West Pharmaceutical Services Inc. (WST)
UBS Global Healthcare Conference
May 22, 2013 11:00 AM ET
Don Morel - CEO
Bill Federici - CFO
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Thanks very much Evan and good morning everyone. Thanks to our host UBS for having us back once again at their healthcare conference.
Mike Anderson is walking around; he is our treasurer and IR contact. He has hard copies of the presentation if you would like to have one. He has got the copy of our Safe Harbor Statement as it pertains to forward looking statement that we may make during the course of this morning’s presentation. Also joining me is Bill Federici, our Chief Financial Officer.
So what we would like to do today is talk a little bit about the foundations in the company for our recent growth and what’s going to drive our growth for the future, talk a little bit about 2012 first quarter 2013, our outlook for the business and what’s going to drive it.
For those of you that may not be familiar with the West story, we celebrated our 90th year in operations in April of this year. Fundamentally the company was started as a manufacturing company, looking at different types of products for the dental market when Herman West founded it and since that time has grown to be the world’s largest and leading provider of components that go into injectible drug delivery.
We are fortunate to enjoy a tremendously stable and very differentiated customer base. All of the world’s vertically integrated research and manufacturing pharmaceutical companies are customers of West. All of the major biotech companies, the genetic companies and the major medical device companies.
So our revenues are driven by a single customer. BD has historically been the largest. They are somewhere about 7% of revenue and within our top 10 you've got a very nice spread between the kind of $30 million and $55 million mark. So very nice geographic and customer spread of the business.
2012 was a record year for the company. Revenues were just slightly north than $1.2 billion for the year. We operate two divisions, one the historical West packaging business. We call this Packing Systems. This part of the business manufactures components that go into small volume drug packaging, disposable syringes, components that goes into IV infusion sets products that are used in the dental diagnostic and veterinary markets, all just part of our business, just north of 900 million in sales.
The Delivery Systems Group is about a third of our business $350 million. This is the group that does contract manufacturing of devices as well as manufacturing of proprietary West system, tends to focus on systems that are used for reconstitution of lyophilized drugs as well as some of the newer products that were in the process of launching which we'll talk about in just a second.
It's important to note that one of the key competitive advantages in our Packaging System Business is that we specced into the customer’s products when their drug application goes to the pertinent regulatory authority, very high switching cost in this business. They are required to do two years of stability testing to prove that the drug is indeed stable with our packaging components and that test data actually becomes part of their drug application.
Within the FDA, West Drug Master File 1546 the single most referenced document was in the FDA’s archive. This document contains our proprietary information on our materials and on our processing methods. The FDA must write a letter asking West for a permission to review that document each and every time one of our customers puts a new drug application into the queue.
The other advantage we have versus our competition is our global footprint. We are the only ones in this space that truly manufacture globally as well as offering technical customer support and regulatory support in all of the world’s major markets.
On the delivery systems side, it's our expertise in engineering and high speed assembly of complex systems that sets us apart along with a broad portfolio of proprietary devices and as you can see from the bar chart, both of the divisions have grown very nicely over the last couple of years.
So the outlook for the markets depending on where you're located is either relatively flat to slow growing or very quickly growing as it pertains to India and China. We enjoy market shares in our primary businesses of about 70% in North America and Europe, but volume growth rates for our customers are not that high in these markets. Typically they're going to be a couple of percent in mid-single digits.
What's interesting about our business is, that on the packaging side we don't necessarily need volume growth to drive our revenues. The strategy is built upon putting extra revenue into each unit that we sell so that our customers don't have to do that processing in their operation, freeing up capital and expense money to go into R&D and new product development.
In India and China it should be opposite. Volume will drive our growth there, although it’s driven by us following our multinational customers and continuing to package their products as opposed to selling into the local markets.