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