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West shifts focus to proprietary products

By Natalie Morrison , 23-May-2012

West Pharmaceutical is changing its gauge from contract manufacturing to proprietary products: it’s particular focus, delivery systems.

In its Q1 results, the device maker said it would move away from the current 80/20 split between the two activities, hailing its Crystal Zenith (CZ) syringe system in particular as the wonder-kid of its future business.

The firm said it is currently enjoying strong customer demand for the product, and celebrates CZ as the key driving factor in the predicted jump $335m to $600m in revenues by 2016.

CEO Donald Morel said: “Progress continues on our proprietary products and collaborations with potential partners.”

However, it seems the firm does not expect any drastic change in profits this year, forecasting a modest-in-comparison gross profit boost from $101m to $88m in 2012.

Jefferies equity analyst David Windley attributes slow growth to regulatory and practical reasons.

He said: “Injectable pharmaceutical manufacturers must produce two year stability data before requesting FDA approval for commercial scale in the new format. That imposes a long time-line in itself.” But with clients already on the “two year clock” for stability testing, Windley was hopeful for the future.

He added that integrating the CZ tech, and therefore disrupting highly profitable production lines, has also been a hold-up for the firm, but that a recent fill and finish partnership with Vetter could help.

Any significant growth is “at least six to eight quarters away” he precited.

A more cautious industry

In the results, West attributes its near-term growth to its packaging sector.

And in recent months, Morel believes the boost has been a result of the industry becoming more cautious with its supply chain management and stock-piling inventories.

He said: “The pharmaceutical packaging sales reflect real growth in injectable drug end-markets, but also a rebuilding of down-stream inventories, which we believe is linked to a renewed customer focus on supply-chain risk management.

“The resulting increase in orders contributed to the sales and volume-driven efficiency included in our current results, but also to lengthening lead times and, in turn, much of the continuing growth in our order backlog.”

Management expects the trend will contribute a 2 per cent lift for FY12 sales.

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