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Packaging components drive solid Q1 growth at West

By Nick Taylor , 02-May-2011

Strong first quarter performance at the packaging unit helped West beat expectations but there were CZ and Delivery Systems disappointments.

Double-digit growth in sales of pharmaceutical packaging components underpinned a strong first quarter at West Pharmaceutical Services and, in particular, the Packaging Systems unit.

The segment benefited from increased sales of high-value products, which were bolstered by some orders that had been deferred from [the fourth quarter of 2010]”, David Windley, equity analyst at Jeffries & Co, said in a note to investors.

A high single-digit increase in year-on-year sales at the Pharmaceuticals Systems unit brought revenues up to $215.8m (€144.9m) for the quarter. Sales of FluroTec-coated materials, Westar-processed components and the Envision line of vision-inspected supported growth.

"The strength and composition of our sales growth during the quarter supports our belief in the fundamental shift in our business toward products of measurably higher quality and functionality", said Donald Morel, CEO of West.

Disappointment at Delivery Systems

For some the smaller Delivery Systems unit's performance was a source of disappointment. “Delivery Systems revenue and margins missed our expectations and disappointingly the segment did not see progress in moving forward proprietary products”, said Windley.

Proprietary products accounted for 20 per cent of Delivery Systems revenue, down slightly on the previous quarter but up year-on-year. Windley expected to see a sequential increase in the proportion of revenues coming from proprietary products.

Discontinuation of a product and price reductions in contract manufacturing, a unit of Delivery Systems, increased the expectation of a sequential increase. The discontinuation and price reductions knocked $3.7m off revenue from the contract manufacturing unit.

Quarterly Delivery Systems sales totalled $80.5m, up year-on-year but $3.1m short of expectations at Jeffries & Co. Delivery Systems growth is likely to be based on sales of Crystal Zenith (CZ) syringes, an alternative to glass, but commercial revenues are still years away.

CZ in 2013

[CZ] feedback from drug makers has been positive but FDA (US Food and Drug Administration) regulatory hurdles defer significant revenue until late 2013, timing which subtly but continually slides”, said Windley.

In its third quarter 2010 results West predicted clients in stability testing would receive a favourable regulatory response by late 2012. Despite the delay West believes CZ features, such as needles being staked into place instead of glued, puts it two years ahead of rival products.

Ahead of demand ramping up West is adding CZ production capacity. Areas of West’s facility in Scottsdale, Arizona are being converted to cleanrooms for CZ needs and capacity is also being added in Dublin, Ireland, said Morel in a conference call with investors.

Shares in West closed up 2.49 per cent at $47.38 on Thursday, the day results were published.

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