West decides future of drug delivery arm

West had said that it planned to look into the future of the loss-making drug delivery division in June 2004, and in a conference call Dr Don Morel said that the solution had been to spin out the division into a new company set up by private equity investor Warburg Pincus.

Morel told the call that his company also stands to receive up to an additional $19 million from royalties and profit sharing earned by the new company on products based on delivery technologies developed at West​. In addition, Warbug Pincus has committed to provide $40 million in new capital to finance the development of these products, the most advanced of which are in Phase II testing.

"The move frees up management time to concentrate on the future growth and profitability of our core pharmaceutical systems business,"​ he said, adding that it still gives West an opportunity to benefit financially from its investment in drug delivery.

The largest part of West's business is directed at the development and sale of pharmaceutical closures and syringe components, accounting for 89 per cent of the firm's $490 million revenues in 2003. In contrast, drug delivery's development/licensing revenues and clinical services brought in just $1.9 million and $5.4 million, respectively, in the same year.

Explaining the decision to sell off the business, Morel said that drug delivery had been affected by changes in the market and regulatory environment that have extended development times and costs, and that it had been competing for investment funding with pharmaceutical system projects. But the underlying technologies are robust and would benefit from the undivided attention of the Warburg Pincus management team, he added.

The drug delivery business will operate from West's facility in Nottingham, UK, and will employ all of the division's employees at that location. Drug Delivery operations at West's Lionville facility will wind down following the transaction, with approximately 30 jobs lost.

The technologies underlying the business include West's ChiSys and Pectin-based systems for nasal delivery, which are being used to deliver active ingredients such as the cancer drug leuprolide and opioid analgesic fentanyl. Another advanced project is an improved oral version of the corticosteroid drug budesonide intended as a treatment for inflammatory bowel disease.

As a result of the pending transaction, West said it would take a pretax charge of $4 million to $7 million in the fourth quarter of 2004.