West Pharmaceutical's key to success? Think rubber

Posted: July 08, 2013

Hidden in plain sight, West Pharmaceutical Services Inc. is celebrating its 90th year in 2013, and part of the happiness is that its stock set an all-time high this week.

Founded by Herman O. West in Philadelphia in 1923, the company completed a new headquarters in Exton in February. About 330 of West's 6,750 employees work there. West also is building a plant in India and has one in China.

On June 20, chief executive officer Don Morel rang the opening bell at the New York Stock Exchange. After hitting what had been an all-time high of $71.70 on Tuesday, the stock finished at $72.39 on Friday.

"We have a nice little business," Morel said last week with a bit of conscious understatement.

Pfizer, Merck, and Johnson & Johnson are among the giant firms on the Dow 30. West is not on that list, but all three drugmakers are customers of West's.

Unknowingly, millions of patients worldwide have used one of West's products - or had it used on them via an injection of some sort. Think rubber: The tip of the plunger in the syringe and the stopper in the intravenous bag are two of West's products.

The company had $1.27 billion in net sales in 2012 with net income of $80.7 million, according to its annual report, with a gross profit margin of 30.6 percent.

"People tend to focus on the larger multinationals, but what West does occupies a unique place in the supply chain," Morel said.

Warren Buffett says he got rich partly by buying companies with wide moats, so as to avoid competitors. An edge for West over competitors is the regulatory process required of drugmakers in the United States and increasingly in the rest of the world, too.

When drug companies apply to the Food and Drug Administration for approval of their injectable drug, they also must supply detailed packaging information. The chemical composition of the rubber in that syringe or IV bag is part of the application because it will touch the liquid medicine. The same rubber piece had to be used in clinical trials preceding the application.

With each application, the FDA asks West for permission to see the proprietary information of the rubber used to make those pieces. West uses a single standard around the globe. If the drug company can leap the FDA hurdle, there is little reason to change the plug or plunger, because it would have to incur new costs with new trials.

"Once we're approved on the drug, we're likely to be there for the life of the drug," Morel said. "Then, when the patent is over and the generic company applies to the FDA, we can often sell to the generic company."

Contact David Sell at 215-854-4506, dsell@phillynews.com, or @phillypharma. Read his blog at www.inquirer.com/phillypharma.

comments powered by Disqus