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West Pharmaceutical Services Reports Third Quarter Results; Commences Strategic Review; Announces Drug Delivery Licensing Agreements

LIONVILLE, Pa., Oct. 16 /PRNewswire/ -- West Pharmaceutical Services, Inc. (NYSE: WST) today reported net income of $4.6 million, or $0.32 per share, compared with third quarter 1999 net income of $8.6 million, or $0.58 per share.

In the Device Product Development segment, strong sales growth in European and Asia Pacific markets could not overcome weaker-than-expected demand in North America. Expected improvements in contract-manufacturing and packaging operations did not occur as that business continued to experience low volumes and losses. Additionally, a strong U.S. dollar negatively affected reported results of international subsidiaries.

The Company also announced that its Board of Directors authorized management to engage UBS Warburg LLC to review all of the Company's strategic alternatives and identify opportunities for enhancing shareholder value, which may include dispositions of assets or business combinations involving the Company. The Company does not intend to comment further on this review until it has reached some conclusion.

"The review to be made by UBS Warburg is part of an ongoing process to better understand the relative significance of each element of the Company's overall business and to determine the best way of realizing the full value of the enterprise," said William G. Little, Chairman and Chief Executive Officer, "During this process, we will be exploring all potential strategies."

The Company also announced agreements with Innovative Drug Delivery Systems, Inc. ("IDDS") granting IDDS exclusive rights to the Company's transmucosal drug delivery technologies for the delivery of morphine and fentanyl, both well-known pain medications, and midazolam, an anti-anxiety drug frequently administered prior to surgery. IDDS also has the option to license West's technology for use with morphine-6-glucuronide, a morphine metabolite, which is believed to have a therapeutic role in pain relief.

IDDS is a recently formed, privately held pharmaceutical company focusing its initial research and development efforts on novel formulations of products for the relief of pain and associated anxiety. Paramount Capital Investments LLC, a venture capital firm, has led recent equity financings for IDDS.

The agreements provide for IDDS to make license, option and milestone payments to West that could total up to $30.0 million through 2004. West would also be entitled to royalties on the sale of any licensed products that proceed through commercialization. To date, the Company has received license and option payments totaling $2.5 million from IDDS.

Net sales for the third quarter were $104.5 million compared to the $115.1 million reported in the third quarter of 1999. At constant exchange rates, third-quarter 2000 sales were 5.2% lower than in the same period of 1999. Sales in the Device Product Development segment declined 1.4% at constant exchange rates compared with the 1999 third quarter. Sales in European and Asia Pacific markets grew at 10% versus the 1999 period, but the increase was offset by lower demand in domestic markets, in part due to customers' inventory reductions and a lower-value product mix. Margins for this segment were negatively affected by higher raw material costs, in part reflecting the cost of dollar-based raw materials. Net sales in the Contract Services segment were $17.3 million, 21% below the same period in 1999, and operating losses were $2.0 million.

Selling, general and administrative expenses were lower compared with the same period in 1999 due to reduced incentive compensation expense, higher income on pension assets and the effects of the strong U.S. dollar.

The estimated 2000 tax rate was increased to 38.5% in the quarter because of the change in the geographic mix of expected income for the year. In addition, the Company reported a $1.6 million, or $0.11 per share, tax benefit due to a tax-law change that provides additional local tax benefits to the 1997 tax reorganization of the Company's German subsidiaries. In the third quarter of 1999, the Company recorded a $0.7 million, or $0.05 per share, tax benefit related to the favorable settlement of an appeal of prior years' taxes. Excluding these tax benefits in both periods, net income was $3.0 million, or $0.21 per share, in the third quarter of 2000 compared with $7.9 million, or $0.53 per share, in the third quarter of 1999.

Sales for the nine-month period ended September 30, 2000 decreased by 8.1% to $324.9 million from $353.7 million reported in the first nine months of 1999. At constant exchange rates, sales decreased 4.5% compared with the same period in 1999. Net income for the nine-month period of 2000 was $14.7 million, or $1.02 per share, compared with $28.5 million, or $1.91 per share, reported in the comparable period of 1999. Excluding the tax benefits in both years, net income for the first nine months of 2000 was $13.1 million, or $0.91 per share, compared with $27.8 million, or $1.86 per share, in the comparable period of 1999.

Based on results to-date and a review of current operations, the Company expects earnings for the fourth quarter to be in the range of $0.30 to $0.35 per share, excluding any impact that the strategic review may have on results.

Commenting on the state of the business, Little said, "Of course, we are frustrated by the slow recovery in our contract manufacturing business, as well as the current cycle of inventory reductions that are affecting our device-product development segment." Little continued by saying, "However, we are very excited by the recently completed agreements with IDDS, which represent another major step in the evolution of our drug-delivery segment. In the device product development area, we have concluded agreements that will strengthen our pipeline for new systems in the nasal, pulmonary and lyophilized drug sectors of our market. We are also seeing demand growing for our Westar(R) and other value-added components."

The Company will host a conference call on Monday, October 16, 2000 at 10:00 a.m. eastern time. The dial-in number for the call is 1-800-521-5414. In addition, a replay of the call is available until October 23, 2000. The dial-in number for the replay is 1-800-625-5288, passcode 838-199.

West Pharmaceutical Services applies value-added technologies to the process of bringing new drug therapies and healthcare products to global markets. West's technologies include the design and manufacture of packaging components for pharmaceutical, healthcare and consumer products; research and development of drug delivery systems; contract laboratory services; clinical services; and other services that support the manufacturing, filling and packaging of pharmaceutical and healthcare products. For more information, visit the West Pharmaceutical Services website at http://www.westpharma.com.

Certain statements contained in this Press Release that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words "estimate", "expect", "intend", "believe" and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward looking statements, including but not limited to (1) sales demand, (2) the timing and success of customers' projects, (3) competitive pressures, (4) the strength or weakness of the U.S. dollar, (5) inflation and (6) the cost of raw materials. The Company does not intend to update these forward- looking statements.

For additional information regarding these and other risks and uncertainties associated with the Company's business, reference is made to the Company's reports filed from time to time with the Securities and Exchange Commission.

                      WEST PHARMACEUTICAL SERVICES, INC.
                      CONSOLIDATED STATEMENTS OF INCOME
                    (in thousands, except per share data)

                                              Quarter Ended
                               September 30, 2000     September 30, 1999


    Net sales                   $  104,500   100%        $115,100   100%
    Cost of goods and services sold 79,900    76           80,800    70
      Gross profit                  24,600    24           34,300    30
    Selling, general and
       administrative expenses      16,500    16           19,200    17
    Other (income) expense, net       (200)   --             (300)   --
      Operating profit               8,300     8           15,400    13
    Interest expense                 3,200     3            2,900     2
      Income before income taxes
         and minority interests      5,100     5           12,500    11
    Provision for income taxes         500     1            4,000     4
    Minority interests                  --    --               --    --
      Income from consolidated
         operations                  4,600     4%           8,500     7%
    Equity in net income of
       affiliated companies             --                    100
      Net income                $    4,600               $  8,600
    Net income per share:
      Basic                     $     0.32               $   0.58
      Assuming dilution         $     0.32               $   0.57
    Average common shares
     outstanding                    14,337                 14,898
    Average shares outstanding
       assuming dilution            14,337                 15,074


                      WEST PHARMACEUTICAL SERVICES, INC.
                      CONSOLIDATED STATEMENTS OF INCOME
                    (in thousands, except per share data)

                                               Nine Months Ended
                                   September 30, 2000   September 30, 1999

    Net sales                        $  324,900   100%     $353,700  100%
    Cost of goods and services sold     243,900    75       245,200   69
      Gross profit                       81,000    25       108,500   31
    Selling, general and
       administrative expenses           50,900    16        55,900   16
    Other (income) expense, net             200    --            --   --
      Operating profit                   29,900     9        52,600   15
    Interest expense                      9,600     3         7,700    2
      Income before income taxes
          and minority interests         20,300     6        44,900   13
    Provision for income taxes            6,200     2        16,500    5
    Minority interests                      200    --           100   --
      Income from consolidated
        operations                       13,900     4%       28,300    8%
    Equity in net income of
       affiliated companies                 800                 200
      Net income                     $   14,700             $28,500
    Net income per share:
      Basic                              $ 1.02              $ 1.91
      Assuming dilution                  $ 1.02              $ 1.89
    Average common shares outstanding    14,437              14,972
    Average shares outstanding
       assuming dilution                 14,439              15,113


                      WEST PHARMACEUTICAL SERVICES, INC.
                        OPERATING SEGMENT INFORMATION

                               Three Months Ended      Nine Months Ended
                                  September 30,           September 30,
    Net Sales:                    2000      1999        2000       1999
    Device product development  $86,800   $92,700    $273,500   $286,900
    Contract services            17,300    21,900      50,700     65,900
    Drug delivery research          300       500       1,000        900
    Corporate and unallocated       100        --        (300)        --
      Consolidated Total      $ 104,500  $115,100    $324,900   $353,700


                                 Three Months Ended    Nine Months Ended
                                    September 30,          September 30,
    Operating Profit (Loss):     2000      1999         2000      1999
    Device product development $16,000   $20,800      $56,200   $68,300
    Contract services           (2,000)    1,400       (9,400)    5,400
    Drug delivery research      (2,600)   (2,200)      (7,300)   (5,200)
    Corporate and unallocated   (3,100)   (4,600)      (9,600)  (15,900)
      Consolidated Total        $8,300   $15,400      $29,900   $52,600

SOURCE West Pharmaceutical Services, Inc.

CONTACT: Stephen M. Heumann, Vice President and Treasurer of West Pharmaceutical Services, Inc., 610-594-3346; or Investor Relations - Investors