West Pharmaceutical Services, Inc. (WST)

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Call Start: 10:35

Call End: 11:05

West Pharmaceutical Services Inc. (WST)

Morgan Stanley Healthcare Conference

September 11, 2013 10:35 AM ET


Don Morel Jr. - CEO

William Federici - CFO



Unidentified Analyst

Hi good morning, my name [indiscernible] Ricky Goldwasser in the Healthcare Services Group and I am happy to have West Pharmaceutical Services with us. With us here this morning, we have Don Morel Jr., CEO; and William Federici, CFO, from West Pharmaceutical. So maybe feel free to jump in with questions anytime raise your hand, we would love to assess as many as we can and maybe we can start off Don and Bill with an overview of the company for those who might not be familiar with us.

Don Morel Jr.

Great, it’s our first time here at Morgan Stanley, so I like to extend the thanks to them for the invitation to participate this year. Mike Anderson, our Treasurer and Investor Relations contact of the copy of what traditionally would be our background presentation. I hope you like the copies as the flag come down. For those who may not be familiar with the West story, we just celebrated our 90th year of operations. We’re based on Pennsylvania. We are principally a manufacturer and developer of packing systems and administration systems for injectable drugs. We also have a small consumers operation. We do some contract services work for our customers as well but predominately our business is focused on small volume injectable drugs.

We operate two divisions. The first division is our traditional packaging group, pharmaceutical packaging system as we call it, that’s roughly about $1 billion worth of revenue this year. The second is what we call pharmaceutical delivery system and this is the group that is focused on the development and manufacturing with sample devices and systems for reconstitution, safety and drug delivery. We are very fortunate our customer base is quite diversified. We serve every major vertically intergraded pharma company around the globe, all of the generic, all of the biologic manufacturers and a very high percentage of the large medical device manufacturers as well.

We don’t have a high revenue concentration in any particular area biggest customer is BD currently roughly about 7% of revenues. We’re split on the revenue basis between Europe, United States, and the rest of the world roughly about 50, 40, and 10 in terms of the distribution of our sales. Our manufacturing footprint is quite complicated. We operate 35 facilities worldwide with a tendency to source and service our customers locally where we can although that model is changing quite a bit. One of the challenges we’re facing is that the point of order now is not necessarily equal the point of consumption, so products are moving around quite a bit between Asia, Europe, and the United States.

Our growth is driven really by couple of key therapeutic categories, we’re a major player in diabetes we serve Novo, Lilly and Sanofi. Packing virtually all of the world’s injectable insulin, little tiny device of 3 ml cartridge that goes into the pen sets as well as vial insulin with very-very strong and biologics packing, the top 20 biologic drugs that are sold we package all of them, very strong franchise there, very strong franchise in vaccine and biologics for autoimmune disease and also generics.

Couple a of key takeaways about our business that are kind of interesting, we are essentially specified into the customers product from the outset so there are very strong regulatory barriers to entry in our core business. We enjoy about 65% to 70% market share in those businesses between Western Europe and the United States not so high in the med device side probably about 60% with our major customers little bit smaller in Asia because the competitor picture is different but when a customer goes to market with a new drug they have to prove stability with the package, they test our components and contact with their drug for a period of two years that data becomes part of their submission to the FDA and effectively once the product goes to market the testing is done, FDA gives approval for marketing of the drug.

We inspect into product and this is an example of stickiness of our business. We still produce products today that were developed by our founder Herman West back in 1930s, relatively small volume drugs but because they’re in the drug application for the customer, we are the producer and interesting side notice that our most valuable piece of intellectual property resides within the FDA it’s called the Drug Master File, it is the single most reference document within the FDA’s achieves, all of our proprietary data is in there when it comes to the composition of the closures that are in contact with the drug, so we think we’ve got really nice growth story and strategy.

Growth this year has been fairly solid, high single digits. Bill will run you through the financials in just a second but principally our strategy is really quite simple, it is value added sales through the packing systems group for high value drug operating efficiently within our facilities and geographic expansion into India and China. On the device side, we are simply shifting the percentage of sales of our products from about 80% customer oriented now 20% proprietary to about 50-50 proprietary mix over the next five years.

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