西式醫藥服務 (WST) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the West Pharmaceutical Services 2010 4th quarter earnings conference call. My name is Tanya and I will be your coordinator for today. At this time all participants are in listen-only mode. Following the prepared remarks there will be a question and answer session. (Operator Instructions)

And now, I would like to turn today's meeting over to Mr. John Woolford, IR, Westwicke Partners.

Good morning, everyone and welcome to West's fourth quarter 2010 conference call. We issued the financial results this morning and the release has been posted on the company's website at www.westpharma.com. If you have not received a copy of this announcement, call the partners at (443)213-0500 and a copy will be sent to you immediately. There is also posted on the Company's website a slide presentation that management will refer to in their remarks today. You may need additional software in order to view the PDF formatted presentation and a link to a free download of that software is provided at the website.

I remind you that statements that will be made by management may contain forward-looking statements within the meaning of US federal securities law and that are based on management's, beliefs and assumptions, current expectations, estimates and forecasts. Statements that are not historical facts, including statements that are proceeded by, followed by, or they include words such as estimate, expect, intend, believe, plan, anticipate and other words of similar meaning are forward-looking statements. Estimated or anticipated future results, product performance or other non-historical facts are forward looking and reflect our current perspective on trends and information. Many of the factors that will determine the company's future results are beyond the ability of the company to control or predict.

These statements are subject to known or unknown risks or uncertainties, and therefore actual results could differ materially from past results and expressed or implied in any forward-looking statements. You should bear this in mind as you consider forward-looking statements.For a non exclusive list of the factors which could cause actual results to differ from expectations, please refer to today's press release. Investors are also advised to consult any further disclosure the company makes on related subjects in the company's 10K, 10Q and AK reports. Except as required by applicable securities law, the company undertakes no obligation to update forward-looking statements, whether as a result of new information, future events or otherwise.

In addition, during today's call, management may make reference to non-GAAP financial measure, including adjusted operating profit and adjusted diluted EPS. These measures have no standardized meaning prescribed by US GAAP and therefore may not be comparable to and should not be viewed as a substitute for US GAAP operating income and diluted EPS. Reconciliations of the non-GAAP financial measures to the most comparable financial results, prepared in conformity to GAAP are provided in materials accompanying this morning's earnings release.

This call is being recorded on behalf of West and is copyrighted material it cannot be rerecorded or rebroadcast without the company's permission. Your participation in this call implies your consent to our taping.At this time, I would like to turn call over to Don Morel, Chairman and CEO. Don?

Thank you very much, John. Good morning, everyone.

Welcome to the West's 2010 year end conference call. In our prepared remarks today, we will use slides to highlight our discussion points and these slides can be accessed at our website, www.westpharma.com by selecting Investors and then Presentation. For those who are unable to view the slides during the call, the information we will cover is covered both in our press release and our remarks.

Following our usual agenda, I will begin with an overview of our results for the quarter and full year, speak to our financial guidance for FY 2011, and provide a brief update on major development programs. I will then turn the call over to Bill for a more detailed discussion of the financial results.

Let me start with a quick snapshot of our fourth quarter results as summarized on slide number three. Revenues during the quarter declined from the comparable period in 2009 by $16.6 million to $276.8 million. Our consolidated gross margin was 28.2%, representing a 0.4 percentage point decline from the prior year which resulted largely from the impact of higher cost of certain raw materials and production inefficiencies. Adjusted diluted earnings per share were $0.42, down from $0.67 in the very strong fourth quarter of 2009.

In our November call we projected earnings would be in the range of $0.45 to $0.52 per share, assuming the EURO at $1.40 and full year earnings of $2.13 to $2.20. In December we believed the quarter would finish on the low end of that range based on changes in currency and stock-based compensation expense. Finally, we experienced a substantial push by customers to take delivery of orders we planned for shipment in December into January and February of 2011. Combined, these items impacted the quarter by approximately $0.05 and took our results from the bottom of our earlier guidance range to $0.42.

As outlined on slide number four, comparisons to our fourth quarter 2009 are difficult because of the high level of H1N1 component sales, which were $12.3 million, that shipped during the quarter and currency effects. Excluding the effects of currency in those 2009 non-recurring H1N1 sales, revenue growth was 1.3% on a consolidated basis for the quarter, supported by double digit growth in the delivery systems segment.

I will discuss 2011 in a moment, but based on our current backlog, production plan and January results it is clear many customers placed orders for production in late November and December with requested delivery dates in January through the first quarter. During the quarter, our backlog grew by 10% versus prior year. For the first quarter of 2011, orders on hand in our major north American and European markets are strong and order intake has improved substantially in Europe. As West is a made-to-order business, we were able to continue to produce reasonably efficiently and build inventory for early 2011 deliveries. Now such orders patterns and requested delivery dates confirms what we expect will be the new normal in terms of how our customers manage their inventories and working capital throughout the year.

While we believe the large inventory adjustments we experienced from 2008 into 2009 are largely behind us, smaller order quantities, reduced lead times and quarter and year end delivery date changes will be the new reality going forward. For full year, consolidated revenues totaled $1.1 billion, an increase of 4.6% in actual rates or 8.2% excluding the impact of currency rates and the nonrecurring H1N1 sales, slightly above our expectation at the outset of the year. Packaging systems grew 5.5%, excluding currency. Delivery systems grew over 11% before currency effects and costs from acquisitions.

Diluted adjusted earnings for the full year were $2.10 per share. However, taking currency effects into consideration, our full year sales and earnings were substantially in line with our guidance and currency assumptions at the outset of 2010. Our balance sheet remains very strong with net debts and total capital at just over 28% and cash on hand of $110 million. In summary, we accomplished the majority of the 2010 objectives from an operating operative and have set the stage for healthy growth in 2011.

Turning to our outlook for 2011, the year looks to be off to a very strong start. We currently believe revenue growth will fall in the range of 3% to 6% at constant exchange rates, slightly stronger in the upside than we saw in the fourth quarter, assuming a USD/EURO exchange rate of $1.35. As summarized on slide number five, consolidated revenue should be in the range of $1.14 billion and $1.17 billion and we should see margin expansion in both operating segments. For the full year, we believe the consolidated gross margin will improve.

We will continue to increase the R&D spend on key programs such as the CZ products and believe that this will translate into a strong year in terms of earnings growth with adjusted earnings per fully diluted share in the range of $2.25 to $2.45 per share. We are off to a good start in the quarter and expect to improve on the very good first quarter of 2010 by a high single digit percentage.

In terms of risk to achieving our operating goals, clearly many of the market challenges we have faced over the last two years remain as we enter 2011. Mainly, we are seeing fewer new drug approvals to replace molecules going off patent. No doubt we will continue to see continued mergers both within the global multinational pharma base and our bio tech customers. This will lead to continued pricing pressure on the supply base and we also expect continued volatility in the currency and commodity markets. And, as I mentioned previously, throughout the year and especially at year-end, ongoing working capital management by our major customers.

On a positive note we see strong order flow and, as previously mentioned, our backlog grew strongly at the end of the year and at the outset of 2011 is approximately 10% greater than at the end of 2009. Other positive drivers include continued growth in high value drugs to treat chronic diseases, many of which are biologics and require clear, particular free packaging which we aim to address with Westar and Envision. They require more sophisticated delivery systems and, as has been mentioned previously in the press, there is several issues emerging with glass breakage and compatibility which plays well for CZ's opportunities. We also expect to see continued growth in emerging markets like India and China where we saw very robust growth in 2010.

Turning to an update on several of our key programs, which are listed on slide number six, and starting with the pharmaceutical packaging business. We filed the Westar ready to use drug master file and are now seeing growing interest in the marketplace for this product, as evidenced by the rapidly growing number of requests for authorization letters at the FDA for products currently on the market. Three customers have already converted and begun ordering commercial quantities and we expect the dollar value of sales for these product to grow substantially through 2011.

China and India continue their rapid growth with revenues rising 22% and 40% respectively last year. We expect to receive our land use permit for construction of the China rubber facility in the second quarter and plan to break ground early the third quarter. And at the same time, have completed detailed planning for the India plant and plan to begin construction in early 2012.

On the CZ front, total sales of CZ products in 2010 exceeded $6 million with contributions from both vial sales and the one-in-all syringe. Market interest continues to be very strong with growing demand for samples for line trials and stability compatibility testing. To meet this growing demand, a second cell is now in place and undergoing validation which we plan to complete by mid year. Sale of CZ products in 2011 are forecast to exceed $10 million. We expect to complete initial development of our lead ConfiDose program also in the first quarter. To date all program milestones have been achieved and we continue to work with a broad range of customers to make custom modification to the system that will satisfy their unique product and design needs.

Customer interest also remains very strong for the electronic patch injector that we acquired the rights to in 2010. Six current customers have evaluated the technology and identified it has their first choice for a potential delivery platform for molecules currently in clinical development. Our goal for 2011 is to have samples available for use in clinical trials by those customers in the fourth quarter.

I would now like to turn the call over to Bill for a more indepth review of our Q4 and full year financials. Bill?

Thank you, Don, and good morning everyone.

We issued our fourth quarter results this morning reporting a net income of $5.9 million or $0.18 per share versus the $0.59 per diluted share we reported in the fourth quarter 2009. As explained in the release, results in both periods included restructuring charges and several discreet tax items. Excluding the affect of these items in both periods, fourth quarter 2010 earnings were $0.42 per diluted share versus the $0.67 per diluted share we earned in Q4 2009. As described on slide 7, the decline in results was driven by reduced year-over-year sales.

Last year's fourth quarter results included $12.3 million, or $0.9 in H1N1 sale that is did not reoccur in Q4 2010 in the packaging systems segment. We were also negatively affected by a much stronger dollar that reduced comparable Q4 2010 earnings by an additional $0.06 per diluted share. We spent an additional $0.3 on R&D to key integration activities. Finally, our share price rose sharply in Q4 2010 , increasing stock compensation cost by $0.03 versus the prior year quarter. Collectively these items account for nearly owl of the EPS decline.

Slide eight shows the components of our consolidated sales decrease. Consolidated sales declined by $16.6 million to $276.8 million, a 3% decrease from Q4 2009 sales excluding exchange. Excluding H1N1 nonrecurring sales and currency effects, consolidated sales increased by 1.3% versus Q4 2009. Packaging systems sales declined 3.5%, versus Q4 2009 on an Ex-currency and Ex-H1N1 basis as a result of customers inventory and working capital management at year-end. Evidencing the year-end sales shift, the January 2011 packaging system sales are up 16% versus January of 2010. High value product sales increased about 1% to $70 million in Q4 2010 versus the prior year quarter.

Both North America and Europe experienced sales declines versus Q4 2009. Delivery system sales increased 13% versus Q4 2009 on an Ex-currency and Ex-acquisition basis, as proprietary product and contract manufacturing businesses both showed strong sales gains versus the prior year period.

Slide 9 shows the detail of our consolidated fourth quarter 40 basis point gross margin decline. Packaging systems Q4 2010 gross margin was lower than the corresponding 2009 margin, partially offsetting the strong improvement in delivery systems. Packaging systems gross profit margin declined by 50 basis points to 32.5% due primarily to lower sales volumes, higher raw material costs, impact of wage increases, higher plant depreciation and inefficiencies associated with lower production levels in North America. The increased costs were partially offset by lower plant overhead costs and modest price increases. Delivery systems gross profit margin increased by 280 basis point to 18%, with the increase due largely to higher volume and a favorable sales mix.

Slide 10 shows the changing in consolidated SG&A expenses. SG&A expenses increased by $5.1 million or 11% in the fourth quarter, versus the prior year quarter. The compensation portion of the increase was due to head count increases in the areas of sales quality and regulatory, higher incentive compensation expense and the impact of annual salary increases. $2.3 million of the increase was due to increase in stock-based compensation expense, primarily driven by the fourth quarter increase in the company's share price. Increases were partially offset by the impact of foreign exchange and lower pension expense.

R&D expenses increased by $1.1 million versus the prior year quarter with most of the increase in the delivery systems segment on increased development activity relating to proprietary products, including the recently acquired electronic patch injector system.

Slide 11 shows our summary balance sheet information. Our balance sheet remains strong and we are confident that our Business will continue to provide necessary liquidity. For the full year our debt declined by $21 million due to debt repayments mostly on our revolving credit facility. Our net debt to total invested capital dropped 5.5 percentage points to 28.4%. Working capital increased by nearly $41 million from year-end, mostly due to increases in cash and inventory and a reduction in accounts payable. Accounts receivable decreased by $12 million and our receivable collection metrics improved significantly from the prior year-end levels, with DSO dropping to 2.6 days to 41.8 days, primarily as a result of lower Q4 sales. Inventories increased by $18 million to support an anticipated strong first quarter sales level.

Slide 12 shows our key cash flow metrics. We generated full year operating cash flows of $138.3 million, slightly better than our prior year. Capital spending of $71.1 million for 2010 was almost $34 million less than 2009. About 57% of capital spent in 2010 was focused on maintenance capital, with 29% focused on new products and expansion efforts, and the remainder on IT system upgrades. During 2010 , we generated free cash flow of approximately $45 million, versus the $13 million we generated in 2009.

We are providing our full year 2011 guidance which is summarized on slide 13. We have based our guidance on an exchange rate of $1.35 per EURO for the full year. We expect 2011 consolidated sales will increase by 3% to 6% over 2010 levels on a currency neutral basis to between $1.14 billion and $1.17 billion. Packaging system sales are expected to range from $810 million to $830 million and delivery systems sales are expected to range from $325 million to $340 million.

Consolidated gross profit margins are expected to increase by approximately 90 basis points to 29.7% as a result of modest pricing and volume increases and a favorable mix along with significant lien savings and up to $6 million of savings from our Q4 2010 restructuring activities. Packaging systems gross margins are expected to increase by 50 basis points to 33.4%. And delivery systems gross profit margin is expected to increase by 200 basis points to 20.5%. Adjusted diluted earnings per share are expected to be in the range of $2.25 to $2.45 for 2011.

Our forecast assumes less volatile commodity markets in 2011. As you may remember, our supply agreements provide a contractual buffer of 4 plus months against increasing prices, but we are still exposed to highly volatile periods, particularly in the second half of the year. Our forecast also assumed less volatility from cross-currency transactions such as the USD/Yen and EURO/Yen.

At year end our backlog was very strong at $251million, almost 10% higher than the prior year-end, excluding currency effects. The first quarter order book is relatively full and we expect a strong first quarter as it is expected to beat our 1Q 2010 EPS by approximately 6% to 9%. We have experienced strong growth thus far in 2011 versus the comparable 2010 period, and while still early, we believe these trends support our 1Q estimate. We expect full year CapEx to be in the range of $110 million to $130 million and assumes exchange rates. The CapEx spent will be largely dependant on the timing of our planned China expansion.

I would now like the turn the call back over to Don

Thank you very much, Bill. This concludes our review for this morning and we would now be pleased to answer any questions you might have. Operator?

(Operator Instructions)

Our first question will come from the line of Larry Marsh, with Barclays Capital. You may proceed with your question.

Good morning, Larry?

Mr. Marsh, your line is open. Please check the mute feature on your phone.

All right. We will go to our next question. Our next question will come from the line of Andrew Hilgenbrink, with Jefferies & Company. Plead proceed with your question.

Good morning. Thank you for taking the questions.

Good morning, Andrew.

I believe you guys said that you had $6 million in CZ sales. Do you expect that level to stay relatively constant quarter to quarter throughout 2011?

No. It's going to be lumpy, Andrew. We are looking for north of $10 million in 2011, but it's going to depend on timing of sample orders, often which are large and bolus orders, depending on when lines open up at our customer. It won't be smooth, but at the end of the year we expect we will be in the range of $10 million or maybe a little bit north.

All right, thank you. Can you elaborate to the therapeutic areas, switching over to the electronic injector patch, the therapeutic areas that are being evaluated there?

Therapeutic areas are really in the autoimmune area and for treatment of diseases where people are mobility compromised. So, rather than having to deliver a large bolus injection accurately and quickly, and incur the pain that that entails, what the patch pump allows you do, is put the patch on like a band-aid, push the button and then deliver the dose over a longer period of time. So, any therapeutic category that can benefit from delivering a slightly larger dose over a prolonged period of time accurately is going to be a target for that product.

And would first commercial sale business expected mid 2013 on that, as well?

No, I think lit will probably be later. Again, It depends on how quickly we can get validated devices into the hands of our customers for clinical trials. Assuming that happens at the end of this year, you're probably looking at a time of upwards of a year for a clinical trial and then the filing of the application. To my knowledge right now it's being looked at mostly for new products that are in the pipeline.

Okay. Then one other question. Your press release mentions a reduction in the liability for the eris injection system due to milestones that were no longer expected to be met. Were those sales milestones of developmental?

The milestones that were not met were related to sales.

Okay. And product still break even overseas?

Yes.

Okay. Thank you.

You're welcome.

Our next question comes from the line of Derik De Bruin, with UBS. Please proceed with your question.

Hi, guys, good morning.

Good morning, Derik.

Is there -- I assume that your guidance, midpoint of the guidance range is kind of where your guidance is generally assuming things. Is there a general rule of thumb on just for looking at FX and organic revenue growth, the point of organic revenue growth has an impact on EPS.

Yes, and let me preface the comment by saying that, a lot of that depends on two things; there's a translation piece, and then there's transaction effects. Yes. The translation piece is roughly the same as it always was, which is roughly about every $0.01 of change in the dollar/euro equates to about a $0.01 of EPS. The wild card comes into account -- and we saw it in the back half of -- in fact throughout the year in 2010 -- is when you have volatility in a lot of the cross currencies. We purchase raw materials out of Japan. We have some countries that are dealing in cross currencies as well, other than their natural currencies. When those cross currencies become very volatile, that delta, the impact of a change in currency on the EPS grows larger, as we saw in the back half of this past year in 2010. So, again, as a general guide for translation which is a bulk of our issues, you should use the $0.01 change in the dollar/euro equaling a $0.01 EPS change. However you need to take into effect the changes in cross currencies, specifically last year the yen happened to be very impactful.

Great. So, when, the last couple of years the normal seasonality of the business has been a little off, you have typically had, 2008 and prior, you've typically have had a very strong first half and the second half has been a little bit softer. It sounds like you're have a really good Q1kind of building. Do you think you are kind of back to that type of still seasonal type of revenue run rate?

I think we are back to the seasonality. I think the variation within the seasonality is what we're seeing change. Historically, as you said, we'd have a first half where folks effectively built up inventories depleted at the latter part of the prior year. They are still doing that. But what it's creating downstream in the third and the fourth quarters is a lot more variability than we would ordinarily see, especially when we get toward the end of the year. So, I think the seasonality patterns in general are still with us, but the magnitudes of the variation within the first half and the second half are what we are seeing change.

Great. I guess, we've have a new congress and there is a lot of talk on health care again and other various things. I guess it sounds like you've got a good Q1 building and I would take that as a sign that your customers don't seem to be that concerned about what is going on. Have you heard anything from your customers about them being nervous about the game of chicken that's getting played in Washington right now?

I think in some case they're very nervous. If you follow the major things in the Budget Act and the proposed budget and I'll focus on that for right now. There are three things of concern; One is that clearly, there is an emphasis to shift to generics to a much greater percent. Right now, they are about three-quarters of the prescriptions that are written, but, within the language of the bills, there is a push to limit some of the tools that are in the innovators tool box to delay or push out generic conversions. So, I am sure they are very concerned about that. The second one is that out of the health care act, of course, there was a compromise on 12-years exclusivity for biologics. Now the push is back again to reduce that to seven years, and I'm sure that's a great concern, too.When you look at the investment necessary and time period and the risks to get one of these molecule to market, a seven year exclusivity period, I'm sure, is a great concern to the folks that are spending that money and taking that risk.

Great. And just one final thing, in case I missed it, what was the CapEx guidance for 2011?

$110 million to $130 million.

Great. Thanks, guys.

Thank you, Derik.

Our next question comes from the line of Arnie Ursaner, with CJS Securities. Please proceed with your question.

Hi, good morning.

Good morning, Arnie.

Back to CapEx for a minute. Your $71 million was much less than you thought it would be at the beginning of the year. Can you comment on what factors are causing it to not -- I assume it's timing of various facilities. And the $110 million to $130 million, you had roughly of $10 million of IT spend this year. How much do you build in for next year?

Let me answer the last question first. We've build roughly $15 million into next year, into 2011's guidance. On the question of where we ended up versus where we thought we would end up at the beginning of the year, we had -- and it is timing. It is a number of the initiatives that we had planned for 2010. Either we are slower to uptake, or have been moved into 2011. So, if you are looking at 2009, we had about $12 million of China CapEx in there, and another about $12 million of European expansions that didn't come through in 2010. So, we think we are -- we've got the number right, where we think it is now, but, it is subject to variability depending on customer demand and timing of when those projects get initiated.

Maybe just one qualifier on that, Arnie. Bill is absolutely right. The bulk of the delayed capital was the facility in China. But a secondary area is what we call the global quality initiative. We launched a new product that we call Envision which requires these very sophisticated automated vision inspection systems. We had deferred purchase of several of those to do some further development, but the rapid growth in the product, and we think this is going to be a big success, warrants us now, going ahead and accelerating purchase of those machines for customers that want the product, so that's a positive.

In your formal guidance in the pharm packaging systems, the midpoint would imply a 4.5% year-over-year gain. If that is, in fact the number we should be thinking about, how much of that is volume and how much is price, and on the price side, how much of that has already been contracted for with your customers?

The amount of price is very modest, it's less than 1%. The volume is very modest, as well. You can consider it about that same kind of a number, less than 1%. And the rest would be mixed.

I'm sorry, the rest would be what?

The rest would be mixed. Mix moving toward higher-end product.

Okay. And in staying on the pharmaceutical delivery systems, on the essentially flat revenue you're guiding 200 basis points of gross margin improvement. What factor wills drive that?

Really, the continued shift toward more proprietary products in that in-delivery system space and what we think will be continued growth in our contract manufacturing business.

Okay. I think you said in your prepared remarks, Don, that January volume was up 16%. And in looking at your--?

In dollar sales, Arnie.

Dollar sales.

Yes.

And, in looking at your EPS guidance for Q1, you're talking about 6% to 9% improvement year-over-year. Are you implying a slowdown in the back half of the quarter, or are there some cost offsets that will hold back your EPS.

It's literally, Arnie, we have got a fairly full order book, as we said. The first month does not necessarily make the quarter. There are ups and downs in all of those. I don't think we're -- we are certainly not suggesting we're going to have 16% growth throughout the whole quarter, but we are suggesting that we're going to see decent growth from the first quarter 2010 levels.

So, again, normally you get the price increases which improves your margin in the first quarter.

Right.

Why would earnings growth be so much less than potential revenue growth in Q1?

Again, Q1 -- just taking that one point in time, it's just January. It is not the whole quarter, Arnie. We are not expecting 16% increase in sales throughout the whole quarter.

Okay. I will stop there. Thank you very much.

You're welcome.

Our next question comes from the line of Jim Sidoti, with Sidoti & Company. Please proceed with your question.

Good morning, can you hear me?

Good morning, Jim. We can hear you fine.

Okay, a couple of questions. One on the CapEx. It seems like even if you are spending about $15 million on IT, and I assume your base level is around $60 million, you are still spending $40 million or $50 million above that. Is that new building, is that new equipment in existing buildings or--?

Back to the answer we gave Arnie. A large part of it will be the China facility that we'll begin construction on in, we hope the third quarter. Some of it is going into the capital planning for the India facility. A large part is going into make ready for CZ in our Scottsdale, Arizona facility as well as additional production capacity for those products. So the bulk of it is going to be spent in the areas where we think we are going to generate improved margins and where the sales are going to take place in that 2011 to 2015 kind of time frame we've talked about.

Okay. So, can you give us a little more color as far as what you think CZ will be in 2012, or is that too hard to--?

It is too hard to say. The encouraging issue is the sample demand remains very, very strong. And, as I said, we expect those orders to be north of $10 million by the time we get to the end of the year this year. The break point for when we really see revenue taking off is wholly going depend on the completion of the stability trials and filings by our customer. So, we would expect continued ramp up in 2012, and then after that the inflection point in our growth is going to be predicated on when those submissions are done and when they get approval by the regulatory authorities. The one qualifier I'd put in there, is that we are seeing very strong interest in vials again as a result of some of the delamination and compatibility issues that have been brought to the fore in the market. A lot of our forecasts were based on the 1 ml syringe taking off, now we're taking a look at vials again in volume as being a potential sales driver, as well.

Okay, then my last question is just on the expense side. Bill, can you just give us some color on what you expect stock comp and pension expense to be in 2011?

Yes. From the perspective of the stock comp, we are assuming about a $1 per quarter increase in the stock price, which would roughly translate into $200,000 increase each quarter.

Okay.

And pension will be a decrease versus last year. We are expecting $13 million of pension over the course of the year, roughly spread equally.

And what was it in 2010?

The total amount was $13.5 million.

Great. Thank you very much.

You are welcome, Jim.

Our next question comes from the line of Ross Taylor, with CL King. Please proceed with your question.

Hi. I would like to start with a follow-up -- hi, how are you all. I'll start with a follow-up on the pharm delivery options. Can you identify what some of the products might be that you are helping to drive that? Is the CZ margins high enough and the revenues high enough that that's making a difference.

You're talking about pharm delivery systems or packaging systems?

I'm sorry, packaging.

Yes, the packaging side, the drivers are going to be the Westar RS, the Westar RU conversion, they will be FluroTec and the Envision products that I talked about. So, the margin is always driven by the mix and the shift toward the higher-value products. CZ actually falls under the delivery systems group.

Right. My mistake. I was actually referring to the delivery systems in my original question.

As Bill said, that's a shift toward the more proprietary products that always drive a higher margin. So, it's components like our Medimop sales which have risen nicely over the last couple of years, a little bit from CZ, and hopefully from sine further activity on ConfiDose.

And just remember, Ross, the difference in the margin from a contact manufacturing to proprietary product is significant. So, you get better revenue per unit and you get better margins.

The other thing that is going to help us, quite frankly, is that on the contract packaging side we expect to see continued improvement there. We had a nice up in the gross margin this year. Hopefully through production efficiencies and managing that business more effectively we will continue to see some margin expansion.

Okay. And my next question relates to your revenue guidance. I am not sure I heard you correctly, but the organic revenue growth in 2011, are you expecting a range of 3% to 6%.

That is correct.

I keep thinking the high end of that is about a percentage point higher than what you talked about in one of your releases in early December. I just wondered what might be driving optimism on the high end?

I think it is really the shift from what we expected to ship last year falling into the first quarter of this year. That, and the strengthening of the order book.

Okay. Makes sense. And my last question relates to the patch pump. Why is the interest so much higher on new products versus some already on the market. I would think that it's -- would have pretty broad appeal to some of the products that are already on the market?

I think it comes down to the characteristic of the patch pump, because of the volume it can deliver over a larger amount of time, it is giving the guys currently formulating the new drugs, much more flexibility in terms of a platform as to how they can deliver. If they can put that product into the patch pump without having to go to a painful forced 1 ml solution, they have got much more flexibility as product gets ready for approval than the guy who's currently formulated for a specific delivery method that's currently on the market. The expense of reformulating the cost and the risk probably isn't borne out for them.

I see. That is very helpful. Okay, that's all my question. Thank you.

Thanks, Ross.

Our next question comes from the line of Elliott Feldman with Barclays Capital. Please proceed with your question.

Good morning, guys, can you hear me okay?

Good morning.

Okay. Great. It's Elliott Feldman filling in from Larry Marsh, sorry about the mix-up earlier.

Just two quick questions from my end. First, on emerging markets. You guys mentioned some good growth there on the top line of 2010. I believe a couple quarters ago you mentioned about the margin profile in these countries. Can you just touch a little bit on the margin profile in the countries? For emerging markets, broadly, where do you guys see your share or -- as a percentage of revenue where these emerging markets can go for you guys.

Complicated question. The margins that we are able to generate above India and China are very good and north of the average gross margin that we see for packaging systems. So, the reason we are able to do that is the majority of the products that utilize our components either coming out of or consumed in India and/or China go to the multinationals, so our focus in growing in those markets is exclusively to support the products that are generated by our multinational base. We are not so much focused on the domestic markets because the price competition there is so much greater. In terms of our future percentage of sales and how that's going to unfold, we have clearly got very substantial positions within Europe and North America. Our expectation is that we will maintain comparable shares with products that are made by the multinationals that are proprietary, and then we will see some complementary growth, although not great growth, as we are able to penetrate the local indigenous markets.

Got it. Thanks for the color. Bill, I may have missed it. Did you guys give the expected tax rate for 2011?

We did not, It is expected to be in the 24% range.

Okay. Thanks, guys.

Thank you.

(Operator Instructions)

We have no additional questions at this time.

Thank you very much, operator, and thank you, everyone, for your time today. We look forward to a strong start to 2011, and we'll update you on our first quarter during our April conference call. Thank you very much.

Thank you for attending today's conference. This concludes the presentation. You may now disconnect, and have a great day.