Managing Director and Equity Research Analyst at Keybanc Capital Markets,inc /oh/
Paul Knight is a Managing Director and Equity Research Analyst at KeyBanc Capital Markets, specializing in life science technology, bioproduction, and diagnostics sectors. He covers notable companies such as Cryoport and Standard BioTools, and has been repeatedly recognized as a top research analyst by Institutional Investor, Greenwich Associates, and The Wall Street Journal, with a consistent record of influential investment calls. Knight began his analyst career as a political analyst for NatWest Securities before moving to Salomon Brothers and later becoming a founding partner at Thomas Weisel Partners, then held roles at CLSA and Janney Montgomery Scott before joining KeyBanc in 2020. He holds a CFA charter, an MBA in finance, a BS in economics, and FINRA Series 7, 62, 86, and 87 licenses.
Paul Knight inquired about West's trajectory towards its long-term growth target of 7%-9% in 2026, given the momentum observed in Q3.
CEO Eric Green and CFO Bob McMahon affirmed confidence in reaching the long-range plan, driven by HVP components, biologics, Annex 1, and GLP-1s, while acknowledging some 'puts and takes' for 2026.
Paul Knight with KeyBanc Capital Markets asked if West Pharmaceutical Services is on track to achieve its long-term growth target of 7% to 9% in 2026, considering the current momentum.
CEO Eric Green stated that the foundation is laid to drive towards the long-range plan, primarily through consistent double-digit growth in HVP components, driven by biologics, biosimilars, Annex 1, and GLP-1s. CFO Bob McMahon added that while there are puts and takes for 2026, the long-term growth of the business is positive, and the street's expectations are currently in a good space.
Paul Knight of KeyBanc Capital Markets inquired about the specific factors driving the growth observed in West's Daikyo Crystal Zenith products.
Eric Green, Chair, President & CEO, explained that the growth in Crystal Zenith was primarily driven by strong customer demand related to a particular new drug launch. He noted that while there is an element of timing to the revenue, the increased interest and demand are encouraging signs for the product line.
Paul Knight asked about the utilization assumptions for the new Dublin site within the current guidance and inquired about the drivers behind the better-than-expected adjusted operating margin in Q1.
CEO Eric Green explained that utilization at the Dublin site is currently low and is expected to ramp up throughout the year, with drug handling capabilities coming online in late 2025 or early 2026. CFO Bernard Birkett attributed the strong operating margin to improved efficiencies in the E&PC business, better-than-forecast margins in contract manufacturing, and disciplined spending on SG&A and R&D.
Paul Knight of KeyBanc Capital Markets asked about West's confidence in returning to its long-term 7-9% organic growth target post-2025. He also inquired about the expected utilization ramp-up at the new Dublin facility and the nature of its 'drug handling' services.
CEO Eric Green expressed strong confidence in returning to the 7-9% long-term growth algorithm, driven by the strength in HVP components. CFO Bernard Birkett detailed that the Dublin facility's ramp-up will become more material in H2 2025, with drug handling capabilities coming online in late 2025 or early 2026. He clarified drug handling is final drug packaging, not fill-finish services.
Paul Knight requested an update on the production ramp-up for wearable injection devices, specifically the Phoenix line, and the operational status of the new facilities in Grand Rapids, Michigan, and Dublin, Ireland.
CEO Eric Green confirmed the Phoenix facility (SmartDose) began its commercial ramp-up in Q3 after receiving FDA approval and is performing well. He noted the Grand Rapids facility is currently ramping up commercial production for GLP-1s, while the Dublin facility will commence device manufacturing in early 2025, with drug handling capabilities to be added later. CFO Bernard Birkett added that a fully automated line will be implemented in Phoenix during 2025 to drive efficiency and margin improvement.
Paul Knight of KeyBanc Capital Markets asked about the impact of pharmaceutical industry capital spending delays on Q2 results, the trend into Q3, and whether Rapid Micro was gaining traction in new capacity builds versus retrofitting existing facilities.
President and CEO Robert Spignesi stated that he is encouraged by customer conversations about growth plans and the build-out of new manufacturing capacity in North America, where high-ROI automation projects are being prioritized. He acknowledged that while most current placements are in existing facilities, new builds are a clear fit for the Growth Direct platform, though global trade dynamics create some near-term uncertainty.
Paul Knight asked for a comparison of system validations for the current year versus last year and questioned how quickly the announced U.S. pharmaceutical CapEx investments could translate into business for Rapid Micro.
CFO Sean Wirtjes confirmed that 16 validations were completed last year, making the guide of at least 18 for 2025 a slight increase with potential for upside. President and CEO Robert Spignesi explained that customer facility expansions are an ongoing effort, and the U.S. focus is good news as new projects typically adopt newer technology like the Growth Direct system.
Paul Knight of KeyBanc Capital Markets inquired about the MilliporeSigma collaboration, focusing on how channel conflict in biopharma would be managed and the potential impact on gross margins, particularly from supply chain involvement. He also asked about the influence of the Lonza relationship on broader industry adoption.
President and CEO Rob Spignesi stated that a go-to-market plan is in place to manage sales channels and that a core part of the partnership's strategy is to improve gross margins through supply chain efficiencies, as MilliporeSigma can supply key components for consumables. CFO Sean Wirtjes added that they currently procure very little from MilliporeSigma, offering a 'clean slate' for cost reduction. Rob Spignesi also affirmed the Lonza deployment serves as a blueprint for the industry.
The analyst inquired about the company's upcoming debt refinancing, the potential impact of the NIH budget, and the performance and exposure of their China business.
The company expects total debt to be around $33 million by the December 5 refinance date. They are prepared for various NIH budget scenarios but noted an increase would be beneficial. The China business, representing about 10% of revenue, has stabilized and returned to a normal run rate after a dip in April due to tariff uncertainty.
Paul Knight from KeyBanc Capital Markets inquired about the upcoming debt refinance, including the expected debt level by the December 5th deadline and potential terms. He also asked about the outlook for NIH funding and its impact on academic sales, as well as Harvard Bioscience's current revenue exposure and performance in China.
Interim CFO Mark Frost stated that debt is expected to be around $33 million by the deadline due to continued quarterly paydowns. He also noted that China represents about 10% of revenue and has returned to a more normal run rate after a dip in April. President & CEO John Duke addressed the NIH situation, explaining that while purchasing cycles are extended, budgets remain in place, and the company is structured to manage well even without a significant near-term improvement.
Paul Knight from KeyBanc asked if the BTX technology could eventually compete in the same sector as MaxCyte. He also questioned the outlook for the MeshMEA product, suggesting animal testing would not slow down but would become a co-development process with new methods. Finally, he asked for details on the company's debt refinancing, including the expected interest rate and term structure.
President and CEO James Green explained that their BTX strategy differs from MaxCyte's high-volume licensing model, instead focusing on a 'razor-razorblade' approach for early adopters to bridge from development to initial bioproduction. Green agreed that full animal safety testing will continue to be essential, with organoids helping to improve the efficiency of early-stage testing. Incoming Interim CFO Mark Frost addressed the refinancing, stating that while terms are still being negotiated, the interest rate will be higher than commercial debt and the term will likely be four to five years.
Paul Knight of KeyBanc Capital Markets inquired about the business dynamics with CROs, the potential revenue scale and growth rates for new electroporation and Mesh MEA products, and the expected growth rate for the core business.
President and CEO James Green, with input from CFO Jennifer Cote, stated that CROs represent about 25% of revenue and are showing signs of stabilization. Green projected that the electroporation segment could grow over 20%, while the new Mesh MEA platform is expected to have a CAGR exceeding 50%, adding significant growth. He also affirmed that the core business growth should align with low to mid-single-digit market rates, emphasizing a strategic shift towards higher recurring revenue from consumables.
Paul Knight from KeyBanc Capital Markets asked about competitive dynamics in the accelerating commercial market, whether MVE product destocking has bottomed, and the outlook for EBITDA margin expansion.
Chief Scientific Officer Dr. Mark Sawicki explained that clients and larger players increasingly seek to partner with Cryoport for its scalability and security, citing the DHL deal. President & CEO Jerrell Shelton added that the MVE market appears to be stabilizing and returning to normal. CFO Robert Stefanovich confirmed that top-line growth should drive EBITDA, but new initiatives will add some near-term expenses.
An analyst on behalf of Paul Knight asked for initial comments on the impact of the new strategic partnership with DHL, including any benefits from being carrier-agnostic and an enhanced ability to support larger Cell & Gene therapies.
CEO Jerrell Shelton described the DHL partnership as a strong relationship that will boost competitiveness in Asia Pacific and EMEA, effectively putting their former CRYOPDP unit 'on steroids' with DHL's resources. CFO Robert Stefanovich added that the transaction significantly strengthens Cryoport's balance sheet and improves the long-term margin profile for its continuing operations.
Paul Knight of KeyBanc Capital Markets inquired about the growth in the clinical trial services business, specifically asking when to expect an impact from recent label expansions and whether the funding environment is reflected in current trial activity.
CEO Jerrell Shelton stated that label expansions typically take 6-12 months to affect operations. CSO Dr. Mark Sawicki added that moves to earlier treatment lines are already benefiting the company, citing specific client projects, and noted that newer products will contribute notable revenue in 2025. Dr. Sawicki also confirmed that while biopharma funding was down sequentially in Q3, year-to-date aggregates are notably above 2022 and 2023 levels, and trial activity has stabilized.
Paul Knight of KeyBanc Capital Markets asked about the normalized growth rate for the 'other containment' business and whether the Engineering segment's internal equipment needs detract from its external sales growth.
CFO Marco Dal Lago stated that the normalized growth for 'other containment' solutions is expected to be in the low- to mid-single-digit range, as the company's strategic focus is on High-Value Solutions. CEO Franco Stevanato added that the Engineering division serves both external customers and provides a critical internal competitive advantage for the BDS segment.
Paul Knight inquired about the long-term revenue potential for the Fishers and Latina facilities, the current progress at the Latina site, and the capital expenditure forecast for fiscal 2025.
CEO Franco Stevanato stated that the Fishers plant, with a planned €0.5 billion investment, is targeted to generate €0.5 billion in revenue by its full ramp-up in 2028. He confirmed Latina is progressing well with syringe production and preparing for cartridge manufacturing. CFO Marco Dal Lago reiterated the fiscal 2025 CapEx guidance of €250 million to €280 million, primarily for these growth projects.
Paul Knight of KeyBanc Capital Markets asked why the Fishers plant appeared to be coming online faster than expected, the status of the Engineering turnaround in Northern Europe, and the margin impact from start-up personnel costs.
CFO Marco Dal Lago clarified the Fishers timeline is "exactly in line with our plan." CEO Franco Stevanato stated the Engineering plan involves creating centers of excellence and expects a return to target margins by mid-2025. Regarding start-up costs, Marco Dal Lago noted the combined Fishers and Latina operations currently have a negative gross profit, indicating the magnitude of the drag.
Paul Knight inquired about Repligen's position in the growing CAR-T market, asking which technologies are most relevant and for the company's overall view. He also asked if the optimism for China is linked to its emergence as an originator of innovative drugs.
CEO Olivier Loeillot expressed excitement about the CAR-T space, highlighting that the ATF technology is seeing increased adoption as it helps maximize cell yields. He believes cell therapy is entering a 'second wave' of growth. Regarding China, he confirmed that its development as an innovator, with a large pipeline and significant investment, is a key reason for his bullish long-term outlook and the company's increased investment there.
Paul Knight from KeyBanc Capital Markets asked for commentary on the drivers of the CDMO recovery and inquired about the company's plans for its hollow fiber capacity, including any potential application in the GLP-1 market.
President and CEO Olivier Loeillot attributed the recovery at large CDMOs to their success in securing major, long-term supply contracts with big pharma. He noted smaller, Tier 2 CDMOs are also performing well, potentially benefiting from the BIOSECURE Act. Regarding hollow fiber, the strategy is to increase investment in application specialists to drive design wins for this and other differentiated products, rather than a specific market focus.
Paul Knight inquired about the key dynamic growth drivers for 2025 and the current revenue contribution from cell and gene therapy.
President and CEO Olivier Loeillot identified the absence of 2024's headwinds as a key tailwind for 2025. He highlighted ATF consumables, systems uptake, and a rebound in the proteins franchise (driven by new offerings) as key growth drivers. He stated that new modalities, including cell and gene therapy, will represent 20% or slightly more of total 2024 revenue, with high-teens order growth year-to-date.
Paul Knight inquired about the progress of the company's pricing initiatives to renegotiate legacy discounts and asked for an update on the M&A pipeline.
CEO Roderick de Greef responded that the company is more than halfway through renegotiating prices with key customers holding legacy discounts. He noted these changes are being phased in over a 36-month period, which will create a tailwind for the next three years. Regarding M&A, he confirmed BioLife is evaluating a few small, tuck-in acquisitions similar to PanTHERA and is refining its strategic filter criteria.
Paul Knight inquired about the status of the sales force structure following the Azenta Business System (ABS) rollout. He also asked about the long-term growth potential for the Sample Management Solutions (SMS) business and the risk/opportunity profile of the China market amid geopolitical tensions.
CEO John P. Marotta stated that they are in the early stages of the ABS journey but have successfully realigned the sales organization regionally and are investing in 24 new sales headcount. He asserted that the SMS business is not yet at its full potential, with more details to be shared at a future Investor Day. Regarding China, he highlighted Azenta's 5% growth, attributing it to a successful local-for-local strategy that makes their China business operate like a domestic company.
Paul Knight of KeyBanc Capital Markets questioned the company's capital allocation strategy, specifically past share buybacks, and asked for an assessment of the post-COVID hangover in the cold storage market.
CEO John P. Marotta outlined a clear capital allocation hierarchy, prioritizing internal investments and M&A over share buybacks, which are considered last. He emphasized the need to build credibility before resuming a consolidator strategy. Marotta also differentiated Azenta's automated stores from the general ULT freezer market, stating they are sophisticated warehouse management systems for specific applications and are not impacted by the ULT supply glut.
Paul Knight of KeyBanc Capital Markets questioned the expected revenue contribution from the Illumina partnership in 2025. He also asked about spending trends within the biopharmaceutical customer segment and whether the $10 million cost reduction in January implies an improved outlook for the full-year adjusted EBITDA loss.
CEO Michael Egholm and CFO Hanjoon Kim conveyed that while they are excited about the long-term potential of the Illumina partnership, they expect only moderate revenue growth from it in 2025, which is already factored into guidance, with significant traction anticipated in 2026 and beyond. Egholm noted good traction in the biopharma segment in Q1, with a healthy funnel, though results can show variability due to a historical reliance on a few large accounts. Kim confirmed the $10 million annualized cost savings will flow through to improve the adjusted EBITDA loss for the year.
Paul Knight asked for the target cash burn in 2025, clarified if the 2026 breakeven target was for cash flow or EBITDA, questioned how guidance might change if NIH funding normalized, and inquired about the addressable margin for the joint product with Illumina.
CFO Hanjoon Kim declined to provide specific cash burn guidance but pointed to the second-half 2024 exit rate as a baseline for improvement. Executive Michael Egholm clarified the 2026 target is for adjusted EBITDA breakeven. Regarding a potential NIH budget recovery, Egholm stated that changed customer behaviors would likely persist for several quarters, making them comfortable with current guidance. He also reiterated his belief that the proteomics market opportunity with Illumina will be well over $1 billion.
Paul Knight inquired about the Genomics segment's revenue for the quarter, its future growth prospects, and whether the decline in SomaScan service revenue could be recouped.
CEO Michael Egholm stated that Genomics revenue was down 6% in the first half as part of a managed transition, but he expects it to flatten out by the second half of next year and then return to growth, becoming a profitable contributor. Regarding SomaScan, he clarified that while delayed projects are expected to materialize later, the overall project timelines have shifted out, which necessitated the guidance reduction. He confirmed that no projects have been lost.
Paul Knight of KeyBanc Capital Markets inquired about the current distribution of the sales force between the dermatology and gastroenterology franchises and asked about plans for further expansion in the current year.
CFO Frank Stokes provided the headcount, stating the GI sales force is in the mid-60s and the dermatology sales force is in the high 60s. He indicated that dermatology growth would be episodic, while the GI team's size will be evaluated after the recent expansion settles before deciding on further additions.
Paul Knight asked about the potential for residual non-Medicare revenue from DecisionDx-SCC, the current state of the M&A market for diagnostics, and how to model SG&A expenses for 2025.
CEO Derek Maetzold stated that commercial payer revenue for DecisionDx-SCC is not significant. Regarding M&A, CFO Frank Stokes noted that while many assets exist, Castle's filtering criteria remain very disciplined. He also indicated that SG&A would continue to show leverage despite some salesforce expansion for TissueCypher, without any sweeping changes expected.
Paul Knight questioned the company's operating leverage, asking if SG&A spending has plateaued given its slower growth relative to revenue, and inquired about future growth expectations for R&D and SG&A.
CFO Frank Stokes explained that the company has successfully 'grown into its P&L' and will continue to manage expenses prudently, aiming for expense growth to trail revenue growth. He noted that future SG&A growth will be driven by sales force expansion to support the top line, while R&D spending is targeted at 10-15% of revenue in a mature state, limited by deployment opportunities.
Paul Knight sought clarification on the mechanics of the new credit facility with Perceptive, asked about the primary drivers for the volume acceleration seen in March, and inquired about the number of successful ALJ court cases needed to change payer practices.
CFO Jeff Black clarified the credit facility, stating that an initial $25 million tranche was drawn to retire old debt, yielding over $3 million in net proceeds, with further tranches available based on future milestones. President and CEO John Aballi attributed the strong volume growth primarily to the energy and enhanced clinical utility from the new marker launch, supported by a well-prepared and stable sales team. He estimated that a half-dozen to a dozen successful ALJ wins per payer could be sufficient to set a precedent and influence policy changes.
Asked if customers would absorb tariff-related price increases, about spending trends from NIH-related universities, and the development speed of cell testing as an alternative to animal testing.
The company believes customers will accept tariff surcharges as they will only cover the additional costs transparently. Regarding cell testing, the company is very optimistic about its adoption, citing its innovative nature and ability to provide better biological insights, expecting it to make substantial inroads in the coming years.
Inquired about the proportion of new orders from cell and gene therapy, the timeline for funding recovery in that sector, the duration of the current backlog, and any relevant regulatory changes in Europe.
The executive stated that cell and gene therapy orders were a small, non-material portion of new business. They are more optimistic than a 4-quarter lag for sector recovery. The backlog duration is slightly accelerating, not extending, due to more early-phase projects. They are not aware of any definitive regulatory changes in Europe similar to the Biosecure Act.
Asked about the capacity and business activity in the cell and gene therapy (CGT) business, trends in process development (PD), and the market dynamic regarding CDMO capacity tightness versus customer capital needs.
The executive stated CGT capacity is about $80 million and its business activity is picking up, though it lags the mammalian business by a few months. Process development activity is very positive and expected to increase, though revenue can fluctuate. High-quality, late-phase CDMO capacity is seen as being in relatively short supply, and onshoring trends are expected to drive future business, though with a time lag.
Asked for clarification on the company's CapEx outlook for the current year and beyond, and inquired about the competitive implications of Lonza's acquisition of the Vacaville facility.
Executives confirmed that major expansion CapEx is complete, with the full fiscal year expected to be around $32 million. Going forward, maintenance CapEx is projected to be 2-5% of revenues, starting at the low end. They view the Lonza deal as having minimal negative impact, as the Vacaville facility serves a different, larger-scale market segment.
Asked several financial questions regarding CapEx and the credit line, and also inquired about market dynamics for cell and gene therapy and the broader CDMO market beyond biotech funding.
The executive confirmed remaining CapEx is $2M, future maintenance CapEx will be low (~2% of revenue), and the credit line is $50M. While it's early for the new CGT facility, they see encouraging activity. The overall market outlook is more positive than 6 months ago, driven by a strong late-phase pipeline and the return of some early-stage projects.
Paul Knight of KeyBanc asked for the portion of the pharma business that is biopharma and its current growth rate. He also inquired if the M&A market for biologics assets is becoming more attractive from a pricing perspective.
CFO Bob McMahon stated that biopharma represents roughly 45% of the pharma business and was down about 12% in the quarter. CEO Padraig McDonnell noted this was against a tough comparison of mid-teens growth last year. Regarding M&A, McDonnell commented that while pricing may have eased slightly, sellers have 'long memories' of higher valuations, and Agilent will remain very disciplined in its acquisition strategy.
As a concluding question for the retiring CEO, Paul Knight asked for Mike McMullen's perspective on the long-term market growth rate for Agilent's industries and which geographies might provide a surprise over the next five years.
CEO Michael McMullen stated he believes the long-term market growth rate is in the 4% to 6% range, viewing the current environment as an anomaly. Geographically, he anticipates increased growth from Europe, driven by supply chain shifts, and a potential rejuvenation in Japan, particularly tied to the semiconductor industry. He concluded by highlighting the strength of Agilent's diversified end markets and geographies.
Lucas on for Paul Knight asked if the COMET platform was part of the instrument business that saw an uptick and whether the benefit from China's stimulus was broadening beyond automated western blot equipment.
CEO Kim Kelderman clarified that the instrument growth was in the protein analytical portfolio and does not include the COMET platform, which is reported separately in spatial biology. CFO Jim Hippel added that COMET interest remains very high. Kelderman also confirmed that while western blot is a primary beneficiary of China's stimulus, other platforms like Maurice are also seeing increased traction.
Inquired about the visibility into Sarepta orders for fiscal 2025 and the specific drivers behind the operational improvement at the Brussels facility.
Visibility for Sarepta orders is based on a rolling 6-month booking basis, so FY25 orders will become firmer as FY24 progresses. The improvement in Brussels, a drug product facility, is driven by high demand, including for GLP-1s, as it works through a backlog from a production pause in the prior year.
Paul Knight of Janney Montgomery Scott inquired about Q4 test volumes, the timing of the price increase for the ThyGeNEXT test, and the collection rate assumptions being used for Q1 guidance to prevent future reserve issues.
Executive Jack Stover and CFO Fred Knechtel explained that the combined reimbursement for ThyGenX and ThyraMIR is expected to exceed $5,000, but the finalization of the ThyGeNEXT increase has been delayed by the pandemic. For volumes, they noted Q1 diagnostics volume grew about 25% and pharma volume grew 64% year-over-year. Regarding collections, Knechtel stated they are now tracking reimbursement rates in detail and have confidence in the Q1 revenue accruals, which use a consistent rate from the end of 2019, to avoid further large adjustments.
Performance on expert-authored financial analysis tasks