While West's third quarter operating results were $7m down on the same period last year to $12.9m largely thanks to an $8.6m pretax charge related to its Brazil operations, operating profit for the year to date was $7.3m up on last year to $87.3m.
West's tech group segment is one of the contract manufacturers for the inhalation delivery device used with Exubera, the pulmonary insulin product developed by its customer Nektar Therapeutics and licensed to Pfizer. On October 18, Pfizer announced that it would be dropping the product altogether, throwing its unwitting partners into disarray at the news.
West, however, is likely to emerge from 2007 unscathed by the incident, though what impact it will have on the firm's 2008 figures largely depends on what Nektar decides to do with the product now that Pfizer has washed its hands of it.
"We believe that the majority of our investments in current assets and equipment, totalling approximately $15m…and any associated severance or lease termination costs are recoverable through our contract with Nektar," the firm's 10-Q report states.
The company has, however, noted that it has a $13.1m intangible asset associated with the Nektar contract, which will be evaluated for impairment as more information becomes available regarding future plans for the product.
The company's pharmaceutical services division, which specialises in primary packaging components, saw a slight drop in operating profit over the quarter from $26.6m in 2006 to $25.9m this year. Figures for the year to date, however, show a $10m increase over last year.
60 per cent of the segment's improved sales were a result of increased sale of stoppers used in pharmaceutical packaging, many of which incorporate advanced coating treatments and the company's Westar ready-to-sterilise process. Sales of pre-filled injection components contributed a further 26 per cent of the 3Q sales increase.
The contract manufacturing division dropped $0.6m over the quarter to an operating profit of $2.9, with year to date figures still lagging behind last year's profit of $13.1m at $9.1m. Sales, however, were up 5.6 per cent (excluding foreign currency translations) to $71.4m over the quarter.
The growth was driven largely by a $3.2m increase in sales of a starter kit for a weight loss product launched by a customer in June, and a $2.1m increase in sales of a components used in an intra-nasal delivery system.
The company is currently struggling with capacity constraints and as such is actively pursuing expansion plans, both in terms of manufacturing capacity and geographic location.
With a $18.7m, 37,000 sq ft. expansion to a North Carolina plant announced recently, along with a new facility in Michigan also recently opened, the company is simultaneously expanding four European and Asian manufacturing facilities and tooling facility in the UK.
Expansion of existing plants should increase West's global production capacity by 20 per cent, but the company says it has taken steps to ensure that its development plans are flexible in case it 'foresees a change in its capacity needs.'
The firm is also increasing its presence in Asia, planning to add two new production facilities in China with construction due to begin in early 2008 and 2009.
In terms of the outlook for the rest of the year and on into 2008, the company has maintained its guidance of revenues for the year to just break the $1bn mark, with fourth quarter revenues expected to be around $250m.
However, the company is warning that growth in 2008 is likely to be affected by a series of unfavourable issues, including more restrictive US healthcare reimbursement standards for anaemia drugs and lower device sales for Exubera.
These hurdles are estimated to result in $50m-$60m reduced sales in 2008 compared to 2007, at an average margin impact of around 35 per cent.