The company’s divisions had mixed fortunes in the third quarter, with growth in pharmaceutical systems being offset by a 49 per cent drop in operating profit at the tech group, and West now hopes to improve operating efficiencies in both segments.
West's restructuring will eliminate approximately 100 positions and re-evaluate certain business initiatives and assets, resulting in charges of $8m (€5.5m) to $10m. By making these changes West believes it can increase its focus on its proprietary injectable drug delivery portfolio.
Donald Morel Jr, West’s CEO, said that Tech Group “sales under existing manufacturing contracts remain sluggish” but that there are encouraging signs for the overall business.
Morel believes growth in sales of packaging components and systems suggest “that inventories in the supply chain are at or near the low point for this cycle” and expects overall demand to improve in the next two quarters.
In the meantime West predicts results will be buoyed by growth in demand for flu vaccine. Pharmaceutical systems revenues included $9.7m of H1N1 flu vaccination-related sales, primarily for serum stoppers, in the third quarter helping the division bring in $198.1m.
There was also growth in sales of components used in the processing and packaging of freeze-dried pharmaceutical products and parts for prefillable syringes and cartridges. Westar processing and West’s component coating technologies contributed to each of these categories.
Excluding the effects of currency translation, revenue growth was strongest in North America and Asia. Gross profit was helped by higher overall selling prices, a more profitable sales mix and $1.9m lower raw material costs as a result of a drop in the prices for petroleum products.
Sales at the Tech Group were $62.9m, down by almost eight per cent year-on-year, which is partially accounted for by contractually mandated price reductions associated with lower plastic resin costs.
The Tech Group also suffered from generally lower demand for custom manufactured products and mature items. West received “launch-quantity” orders from customers introducing new products but this was “more than offset” by the drop in demand for mature products.