West Pharmaceutical Services, Inc. (WST)

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West Pharmaceutical Services, Inc (WST)

Bank of America Merrill Lynch Health Care Conference Call

May 15, 2013 04:00 pm ET


Don Morel – Chief Executive Officer

Bill Federici – Chief Financial Officer


Rafael Tejada – Bank of America Merrill Lynch


Rafael Tejada – Bank of America Merrill Lynch

Good morning. My name is Rafael Tejada, I’m an analyst with the Bank of America Merrill Lynch, Biosciences team. Up next we have West Pharmaceutical Services Company presenting. And presenting from the company is Don Morel, CEO of the company, taking questions for the company we also have Bill Federici, CFO of the company.

So, with that Don?

Don Morel

Thank you very Rafael. And again thanks to Bank of America Merrill Lynch for having us back again at this year’s conference. Mike’s sending out copies of the presentation, first order of business of course is to call your attention on the Safe Harbor Statement first on the first regarding our forward-looking statements. The slides are also posted on our website under investors and you can review it there as well.

I’m going to zip through the first part of the presentation quickly, just talk a little bit about the history of the company, talk about growth drivers and the outlook for our business.

For those of you who don’t know West, we just celebrated our 90th Anniversary. We are a manufacturer of components and devices that can get consumed. And the injectible drug markets, let’s take a look at our customer list to who’s who, the major vertically integrated multinational pharma companies to biotech companies, the generic guide and medical devices. So very nice spread of the business within our customer base.

2012 was a record year for the company, revenue came at just $1.3 billion, split roughly about two thirds in the packaging systems group and a third in delivery systems. Packaging is the traditional West core business with the components we go in the small volume credit role, components that go into disposable medical devices.

The delivery systems group is the group where we are developing a series of proprietary delivery platforms and also have a fairly substantial contract manufacturing business. The contract business has the focus on our existing customers like Willy, Novo, for their devices that go into the insulin market. The differentiators, that we are a components integrator and systems developer opposed to the other side where we’re a components manufacturer.

Our core business is a terrific business, we love to have this business private. We have terrific barriers to entry with regard to the regulatory barriers and with regard to our footprint around the globe to serve our customers.

On the delivery system side, it’s the intellectual property that’s in the devices, and I’ll talk to those in just a second.

It’s no mystery to this group what’s happening in the pharma markets around the world in terms of growth within our key markets. United States was flattening out a little bit, you’re looking at low single digit growth and Europe again, low kind of single digit growth to flat.

In our emerging markets, India and China, we’re seeing double digit growth in the units over there over the last three to four years and we expect that to continue. Japan, in terms of scripts, relatively flat, that market served by our Japanese partner Daikyo.

So, when you look at the injectible markets what’s happening, what’s going to drive growth in our core markets we have a very substantial share in the biologic space which is key to us, and so we supply the three major manufacturers of injectible insulin with their components for packaging and a large number of their parents, and Novo, Santa Fe and Lily, we basically are selling north of 90% of their packaging needs and a category that’s growing very nicely. Very strong position in generics as well.

The regulatory environment is one that is getting stricter for our customers that’s driving the high value part of our business very strongly. We expect that to continue into the foreseeable future. The drivers for the device side, you’re looking at a lot more care being delivered at the site of delivery whether it’s your home or with side where the patient can do it themselves, you’ve got issues around needle safety, dosing accuracy and ease of use with patients that have their mobility compromised. All of the work that we’re doing in terms of our product development is seen in this area.

The other driver I’ll talk a little bit about, the issues that arrived in the glass in terms of primary packaging for certain drugs, we think we’ve got a solution there, it’s been there on the market for a number of years, and it involves a novel resin developed by our Japanese partner which we expect to be a driver as well.

For those of you wondering about the affordable care act and it’s impact on rest, we are in somewhat of a unique situation. If it’s fully implemented, we benefit, if it’s not fully implemented we benefit.

And the reason is that it’s a fully implemented, you got a large number of people coming in, they’ll be getting vaccinations, they’ll be getting primary care. If it’s not implemented then we got advantages in terms of continued growth in the biologic space and the high value drug.

This is one of the more important slides. I’ll show you our strategy has not changed through the last four or five years. On the packaging side of the business, we intend to grow through increasing the value that we sell to our customers. We don’t necessarily need large unit volume growth to have substantial growth on the top line.

Read the rest of this transcript for free on seekingalpha.com