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April 12, 2010 02:00 AM

West hopes realignment will be strong medicine for 2010

Mike Verespej
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    After a sluggish year in 2009, but a strong fourth-quarter, West Pharmaceutical Services Inc. anticipates moderate growth in its 2010 revenues, driven by higher volumes and more sales of products that offer customers greater value.

    “We expect to see sustained volume with demand getting back” toward historical levels, said John Paproski, president of pharmaceutical delivery systems for the Lionville, Pa., maker of components and systems for injectable drug delivery and plastic packaging. The firm also produces delivery-system components for the health-care and consumer-products industries.

    In January, West realigned into two divisions. Its pharmaceutical delivery systems group includes the firm's injection molding business, Tech Group, and will concentrate on developing and commercializing proprietary multicomponent systems for injectable drug administration and health-care applications.

    Its pharmaceutical packaging systems group will focus on container solutions. It comprises components for drug packaging and prefillable syringe systems, and includes core pharmaceutical packaging products, disposable medical components and laboratory services. In the last three fiscal years, pharmaceutical packaging accounted for roughly 60 percent of West's consolidated net sales.

    “Biologics and vaccines have grown in importance to our company and to pharmaceuticals,” Paproski said by phone. “We made the change to have delivery systems as a separate organization.

    “It gives us the opportunity to sell differently, and that is most significant,” he said. “It will help us understand customer problems differently, we can offer manufacturing services through our Tech Group contract manufacturing business, and we can deliver a program now. It allows us to cross over to meet the customer's needs.”

    In 2009, sales at West Pharmaceutical rose modestly from $1.05 billion to $1.06 billion, but operating profit fell from $124.1 million to $97.5 million and net income decreased from $86.6 million to $72.6 million.

    “West had a good year, but not without a lot of hard work and belt-tightening,” Paproski said. “It wasn't an easy year. Illness occurs regardless of the economic downturn, but order sizes from customers got smaller” — as customers cut inventories and delayed discretionary development projects.

    West said sales volumes did not increase, but the company grew revenues by price management, shifting customers toward more valued-added, more profitable products and capitalizing on the H1N1 vaccination initiative.

    “That gave us a significant upside,” said Paproski. “It demonstrates the influence of vaccines.”

    For 2010, West expects there will be some price increases to reflect projected increases in raw-material prices and production costs. But the company said it expects the larger portion of its revenue growth to come from greater volume, and sales of more higher-valued, more profitable products.

    Paproski said that he expects the prefillable injectable syringes will become an increasingly important product for the pharmaceutical industry and for West — for both safety reasons and for cost reasons.

    “There is a lot of waste in filling vials, sometimes to the order of 20 percent,” Paproski said. “With prefillable syringes, you get the full dose to the patient and save 20 percent of the cost. In addition, syringe safety is particularly important for health-care providers. With our products, needle safety is automatic.”

    In 2008, West introduced its insert-molded stake needle, a silicone-free, ready-to-use prefillable Daikyo Crystal Zenith syringe that mitigates some of the risks associated with glass syringes.

    Last July, West acquired certain business assets of Plastef Investissements SA of Osny, France, a developer and manufacturer of drug-delivery devices. Plastef's products include the Eris safety syringe system, which addresses the market for fixed-needle prefilled syringes. The product complements West's NovaGuard ready-to-use luer-lock syringes.

    Cleveland research firm Freedonia Group Inc. has estimated that global sales for all prefillable syringes was $2.1 billion in 2008. By 2018, demand is expected to increase to $5.2 billion.

    Copyright 2010 Crain Communications Inc. All Rights Reserved.

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