西式醫藥服務 (WST) 2012 Q1 法說會逐字稿

Good morning and welcome to the West's first quarter 2012 results conference call.

We issued our financial results this morning and the release has been posted in the investor section on the Company's website located at www.westpharma.com. If you have not received a copy of this announcement, please call Westwicke Partners at 443-213-0500 and a copy will be sent to you immediately.

Posted on the Company's website a slide presentation that management will refer to in their remarks today. The presentation in PDF format. Should you require it, a link to a free download of software that will enable users to view the presentation is also available on the website.

I remind you that statements will be made by management on this call and in the presentation will contain forward-looking statements within the meaning of U.S. 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 preceded by, followed by, or that include words such as "estimate", "expect", "intend", "believe", "plan", "anticipate" and other words and terms of similar meaning are forward-looking statements. West's estimated or anticipated future results, product performance, or other non-historical facts are forward-looking and reflect our current perspective on existing 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 those expressed or implied in any forward-looking statement. You should bear this in mind as you consider forward-looking statements. For a non-exclusive list of factors that could cause actual results to differ from expectations, please refer to today's press release. Investors are also advised to consult any further disclosures the Company makes on related subjects in the Company's 10-K, 10-Q, and 8-K reports. Except as required by applicable securities law, the Company undertakes no obligation to publicly 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 measures, including adjusted operating profit and adjusted diluted EPS. These measures and their component parts have no standardized meaning prescribed by U.S. GAAP and therefore may not be comparable to and should not be viewed as a substitute for U.S. GAAP operating income and diluted EPS. Reconciliations of the non-GAAP financial measures to the most comparable financial results that were prepared in conformity to GAAP are provided in materials accompanying this morning's earnings release.

At this time, I'd like to turn the call over to Don Morel, West's Chairman and CEO. Don?

Thank you, John, and good morning everyone. Welcome to West's first quarter 2012 conference call.

I'm joined this morning by Bill Federici, our Chief Financial Officer and by Mike Anderson, our Treasurer and primary investor relations contact.

As in prior calls, we will refer to the slide deck John mentioned in our prepared remarks this morning. In the event you have difficulty accessing the slides, the content of those slides is covered both in this morning's release and our remarks.

As you are aware, West pre-released earnings on April 17th and today we will provide a little more detail on what drove our performance. Slide three provides highlights of our first quarter results. The strong finish we experienced at the close of 2011 carried into 2012 and contributed to record performance in terms of revenues, operating profit, and earnings per share for the quarter.

On a consolidated basis, revenues grew by 9.1% to $316.3 million, excluding currency effects. Pharmaceutical Packaging Systems grew by 11.6%, again driven by very strong overall performance from our high-value products such as Envision, Westar and Florotech. Collectively, this product group grew 14% compared with the first quarter of 2011, which was also very strong.

In the delivery systems segment, revenues were 1.3% higher at constant exchange rates. This modest increase resulted from softer sales in the contract manufacturing consumer segment, which were partially offset by higher sales in the proprietary products group as a whole.

CZ sales were a modest $0.5 million, and as discussed in our last call, are proving to be somewhat lumpy due to customer needs in the near-term being limited to sample requirements for foremost stability and validation testing necessary for eventual regulatory submission.

Our consolidated gross margin improved by more than 2.1 percentage points to 31.9% due to very strong growth in Advanced Pharmaceutical Packaging sales and modest volume growth and also, a good contribution from increased pricing. Pricing was strong in the quarter because we updated our pricing on non-contract business January 1st and they're catching up on margin loss to higher costs experienced through much of last year.

Pricing also improved on contracts that reached their anniversary date and were re-priced to account for material and other cost changes over the preceding year. We believe that a significant part of the sales growth was also fueled by growing customer inventories. Our sense - confirmed by many, but not all of our customers - is that they're shifting away from strategies that emphasize inventory and working capacity containment to a lower-risk approach in managing their supply chain.

Overall, SG&A growth was also modest, leading to adjusted operating profit of $42.3 million and adjusted diluted earnings per share of $0.83, respectively.

As we announced in our prerelease, we now believe revenues for the full year will fall in the range of $1.25 billion to $1.28 billion, with a consolidated gross margin of 29.8% and now expect adjusted diluted earnings per share to be between $2.50 and $2.67 per share, assuming a euro/dollar exchange rate of 1.33. Bill will address this in greater detail, but we have essentially captured the outside's first quarter growth coupled with more normalized growth in the second half of the year in our outlook.

We believe the second quarter will be a bit stronger than our earlier guidance suggested, but it's difficult at this time to forecast that strength continuing into the second half of the year.

Order patterns at the outset of the quarter remain strong and our backlog of firm, committed orders is well ahead of where we were a year ago.

Without wanting to minimize the growth we realized in the first quarter, it's worth noting that our lead times and sales visibility that had been shrinking in what we call "the new normal" not too long ago, now are stretching out. This trend does not necessarily mean that the raw growth in orders will translate into higher sales in the subsequent quarter, because more and more of that backlog growth relates to sales in later months.

As a result, we have better visibility into the second quarter and more Q3 orders on our books than we did a year ago. Even so, the second half of the year remains difficult to forecast.

Another factor to bear in mind is that the backlog relates primarily to the pharmaceutical packaging business. We do not have the same visibility in the delivery systems segment due to the high percentage of contract business, which has very short lead times, and the unpredictable timing of CZ and other West proprietary product revenues.

Slide four provides highlights of our ongoing expansion and product development programs. This will be a relatively quick update, as we will be covering these programs in much greater detail at our Investor Day in New York City on May 23rd.

Starting with our capacity expansion in Asia, the China rubber facility remains on schedule for the start of operations in January next year.

Our construction project in India remains subject to the receipt of necessary permits and completion of a formal lease agreement. Frontend work on the project continues and we expect physical construction to commence later this quarter, but would not be surprised if it slips into early in the third quarter.

The global launch of NovaPure, West's next generation closure system, is currently underway. Response to the official U.S. launch at a recent trade conference has been very positive. Initially, the NovaPure line will encompass small volume BioClosures, in addition to plunger components for prefilled syringes. Our customers' recent focus on meeting the market's rising quality standards for all aspects of their products leads us to believe that our NovaPure product line is well-positioned at the right time to lead the market.

Although CZ sales for the quarter were relatively modest and remain unpredictable in the near-term, we firmly believe overall that sales of West's proprietary product sales will grow in double-digits for the full year.

We also officially opened our expanded clean room and manufacturing facility in Arizona two weeks ago. Now, along with the availability of dedicated CZ filling capacity at our partner Vetter, we can also offer customers the capability to supply their sample requirements for stability and validation before they fully commit their products and timelines for CZ.

We also continue to invest in late-stage development work on a number of customer proprietary product adaptations. Customer interest in this SmartDose large volume self-injection system remains robust. Our efforts here are focused again on engineering validation of the CZ cartridge system and optimizing the supply chain for the device itself so that customers can begin the requisite stability and eventually user and clinical studies required.

I'd now like to turn the call the call over to Bill Federici for a more detailed look at our Q1 results. Bill?

Thank you, Don and good morning, everyone.

We issued our first quarter results this morning reporting net income of $29.2 million or $0.81 per diluted share, versus the $0.56 per diluted share we reported in the first quarter of 2011. Our first quarter results are summarized on slide five of the accompanying Power Point presentation and in the release.

As explained in the release, results in both periods included restructuring charges and discrete tax items. Excluding the effect of these items in both products and a Q1 2012 adjustment to our liabilities for contingent consideration from recent acquisitions, first quarter 2012 earnings were $0.83 per diluted share versus the $0.60 we earned in the first quarter of 2011, a net increase of 38%.

Turning to sales, slide six shows the components of our consolidated sales increase. Consolidated first quarter sales were $316.3 million, an increase of 9.1% over first quarter 2011 sales, excluding exchange effects.

Packaging system sales increased 11.6% over same quarter 2011 sales, excluding currency. Sales price increases in packaging systems contributed approximately 3.2 percentage points of the increase. Favorable sales mix and modest volume increases accounted for most of the remainder of the increase. For the packaging system segment as a whole, sales growth in our high-value products, specifically Envision and Westar process packaging components increased 14% versus the prior year quarter.

Our Q1 2012 sales comparisons to the prior year benefited from a customer's product launch, customer inventory management activities and validation activities in advance of customer product and plant relocation. These special activities boosted Q1 2012 packaging system sales by approximately 5.0 percentage points.

Delivery system sales increased by approximately 1.0% over sales in the prior year quarter, excluding exchange. Higher demand for our safety and reconstitution systems, as well as contract manufactured healthcare devices drove the sales increase.

Sales of proprietary products were $17 million, or 21% of the segment's revenues in the quarter, slightly ahead of the prior year quarter's 20%.

CZ sales and development activity were approximately $0.5 million in Q1, about $1.4 million less than the prior year quarter. Full year CZ 2012 sales are now expected to be approximately $8.0 million to $10 million. Total proprietary product sales are expected to grow between $7.0 million and $11 million for 2012.

As provided on slide seven, our consolidated gross profit margin for Q1 2012 was 31.9% versus the 29.8% margin we achieved in the first quarter of 2011. Packaging systems' first quarter gross margin of 36.1% was 2.2 margin points higher than the 33.9% achieved in the first quarter of '11.

High raw material prices and general inflationary increases in costs continued to put pressure on margins, but the impact was more than overcome by the sales price actions that took effect over the past few quarters, the favorable mix of products sold, and continued lean savings and efficiencies in our plants.

Delivery systems' first quarter gross margin improved 1.3 margin points to 19.7%, compared to the prior year quarter. Improvement in margins is mostly from the increased volume and mix of revenues generated. Our previous restructuring efforts also helped improve the overall margins in this division.

As reflected on slide eight, Q1 2012 consolidated SG&A expense increased by $700,000 versus the prior year quarter. Higher pension costs, information systems costs and sales incentive comps were partially offset by currency effects and restructuring savings. As a percentage of sales, first quarter 2012 SG&A expense was 16.2% versus 17.1% in the first quarter of 2011.

Slide nine shows our key cash flow metrics. Operating cash flow was $13.8 million for the quarter ended March 31, 2012, $4.3 million more than the prior year quarter, with most of the difference attributed to the higher net income offset by higher receivables and the timing of pension contributions.

Capital additions of $35 million were made in the quarter, including $3.4 million in accrued capital, most of which is for the new corporate office facility. Roughly half of the capital was spent on new product and expansion efforts.

We expect to spend approximately $135 million to $155 million in capital in 2012, including approximately $40 million of costs that will be incurred for our new corporate office and research facility, which will be funded upon our occupancy at the end of '12 or early '13.

Slide ten provides some summary balance sheet information. Our balance sheet continues to be strong and we're confident that our business will provide necessary future liquidity.

Our cash balance at the March 31st was $100 million, $8.4 million higher than on December 2011 balance. Additionally, not included in that cash balance is $26 million of short-term investments with maturities of less than one year. As a reminder, substantially all of our cash is invested overseas and is generally not available to be repatriated to the U.S. without incurring significant local and U.S. tax consequences.

Debt at March 31st was $381 million, $32 million higher than at the year-end and due primarily to increased borrowing on our revolving debt facility to fund our Q1 pension contributions and other normal cash needs. Our net debt to total invested capital ratio at quarter end was 28.8%, slightly higher than the prior year-end ratio.

Working capacity totaled $200 million at March 31st; $28 million lower than in the prior year end. The main reason for the decrease in working capital was due to the reclassification of $27 million of our Private Placement Notes to current liabilities reflecting their stated maturity date of February 2013 and $32 million of accrued new building costs, which are expected to be funded within 12 months.

The increase is our accounts receivable balance is due to higher sales levels in the current quarter. Our backlog of committed orders continues to strengthen, which, at $323 million as of March 2012 is 15% higher than the March 2011 balance - excluding exchange - and represents a continued lengthening of customer orders.

Based on our strong Q1 2012 results and our strengthening backlogs, we revised upward our full year 2012 guidance in this morning's release. That guidance is summarized on slide eleven.

We have based our guidance on an exchange rate of $1.33 per euro. By contrast, our 2011 actual rates are translated at a $1.39 per euro rate. This strengthening of the dollar creates adverse earnings comparisons to the prior year. Each one penny strengthening of the dollar versus the euro results in just over a $0.01 reduction of full year EPS, as a result of translation.

We now believe revenue growth will be in the 7.0% to 10% range at constant exchange rates. We believe the sales increase range includes 2.0% to 3.0% of customer inventory builds and product launch activities, which we believe are not indicative of a normal sales run rate.

Our consolidated sales for '12 are estimated to be in the range of $1.25 billion to $1.28 billion at current exchange rates. We expect both operating segments to generate margin expansion.

Taking all of those expectations into account, we expect our full year earnings per diluted share to fall in the range of $2.50 to $2.67, excluding restructuring costs and including adverse currency effects.

Slide twelve shows several significant factors that have been evidenced in our Q1 results and which are expected to impact our margins throughout 2012. We are seeing and expect higher-than-average price increases, a continued favorable mix shift towards high-value products, and lean savings programs to more than offset higher raw material costs and normal inflationary cost increases.

It should be kept in mind that the larger-than-average price increases are, in part, recouping higher input costs that we incurred as early as a year ago, but will have a lesser effect on comparisons to last year in the second half because we imposed a raw material surcharge on some customers beginning in Q3 2011. The net effect is expected to produce full year 2012 expanded margins, compared to the compressed margins in 2011, and importantly, very good EPS growth.

I'd now like to turn the call back over to Don Morel. Don?

Thank you very much, Bill.

As a final reminder, West will host its biannual Investor Day on May 23rd in New York City at the Millennium Hotel. This concludes our remarks for this morning and Bill and I would now be pleased to answer any questions you might have.

(Operator Instructions) Arnold Ursaner, CJS Securities

Hi, good morning, Don and Bill and Mike.

Good morning, Arnie.

Good morning, Arnie.

My question relates to in the quarter you highlighted an initial pipeline fill for a new product rollout for one of your customers. Maybe you could expand on that a little more, Don? We've had the FDA move forward on more drugs in the last few months than they have in the last several years. Looking forward, are you aware or seeing additional pipeline fills that you expect to get as these new biologics hit the market?

They're difficult to predict. We're seeing a couple, Arnie. You know these tend to rollout in kind of a wavelike fashion. You'll have an inventory build that supports the immediate launch and then you'll have a little bit of a softer period until it picks up, a more normalized than expected growth rate. But, yes, we do expect some others to flow throughout over the next 12 to 18 months.

But those are not embedded. You mentioned 2.0% to 3.0% of the expected growth in --.

Those are not embedded in those numbers.

Okay and your $323 million backlog? You normally, given the tremendous sales growth you had in Q1, your backlog would have shrunk. You mentioned, though, you're seeing the lengthening of timing of customer orders. Can you expand a little bit on what that timing is now and are you seeing customers react to that lengthening by perhaps much more aggressively placing orders to be sure they have capacity?

Well, I think that a couple of things are at play here. One is that with the Fukushima situation last year, clearly many customers are rethinking their strategic inventories after a time when they were shrinking as part of their inventory and working capacity management programs.

A couple of years ago, we were talking about shorter lead times and smaller orders being the new normal. Now we're seeing what we believe is a more rational inventory approach leading to extended, larger orders over a longer period of time like we would have seen 12 to 24 months ago.

So, in effect, what's happening is the composition of the backlog is taking on a situation where the majority of the orders are going to fall into the current quarter. But we're seeing a lengthening of the tail into the third and even, in some extraordinary cases although small dollar volume, into the fourth quarter. We think that that's a positive.

Okay and what is the current length? In other words, placing an order now, what is the length of time before its filled?

It depends on the specific product, but average in the rubber facilities is probably 10 to 12 weeks. Metals would be a little bit less, depending on the product, probably 8 to 10.

Okay. My final question, if I can, is on Vetter. You obviously have worked out this agreement where your customers can do more aggressive testing to move forward on things like CZ. Can you give us any sense - and maybe it's more the Analyst Day question - of how many products are currently at Vetter? How many -- what additional -- what's their capacity has enabled your customers to do? Can you expand on that a little bit, please?

Yes. What the Vetter operation does is provide a dedicated CZ filling capability for the 1.0 ml long insert needle syringe and the reason that's important is that customers can now go to a source where it is CZ-only. There's no potential for cross contamination with processing glass on the same line and they can use that facility to fill not only formal stability samples where the data can be used for regulatory submission, but they also have limited capability for clinical and small commercial fills.

So that line, I believe, has the capability at full run rates to do approximately five million units per year. I'd like to be able to provide more color on specific products but, unfortunately, because of confidentiality provisions, I can't.

Okay. Thank you very much.

Thanks, Ernie.

Thanks, Ernie.

(Operator Instructions) Kipp Davis, Barclays Capital

Hi. This is Kipp Davis from Larry Marsh's team over at Barclays. Thanks for taking the questions.

Good morning.

No problem. Good morning.

So just a quick question. I know that CZ, you kind of mentioned lumpy due to customer needs and I think you said it was $0.5 million in the quarter, but you also, I think, said that it was $8.0 million to $10 million for the full year. Is that sort of more a reflection of that you've got visibility into what customer demands are, just where it falls in, in a particular quarter, you just might not see it there? Am I reading that correctly into how you think about your target for the full year?

Absolutely. The target for the full year, you're right, is $8.0 million to $10 million and it is due to the lumpiness of it. We have very little ability to predict in advance how those orders will come through, but we think, based on the level of activity, that that's our best guess at this point in time.

If you think about it, in the overall spectrum of the proprietary products, the proprietary products in the delivery system space, even with the modest CZ sales in the first quarter, are still expected to expand by $7.0 million to $11 million, which is again a double-digit growth rate for the full year 2012.

Got you. Okay, it makes sense.

One more comment on CZ, I think, that's appropriate. It's important for people to remember that our CZ sales reflect mostly proprietary product development for our customers in addition to the 1.0 ml long syringe that we manufacture in Arizona. CZ sales overall through our Japanese affiliate, Daikyo, were up very strongly last year and reflect bio sales in what is called Luer syringe sales that we don't produce.

Okay.

Overall, Daikyo CZ sales continue to be strong. Ours is more R&D-reflective, which, as we talked about, tends to be kind of unpredictable.

Sure, sure and then, I guess, another question. I know that you guys had commented on that you got the benefit from some sales price increases on January 1. Are you going to see less of that in the back half of the year just because you guys put in some price escalators in the back half of '11?

So, I guess, when we think about gross margin in the first quarter benefited 1.7% overall from sales price increases, as we think about 2Q, should that be somewhat similar? Or are we thinking that ought to be lower a little bit as well, or it really should be pretty much the same as we think about 2Q numbers in terms of the impact there?

The impact on the sales will be roughly the same; not exactly, but in that same order of magnitude. The hard thing that we have to deal with on the margins is the other factors that also impact and work against it. Namely, we think raw material, which was modest compared to -- increases were moderated compared to what they were, certainly, in 2011. They continue to remain at a fairly elevated level and you have normal inflationary costs that have also increased since the past year.

So, when you look at all of those things combined together, we do believe that we will get margin expansion over the full year, but it certainly will be more in the first half and less in the second half of the year.

Okay and then lastly, I know you guys had communicated growth rates in the India and China markets were, while a small percentage of overall sales, growing nicely in the sort of 20% to 25% range. Does that continue to be the case?

And I guess, as you think about those markets with China coming on in January - India may be a little bit delayed in terms of getting that up and running with the facility there - how do you think about it from a five-year out, ten-year out standpoint? Where do you want that to go and how should we think about sort of the normalized growth rates in those markets and should we continue to see them growing as strongly as they have?

I think the simple answer is yes. I mean, Asia overall, as a reporting unit, in the quarter was up about 15% and it's up very strongly. The growth rates that we've seen over the past 12 months in China and India both are still pretty much in place; tend to be in the 20% to 25% range.

For us, strategically, China and India are both going to serve not only the domestic markets, but also the multinational customers that have operations there and are looking for product comparability to export back to the Western markets. I think we've spoken publically before that the expansion we did in Singapore will likely be out of capacity in the mid-2013 kind of timeframe, which is important for the China capacity to come online early.

India will not be that delayed in terms of its actual startup. We may see a month or two delay before we get the permitting and some of the bureaucratic stuff we have to get out of the way, but overall we expect to hold to our timeline for beginning operations there.

It's also important to note that China is rubber, purely. Whereas India will be a combination plant of both metal seals and rubber components for the domestic market, as well as for export, but, in the longer-term over that five-to-ten-year period you referenced, we expect that region to be a very, very key part of our overall growth.

Great. Thanks very much. I appreciate the color.

Thank you.

Thank you.

Ross Taylor, CL King and Associates

Hi, just two or three quick questions. First, I may not have understood all of your remarks, but I think you mentioned a bunch of factors that, in aggregate, maybe boosted demand on the pharm package side by about 5.0% in the quarter?

Right.

And, yes, I wonder if any of those factors are going to be carrying over into Q2, given that it sounds like business momentum is probably going to be pretty strong in this quarter as well?

Yes, absolutely, Ross. We saw it in the first quarter, about 5.0% as you said, of packaging sales. When we look out to the full year, we think we have some of that because we have the backlog that we can look into.

We see a similar kind of like amount in the second quarter, to what our knowledge is at this point, still not perfect knowledge since we still have some way to go in Q2, but, for the full year, when we look at the effects and we mentioned the 7.0% to 10% currency neutral growth rate in sales for the Company, we're looking at something between 2.0% and 3.0% of that number being the special non-run rate kind of items.

Okay. Alright and it looks, at least based on some of the information in the press release and in your slide show, that mix was a good benefit in the quarter. And is mix, then, contributing more to your results recently and if so, is that maybe due to a change in customer behavior for some of the higher tech products that they're buying? Or is it, maybe, kind of growing momentum from some of your relatively new products?

I think it really is validation of the strategy of the value-add sales approach and us incrementally selling more value per unit. We are benefitting from a lot of increased regulatory scrutiny on our customers' manufacturing operations, but it's clearly evident that they are leaning towards very clean, particulate-free, validated and certified products to reduce the risk in their own operations. So our expectation is that we are going to see a lot of our revenue growth driven by continued sale increases in the value-added product categories.

Okay and my final question is you also mentioned in your press release some development revenue related to SmartDose. Can you give any color as to what that particular application might be or what some of the funding revenue was going towards it exactly?

Basically, it was revenue aimed at engineering time where we were making some modifications to the device that are proprietary to the customer in question. Can't provide a whole lot of color other than that. It's basically a milestone payment for engineering services.

And the amount in the full year is very, very modest, Ross. It's less than $5.0 million that we expect for the full year.

Okay. Alright, that's helpful. Thank you.

You're welcome.

Thanks, Ross.

David Windley, Jefferies & Co.

Hi. I apologize, I did have to join the call late. Good morning. Wanted to, I guess, revisit -- I'm sure you've commented on it already, but revisit your view about the sustainability of this heightened demand and inventory building by customers. I think you've included the benefit to 1Q and maybe a little bit more forward benefit in your guidance, but would just love to get kind of down in the weeds in terms of how much visibility you have to the sustainability of that buying pattern

Yes. Dave, well, I'll answer the numeric part of it and then, if you need more color, we'll try to give you some more, but as we said, it was 5.0% in the quarter of packaging system sales and we do, because of our backlog, see additional amounts coming in in the second quarter that we can identify of roughly the same kind of order of magnitude.

The third and fourth quarter, because of the lack of visibility, is a little more difficult to predict. But when we went ahead and produced the guidance that we've put out there of 7.0% to 10% currency-neutral sales growth, approximately 2.0% to 3.0% of that number, we believe, are the non-run rate type sales items. So there is a chunk of it sitting in the back half of the year, again not identified because we really don't have a lot of visibility. However, we still believe that it continues -- that type of process and mindset by our customers continues.

Okay and in regard, Don, to your comments about you kind of higher value products buying, does -- the strategy there, as I have understood it, has been to kind of upsell and shift mix toward those higher value products in a way that would enhance your margin.

Do those -- is that a continual demand or continual process by the customer? In other words, as they shift over on to vision-inspected and wash and so forth, that that becomes standard and that starts to get pressured from pricing standpoint and you have to find the next upgrade? Just wondering how that cycle plays out.

Yes, it's an incremental process where you do see that kind of shift. I mean, remember we've always talked about the fact that the therapeutic categories that utilize those components are the ones that are going to drive our growth - oncology, diabetes, vaccines. Anything that basically is a biotherapeutic protein is consuming those kinds of products. As those categories increase, our sales increase.

The other part of the coin is that as you get ongoing regulatory pressure in some of our other customers' operations that are small molecule, that tends to draw the value-added product to those dosages as well. So we're getting growth, actually, out of both parts of it.

Okay. Thank you. I'll drop out. Thanks a lot.

Thanks, David.

Thank you, David.

Thank you for your question. We have no further questions, so now I'd like to turn the call back over to Mr. Don Morel, Chairman and CEO. Please go ahead, sir.

Thank you very much for your time this morning. This concludes our formal remarks.

Okay. Thank you for your participation in today's conference, ladies and gentlemen. This concludes the presentation. You may now disconnect and have a good day.