluate this in the coming years. Let's talk about CapEx. You can see here that pre-IPO between '19 and 2021, we were spending about 14% of our top line into CapEx, and this allow us to grow significantly in 2020, 2021 and 2022. During the pre-IPO phase, we decided to invest and expand our capacity in EZ-fill and gain proximity to our customers in North America and Europe. And so we started this important cycle of CapEx expansion. You can see the growth in 2022 and in 2023, where we expect to invest between 35% to 40% of our CapEx -- revenue into CapEx. We expect 2023 to be the peak of our CapEx expansion and then to enter in a more normalized phase. For 2027, we plan to normalize the level of our CapEx, with CapEx in the level of high single digit to low double digit in comparison to our revenue. At that level of CapEx, we still anticipate we will be growing. We expect low double-digit growth, as mentioned. With CapEx that will be -- are expected to be 70% associated to growth, while the remaining 30% will be associated to R&D and maintenance. It's very important to keep in mind, as Frank was saying before, that we are investing in EZ-fill and almost everything in high-value products. This is important because we -- there are financial indicator associated to that. First of all, we expect that for each euro we invest we are having in the future EUR 1 revenue per year when fully ramped up. And the other very important thing is that invest in EZ-fill, we can expect to have high-value solution with gross profit margin between 40% to 70% gaining a very good internal rate of return for these projects. We're experiencing Piombino days in recent year, the investment in EZ-fill. And when we measure the internal rate of return, we are well north of 20%. So we are targeting similar internal rate of return for Fishers in Latin in the years to come. It is true that we have a strong cycle of CapEx, but we have also many tools to mitigate the risk. The #1 tool is the visibility we have on future demand from our customer. As mentioned, these are projects demand-driven CapEx. And we can really leverage the long-term visibility we have with our key accounts. Okay. Mauro already introduced this slide before. So most of our largest account, a multiyear commercial agreement with us where there are not only forecasted volumes for the years to come, then speaking, we have visibility for 3 to 5 years, but they are also committing volumes and many times bind in volumes. So this is the #1 factor we are considering when we invest and we base our visibility on the multiyear agreement we have with our customer. Another important tool we have for visibility is obviously having engineering under the same roof. Because in installing capacity to our customer, we enter in intimacy with our customers and we understand the future demand there. They will have with respect of containment solutions. Next slide, please. So we are investing more than planned before IPO. The reason why we are doing that is that we can see stronger customer demand. And the key indicator for that is that we are overperforming our pre-IPO expectation not only we respect of revenue, but also with respect with the speed of shifting to our high-value solutions and margin expansion. And what is more important is that today, we can see for the future stronger demand than what we planned at the IPO time. About free cash flow. As mentioned, with the cycle of CapEx we launched, we expect the peak of CapEx in 2023. And associated to that, we expect consistently with what we planned before IPO, negative free cash flow in 2023. With the CapEx starting normalized, we expect to get closer to breakeven in 2024 and start generating positive free cash flow in 2025. With a normalized level of CapEx I described before, we expect to generate free cash flow in 2027 in the range of 35% to 45% of our adjusted EBITDA. Similar situation with respect of return on invested capital, consistently with what we plan at IPO. We are investing. And this is temporarily affecting our return on invested capital. We were well above 20% 2 years ago. we are now going down because of the CapEx done and the fact that we are not leveraging yet the big investment we are doing. But we expect to start ramping up in '25 and keep on expanding our return on invested capital to go back to the IPO level when we will leverage -- we will fully ramp up the 2 new facilities. It's important also to remind this context that we are very motivated to improve the return on invested capital because management remuneration is tied also to return on invested capital. So in conclusion, we believe we are ideally positioned to keep on generating value creation. We are targeting average yearly revenue growth in the low double digit through 2027. We plan to keep on repositioning the company toward high-value solutions with a target to be between 40% to 45% as a percentage of total revenue in 2027. And thanks to that and thanks to other efficiency program we have in place, we are targeting a 30% adjusted EBITDA margin in 2027. To do that, we have a clear capital allocation priority. We want to expand our capacity and serve our customer in EZ-fill. And we can do that also because we have a very robust balance sheet that is giving us the flexibility to finance the future growth in high-value solutions. Thank you very much.

Just on the CapEx, from '24 to '26, does that steadily step down? Can you maybe give us a little color there?

Yes, we expect it to -- obviously, to go on with the 2 new greenfield facilities we are doing, especially we almost completed Latina, but we still have to complete Fishers, and in 2024, there will be the progress on Fishers. As Franco was saying this morning, we will be considering 2024 when to restart China. But all overall, we expect a decrease in CapEx in 2024 and 2025 compared to 2024.

And just to clarify, by '27 when you're sort of in the high single, low double, does that support -- that's where you think you support still low double-digit growth going forward from?

Correct. correct. You have seen the data for '19, 2020 and 2021 where we are investing 14% of revenue into CapEx. But you can also see that we have been able to grow more than 20% in 2020 and 2021 and 17% in 2022. So we believe the high single digit, low double digit can support low double-digit growth organically.

Just switching gears. On the high-value solutions, I think you target 40% or so by '26. How about -- can you just speak to that in terms of volume? Obviously, that's a much lower number. And also, any color just on sort of mix within mix. I imagine the base high value today is the majority or probably the great majority as we move out and you get more into Alba, Nexa. I suppose that should even help that mix even more.

Yes, I mentioned we -- about profitability, we range between 40% to 70% of gross profit margin, but it depends, let's say, it's a very creative products, but it depends on the type of contract, customers' quantities not associated to 1 single product. As mentioned during the day, we have 2 important tools to accelerate the shift into a value solution. One is the penetration in EZ-fill [indiscernible] configuration in vials and cartridges. And the second one is our technology with Alba and Nexa that are really suitable solution for the biologics. So we expect to leverage both very good representation of all our products in the high-value solutions space.

I guess it's me next. It's Dave Windley. A couple of questions on margin, Marco. In your margin bridge, you show the 2 headwinds to -- by, I guess, 2024, yes, 2025, this one, the 2 headwinds to your EBIT margin. From 2025 onward, I think Franco Moro earlier talked about the continued build-out of Fishers, the phases of fishers that I think would finish in 2027. So should we think that the '25 to '27 time frame will also have incremental depreciation headwind that will affect margin?

No, we expect the peak in '24 and '25. And then with the ramp-up of the revenue, we will better leverage the fixed expenses, including depreciation. You are right, but we are not showing now '28 and '29, but we will probably have further expansion associated to the better leverage of fixed expenses and the growing of the 2 new plants that are very focused in high value solution. We are showing here to 2027, the key message is that the negative effect will be until 2025 and then we ramp up of the revenue and the situation will be normalized.

So you will have incremental depreciation, but I'm hearing you say the activities in the plant will drive enough revenue to overwhelm that.

Exactly.

Right. Okay.

Moreover, the higher revenue. So in percentage of revenue, the situation in 2026 and 2027 with the ramp-up of the revenue will be better than in '25.

Okay. From a margin target standpoint in '27. As you said and others have said, your demand is outpacing expectations at the IPO. You're raising slightly your revenue CAGR to low double digits from about 10%, call it. You're also raising your high-value solutions mix within that. So those are all favorable to scaling margin. I may be splitting hairs here, but your '26 target was high 20s, your '27 target is 30%. That feels like a pretty natural progression that doesn't necessarily reflect additional leverage from higher revenue and better mix than the prior guidance. Is that 30% conservative?

This is what we can see today. We like to do what we put in our plan. They are achievable target, but this is what we can see today. And by the way, you are right, when we said we adjust a little bit from high single digit to low double digit to low double digit, but the starting point is different. I mean we are doing better than pre-IPO. So we are starting from a higher level of revenue, and we are further increasing the speed for the future.

Good point. My last question is around how you would -- how you foresee the company funding the investment and the negative cash flow, the net negative cash flow for, I think, '24 and '25.

We are not leveraged. Today, we have much less than on leverage between debt and EBITDA. And we basically have that option in front of us. We have also the option to consider in the future a follow-on offering, for example, with the primary proceeds. So we have a lot of flexibility in front of us to finance the growth in high value solutions.

It's Derek De Bruin from Bank of America. Dave just took my margin question. So -- but just to clarify on the 2024 margin, we've been modeling that down from 2023 as sort of like the capacity comes online and so going back up. And so like ending up flat for 2025. Is that the way to sort of think about it on the progression that the EBIT margin down next year and then sort of coming back up or flat both years?

No, I think I mentioned, we expect more or less approximately the same level of gross profit margin next year compared to 2023 and expanded EBITDA margin because the headwind is mostly associated to higher depreciation that is not affecting EBITDA, obviously. So expansion at adjusted EBITDA margin level and flat in gross profit margin.

Marco, Drew Ranieri, Morgan Stanley. Just when you're thinking about your $15.5 billion market opportunity, growing 7%, you're targeting low double digits. Can you just maybe help us think through the individual components of your business from a cadence perspective as you are heading into 2027 from a BDS perspective as well as an engineering perspective? And feel free to be as granular as you want.

Thank you very much for the question. So we expect through 2027 to grow double digit the biopharmaceutical Diagnostic Solutions segment, driven by a robust double-digit growth in High Value Solution and the mid-single-digit growth in other containment delivery solutions. About the Engineering segment, we see today from mid- to high single-digit growth through 2027.

Okay. And just maybe in thinking about your guidance and you posted a slide earlier about just beating your expectations from the IPO until now. But looking ahead, how are you thinking about maybe potential top line upside dropping through to the bottom line? Anything that you can provide there?

Yes. Make sure we are targeting a 30% adjusted EBITDA margin that is taking into account of all the improvement in mix and also efficiency we are bringing in after ramping up the facilities.

Okay. How much CapEx did you spend on the 2 facilities in Italy?

Say it again, sorry.

The 2 facilities in Italy, how much CapEx did you spend there?

We're disclosing the Fishers plan where we are planning to invest about EUR 500 million in the year. I can tell you that in Italy, the combination of the 2 is smaller than Fishers because we are starting from a different situation. We are -- we already have installed [indiscernible] EZ-fill in Europe. Latina is an important plant, but we are not disclosing the exact amount of Latina.

Do we have any last questions for Marco?

If you took the CapEx last year and then this year, what's the general split between sort of the box versus the equipment that goes in?

Can you repeat, please?

The CapEx for last year and this year. What percentage of it was kind of the build next to your building, the 4 walls versus the equipment that's going in?

Thanks for the question. During the initial phase of the project, there is an important portion associated to building and infrastructure. And then obviously, we have -- as Franco was explaining, the modular approaching installing lines. And this is the reason why we have such a large level of CapEx in this year because we are building 2 new buildings and infrastructure, even though Latina is a brownfield, but we had to easily work on the building and the infrastructure. And then we are taking advantage with the growth of the revenue, thanks to the line we are installing. Where we have a really a modular approach, we can decide having engineering side out to accelerate or slow down, depending on future demand. Now we are in the phase we are after completing the infrastructure, we're investing more and more in lines, in glass forming lines and sterile lines in order to ramp up the revenues that will be generated in Latina. In the next month, we will start to generate commercial revenue. And in Fishers, we are expected to generate commercial revenue at the beginning of 2024. So in the future, we'll be only about lines, basically.

And so this business is basically split 80-20 BDS versus engineering today. I know you gave some growth rates on the 2 segment growth. But what do you expect the split to be in 2027?

I mentioned the fact that we are expecting a fastest growth in BDS. So the share of BDS revenue will be larger in 2027 and -- but this is where we have the most attractive products and so the reason why we are accelerating more and more. NGA, extremely important for the reasons we explained before.

Marco, Patrick Donnelly. Just one on the revenue side, helpful to see the margin cadence, '24 and '25, maybe being a little bit lower. Any reason that the revenue wouldn't be linear in terms of double digit every year, particularly '24, you mentioned this year has the COVID step down. Anything we need to think about near term in terms of revenue? Or should it be pretty smooth with that low double digits?

Now we expect to stay in the low double-digit range basically each year. We expect steady growth in our revenues and shifting to a revenue solution with expanded margin associated to that.

Okay. That's helpful. And then just a quick one on the GLP side. When you think about the growth algorithm, any way to help frame whether it's the size of the growth? I know you guys put up I think high double digits for GLP growth. That's a pretty big range. So anything you can do to help frame that up would be helpful.

Yes. As we mentioned, we are not investing for one single therapeutic care. Our investments are in high-value solutions that are really suitable for biologics in general. So we are ready to take advantage of the opportunity. This is not the only focus we have in this moment. And then obviously, let me just say that we are planning CapEx in the level of high single digit to low double digit in 2027, but we are obviously flexible in considering growing opportunity if there will be an acceleration in high-value product with the project with very high internal rate of return, having the flexibility in our balance sheet to take the opportunities in front of us. So this is to give the idea of what we have in mind today. Nevertheless, in the future we will have further growing opportunity, we will consider to invest more and take advantage of the opportunity.

There is one thing that I would add, Patrick. And while we've identified the key drivers within biologics, we do report the biologics revenue as part of the BDS segment. You may recall in the first half of this year, Biologics had grown to 26% of that. So I would keep an eye on biologics because that's where we'll see the tailwinds.

Marco, just on the efficiency programs that you talked about, you didn't detail them much. Can you give us a little further color on kind of what you're expecting in terms of OpEx growth and some of those keys? And then I just had another follow-up.

Yes. We are keeping on improving the efficiency in our, let's say, traditional plants, both in bulk and EZ-fill. As you know, we are not disclosing retail indicator, but this is what is happening through our steps program. We believe or at least, we are planning and taking into consideration the risk we are having associated to the ramp-up of the facilities in Fishers and in Latina. So we expect that at the beginning, the operational efficiency will be a little bit lower. With our ability and knowledge about the process we're expecting '26 and '27 to bring Fishers and Latina, the same level of [indiscernible]. So in this way, we expect to gain efficiencies in '26 and '27.

Got it. And this is for you or even for the broader management team, but one question that we often get asked is kind of the downstream impact of GLP-1s just on health care in general. And you touch many aspects of the drug continuum. So just how are you thinking about maybe some of the net impacts downstream, maybe affecting cardiovascular mortality? Do you see any risks for other parts of the business? Just any views there would be great. Not to put you on the spot.

Well, it's -- I think, again, we can -- we are not investing on therapeutic area. We demonstrate the fact that we can easily switch from a therapeutic area to the other, as we have demonstrated with COVID, and we are keeping on growing in spite of the decline of COVID. So about your question about GLP-1, I believe we will be flexible enough and consider to leverage other opportunities in case there will be some risk associated to that.

We have time for one more question for Marco before we have closing comments and go to the breakouts.

Just a quick one. How is China contemplated in the 2027 guide, the potential expansion there? And then what could be the upside case or downside base? Or is it just simply kind of how you laid out a $1 or euro of CapEx is the euro future revenues, and that's agnostic of the region that it's put down in?

China, you mentioned. Yes. Today, Asia Pacific is just about 10%, 11% of our revenue for the future, as Franco Stevanato was mentioning this morning is for sure a big opportunity to grow for us. And going directly to your question, we are expecting geographically to 2027, more growth in North America and Asia Pacific compared to Europe in our model.

Just to confirm, so is a new China facility embedded in the 2027 number?

In the model, we plan to both in CapEx and the revenue growth it is. But again, it's something that will be considered next year.

Okay. Thanks, Marco. And I'm going to invite Franco Stevanato and Franco Moro for closing comments.

So I want to just say thank you again. Thank you for spend your time today here, people in the room, people that follow our Investor Day on the web, this was exciting experience for us to be in front of you in person in the room and connected to so many other investors. And now, thank you again. I leave the stage to Franco for his closing remarks. Thanks, all.

So I'd like just to echo what Franco Moro just say right now. For us, this is the first experience at the Capital Market Day in New York. We want also to thank the New York to exchange to host here. We have the chance to present our history, our business model our KPI performance. Most more and more, we have showed to you our opportunity to grow in this wonderful ecosystem that is the biologics. But more what for me was important today is to share the leadership team, part of the leadership team that every day work a lot harder to group with rotation. There are a lot of focus, a lot of energy because they believe in what we do. Believe me, there is this group of leaders, but there are other people in different locations we have on the board. So behind this strong effort that we do in Stevanato there are these people really, they believe in our history of Stevanato, even more they believe in the next 5 to 10 years. Stevanato is very simple our formula. So if you want to take away. We focus every day on customer, we focus everything on customer. We try to do in a very humble and hungry approach, what is the opportunity that we have with the customer. We focus a lot on building a good environment inside of Stevanato Group, where the value are the most important things for Stevanato Group. And I can tell you since 2021. And by the way, the IPO was something that together with the Board of Directors and the leadership team, we have prepared since 2012, but we were looking to well prepared since the fact that we are a public company, the fact that we are measured during also the preparation of the IPO through the investor to the analysts, we are further learning a lot. The fact that we are comparing ourselves with the best peers of the industry, is helping us in the company to increase adrenaline entrepreneur spirit to do always the best. So customer trust in the people, also today, you are also helping us. You are teaching us always to put under discussion to do more. So also, I would like also to thank all of you because you cannot imagine how important is before during after the interaction with you because the way that you are making the question is helping always us to do what we can do better. And if you look at what we will do in the next 5, 10, 20 years, we want to continue in this way, serve the market build trust for customers. Now build trust in the long period we do. It just continues in a very humble way to serve these 2 big partners that we had. So thank you. Thank you very much. You cannot imagine how important it is for us, the energy, a lot of our colleagues were connected by video, and this is really giving us a strong boost in all the Stevanato team to continue in this way. Thank you very much, really. Also a big thank you at the leadership of Lisa because alone together with Jacomo under the strong leadership of Franco Moro, they have coordinated everything. The way that she prepared the presentation to all of you, it's amazing because here, we have the very best transparent way to share our vision. So [foreign language], Lisa, for this strong support.

Our webcast for today. So we are going to go and break into our breakout sessions, which will be held on the floor below. There's 2 sessions for drug containment solutions as well as one for drug deliveries with systems. If you have a red tag on the back of your badge, please follow Lori and she will take you down to DDS. If you do not have a red circle on your badge, you can follow Sharon in the blue jacket, and she will take you down to drug containment solutions with Fabio Berteqini. Thank you.