West profits surge; Exubera contract gains momentum

By Kirsty Barnes

- Last updated on GMT

Related tags Profit Syringe

West Pharmaceutical Services has reported a huge surge in both
sales and profits for its second quarter, spurred on by the
increasing demand for injectable drugs as well as the lucrative
Exubera manufacturing contract, which helped double sales for the
segment, although failed to stop a fall in profit margin.

West, whose main business is manufacturing components for injectable drug delivery, achieved a 72 per cent surge in pre tax profit to $29.3m (€22.8m) on the back of sales of $240.2m, which were up by 39 per cent.

Its Pharmaceutical Systems Segment brought in the lions share of business, with a 19 per cent rise in sales and a 43 per cent increase in operating profit.

Three per cent of this growth was attributed to the revenues generated by Medimop Medical Projects, which was acquired by West in August 2005, said the firm.

The company's chairman and CEO, Dr Donald Morel attributed the strong result to "increasing demand for injectable therapeutics and growing patient populations within key therapeutic product categories,"​ as well as "growth in pharmaceutical packaging components employing FluroTec, Teflon and other advanced coating products."

However, he noted that the some of the sales volume increase in this quarter was "attributable to our customers' seasonal production and inventory management plans,"​ and the company does not expect the sales growth in the second half of the year to be at the pace experienced in the first two quarters.

Either way, the injectable drug market is growing strongly at present, driven by the rising number of biologic drugs coming though the biopharma industry's pipelines and demand for pre-fillable syringes is growing as the need self-administration of injectable drug therapies increases.

Looking ahead, the company said it now plans to make "significant investments over the next three years"​ in its global manufacturing infrastructure in order to further capitalise on this market growth - this will be focused on, but not limited to, expansions in the company's Europe and Asia/Pacific operating region.

In addition to sales growth, Morel said the segment's strong profit was also reflective of "a more profitable sales mix, driven by growth in high value products, including coated pharmaceutical closures, pre-filled syringe components and Westar-treated components."

Although the segment has been hit again this quarter by the incresing costs of its primary raw materials, including synthetic rubber, plastic resins and rolled aluminum as well as petroleum, Morel said that: "Production efficiencies and selling price increases more than offset the effects of these higher raw material and energy costs."

As a result, segment profit margin rose 3.8 per cent.

The star performer in terms of growth was the company's Tech Group segment, which experienced explosive growth as it began ramping production of the drug delivery component of Exubera - Pfizer's newly-approved and much-anticipated needle-free insulin - which had its market debut planned for mid-July, although, this was since delayed by Pfizer until at least September.

Arizona-based Tech Group is one of two contract manufacturers equally responsible for making the Exubera delivery device - Bespak in the UK is the other manufacturer.

This part of the segment, which was acquired by West in May of 2005, accounted for $38.4m of the increase, approximately 20 per cent of which relates to the Exubera device, said the firm.

As a result, the Tech Group saw its sales more than double to reach $76.5m and operating profit leap 68 per cent to $4.7m.

Despite this strong performance, the segment's profit margin fell 1.7 per cent lower than the prior year period.

A statement from West said this reduction was attributed to "lower average margins in the acquired business than in West's pre-existing business, narrower margins on tooling and development services revenue, and the effects of some customer-driven project start-up delays on plant utilisation."

"Tech Group provides customised manufacturing, and product assembly and capacity is not easily shifted from one product to another when customers delay planned purchases, which results in underutilisation of dedicated assets and personnel and narrower profit margins."

"Material and overhead costs increasing faster than selling prices"​ was also cited as a factor, although In-PharmaTechnologist.com was unable to obtain a further explanation from the company before the time of publishing.

Meanwhile, since the delay in launching Exubera was announced, West has not yet provided an update of how this may impact the segment in the next quarter.

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