西式醫藥服務 (WST) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the West Pharmaceutical Services Q4 2016 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions follow at that time.

(Operator Instructions)

As a reminder today's conference call is being recorded. I would now like to turn the conference over to Quintin Lai, Vice President of Investor Relations. Please go ahead.

Thank you, Candace. Good morning, and welcome to West's fourth-quarter and full-year 2016 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. This morning, CEO Eric Green and CFO Bill Federici will review our results, give you an update on our business and provide a financial outlook for the full year 2017.

There's a slide presentation that accompanies today's conference call and a copy of that presentation is also available on the investor section of our website. On slide 2 is the safe harbor statement. Statements made by management on this call and in the presentation contain forward-looking statements within the meaning of US federal securities law.

These statements are based on management's beliefs and assumptions, current expectations, estimates and forecasts. There are many factors that can influence a company's future results that are beyond the ability of the company to control or predict. Because of these known or unknown risks or uncertainties actual results could differ materially from past results and those expressed or implied in any forward-looking statements.

For a nonexclusive list of factors that could cause actual results to differ from our expectations, please refer to today's press release as well as any further disclosures the Company makes regarding the risks to which it is subject in the Company's 10-K, 10-Q, and 8-K reports. In addition, during today's call management will make reference to non-GAAP financial measures including sales in constant currency, organic sales growth, adjusted operating profit, adjusted operating profit margin, and adjusted diluted EPS. Reconciliations and limitations of the non-GAAP financial measures to the most comparable financial results prepared in conformity to GAAP are provided in this morning's earnings release.

I now turn the call over to West CEO and President, Eric Green. Eric?

Great, thank you, Quintin, and good morning, everyone, and thank you for joining us today. A little more than one year ago, we announced a realigned organizational structure to better support our market-led strategy. We did this to heighten our focus on becoming the leader in the integrated containment and delivery of injectable medicines.

We shared with you that this was to be a long-term journey to build growth and profits for West. I'm pleased to say we are well on our way. We delivered a strong set of results in 2016 and we are poised to continue this growth in 2017.

To recap for you, we reorganized our Company into three major groups, commercial, global operations, and innovation and technology. Within the commercial team, we created two segments, proprietary product and contract manufactured products. To ensure alignment with our customers in addressing the specific needs of each, we created the Pharma, Generic, and Biologics market units.

Which addition to away from a recently focused operation to a globally managed network expanding capacity and significantly reducing delivery lead times of critical high-value products. At the same time, we raised the bar on our already industry-leading quality metrics, and increased our focus on operational efficiencies which has allowed us to better address the demand of our worldwide customer base. Under our newly formed innovation and technology team we continue to build momentum by adding new, high-value products to our components business, while achieving milestone successes with customer FDA approvals of drugs using Crystal Zenith and SmartDose technologies.

And through all this transition we continued to meet our long-term financial objectives. We ended the year with over 9% organic sales growth, which is above our long-term target of 6% to 8%. We expanded both growth and adjusted operating profit margins and generated strong 19% adjusted diluted EPS despite having a $0.04 FX headwind.

Turning to slide 4, when we look at the growth rates over the past years, 2016 stands out as being an impressive year for both organic sales and adjusted EPS growth. We are pleased with our track record of creating incremental shareholder value year over year. Today, we are laser focused on executing our long-term strategy, which should enable future growth at the same pace.

Turning to slide 5, looking at the year, the proprietary products segment represented 79% of total sales with organic sales growth just under 10%. The segment was led by double-digit organic sales growth in Biologics and Generics market units with mid-single-digit growth in our Pharma market unit.

Organic sales growth of high-value products was 20% for the year. Our market-leading position remains strong as we achieved 90% participation on all the new injectable drugs approved by the FDA in 2016. Our end markets remain stable and growing.

Demand from our Biologic customers was strong and steady throughout the year as we continue to see demand from both large Biologic and emerging Biologic customers. Generics growth for the year was solid with exceptionally strong sales in the first half of the year. Offset by a weaker Q4 as some of our large customers managed their inventory in response to our successful reduction in lead time.

Some of our Generics customers placed very large volume orders, which can cause quarter-to-quarter variability. We believe on a 12 month rolling average, these variabilities typically even out.

When we look at our smaller generics customers, which is over half of the market unit sales, we have seen a much steadier growth pattern of high single to low double digits. Pharma, which represents some of our largest and most mature customers delivered steady mid-single digit growth throughout the year.

We see continued opportunities to migrate our Pharma customers from standard components to high-value products, and we're seeing good traction and synergies between our components business and contract manufacturing. Our contract manufacturing business, which represented 21% of our total sales, grew organically mid-single digits with double-digit growth in Q4.

Much of the Q4 outperformance is related to tooling sales as we're adding equipment on behalf of our customers and ahead of meaningful high-volume campaigns that will begin later this year. The typical time between installing tool and equipment and commercial volumes is about 12 to 18 months, which makes us optimistic about accelerating growth for contract manufacturing as 2017 progresses.

Turning to global operations on slide 6, the team has had a number of successes in 2016. Recall that our backlog had risen to approximately $450 million in Q1 because capacity constrain for certain high-value product lines. Due to our global operations focus on lead times through continuous improvement, the team increased operational efficiencies and effectively added capacity to our network.

As we ended the year, the backlog has come down to $373 million, an 8% decline at constant currency from 2015 year-end levels. Another area of success has come from the creation of a global supply chain and procurement organization, which is driving cost savings across the business and stronger management of our global supply base.

At the same time, we continue to reinvest in our business for future growth. We recently completed and commissioned a 60,000 square foot expansion of our Dublin, Ireland contract manufacturing facility on time and within budget. I attended the opening in Dublin and was pleased to hear directly from customers how important the facility will be in helping them prepare for their product launches.

Commercial production in Dublin has already begun and will ramp up throughout 2017. And we remain on schedule with the first phase of our Waterford, Ireland site, which will manufacture insulin rubber sheeting. Additionally, we continue to build up high-value product capacity in our other two centers of excellence in Kingston, North Carolina and in Singapore.

Turning to slide 7, 2016 was a year of new product launches by our innovation and technology team. Many of these were highlighted during the year. This is a good time to remind you that like many R&D projects, these are the results of years of work behind the scenes. Because our products are used in various medical applications, we conduct extensive and time-consuming testing and validation before any product is launched.

Turning to slide 8, this is a snapshot of our innovation and technology pipeline. While we often talk about CZ and SmartDose, the innovation and technology team is working on numerous projects that will enhance our entire portfolio with new innovation and product line extension to address customer needs.

On slide 9, we have outlined our full year 2017 outlook. In October of last year, we set initial 2017 organic sales growth guidance to be at the high end of our long-term range of 6% to 8%. With solid market fundamentals we are raising our 2017 organic sales growth outlook to a new range of 7% to 9%.

As we have noted, we expect strong double-digit high-value product growth. In generics, we expect a safety stock reduction to dissipate in the first half with an acceleration in the second half, resulting in high single to low double-digit growth for the full year. Finally, we also expect a shift of sales from tooling to commercial products in contract manufacturing as the year progresses.

We anticipate another year of strong gross margin expansion with R&D and SG&A providing additional leverage. Resulting in adjusted EPS guidance in the range of $2.45 to $2.57. This represents a 12% to 18% year-over-year growth and includes a $0.05 to $0.07 EPS headwind from a stronger US dollar.

Excluding this impact, EPS is anticipated to grow 15% to 21%, which is twice our anticipated organic sales growth. Now, I turn it over to Bill Federici who will provide more color on our financial performance. Bill?

Thank you, Eric, and good morning, everyone. We issued our fourth-quarter results this morning. Excluding the effects of special items from both periods, fourth-quarter 2016 earnings were $0.54 per diluted share versus the $0.47 we earned in Q4 of 2015. A reconciliation of these non-GAAP measures is provided on slide 16 through 19.

Turning to sales, slide 11 shows the components of our consolidated sales increase. All references to sales announced are to constant currency. Consolidated fourth-quarter sales were $382.3 million, an increase of 7.7% over fourth-quarter 2015 sales. Proprietary product sales were $290 million, a 6.5% increase over same quarter 2015.

A favorable sales mix and volume growth accounted for 6 percentage points of the increase, modestly higher selling prices contributed the remainder of the increase. High-value product sales increased 14% versus the prior-year quarter.

For the full year 2016, high-value product sales increased approximately 20% versus 2015. Combined CZ and SmartDose sales and development activity were $27 million for full year 2016, a 10% increase versus the prior year. Contract manufactured product sales were $92.4 million an 11.6% increase over sales in the prior-year quarter, due to higher drug delivery and diagnostic products sales, including increased low-margin tooling revenues.

As provided on slide 12, our Q4 2016 consolidated gross profit margin was 32.3% versus the 33.3% margin we achieved in the fourth quarter of 2015. Proprietary products fourth-quarter gross margin of 36.9% is 0.4 margin points lower than the 37.3% achieved in the fourth quarter of 2015.

A favorable mix of products sold, modest sales price increases, and continue lead savings in plant efficiencies were more than offset by the impact of higher general inflationary costs; yen denominated materials purchases, which had an unfavorable impact of $2.2 million or $0.02 of EPS headwind in the quarter; and facilities startup costs. Contract manufacturing products fourth-quarter gross margin of 17.6% was 2.2 margin points lower than the prior-year quarter, due to an unfavorable sales mix, mainly from incremental low-margin tooling sales and unabsorbed overhead, especially in our recently completed Dublin manufacturing facility.

As reflected on slide 13, Q4 2016 consolidated SG&A expense decreased by $1.5 million compared to the prior-year quarter. The decrease is due primarily to low achievement levels on incentive comp programs offset by staffing increases and higher stock compensation costs. As a percentage of sales, Q4 2016 SG&A expense was 1.5 percentage points less than the prior-year period.

Slide 14 shows our key cash flow metrics. Operating cash flow was $219 million for the full year 2016, $7 million more than 2015 due primarily to our strong operating results, offset by higher working capital requirements.

Capital additions of roughly $170 million were made in the 2016, roughly 60% of the capital spent is on new products and expansion efforts, including approximately $55 million in Waterford and $20 million for our recently completed Dublin contract manufacturing facility. We expect capital additions of between $150 million and $175 million in 2017, including approximately $60 million of costs associated with the new Waterford facility.

Slide 14 also 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 tax balance at year end was $203 million, $72 million lower than our December 2015 balance.

Roughly [60%] of that cash is invested overseas and is generally not available for repatriation without tax consequences. The lower cash balance reflects the payment at maturity of our euro-b notes in February of 2016. Debt at year end was $229 million, $70 million less than at prior-year end due to the payment at maturity of our euro-b notes.

Our net debt to total invested capital ratio at year end was 2.2%, approximately the same as in the prior-year end ratio. Working capital totaled $401 million at year end, $41 million higher than the prior year end due to increases in receivables and inventory balances reflecting our growing business. Our backlog of committed orders were at $373 million as of December 2016, which is approximately 8% lower than our December 2015 balances, excluding exchange, due to the actions taken to increase capacity and throughput, reducing plant lead times, and relieving the backlog.

We have issued our full-year 2017 guidance in this morning's release. That guidance is summarized on slide 15. Our guidance is based on an exchange rate of $1.05 per euro. Our actual 2016 results are translated at $1.11 per euro rate.

Exchange rates will likely continue to be headwind throughout 2017 due to the strengthening of the US dollar versus other currencies. Currency volatility in Asian and emerging markets is expected to add headwinds for the business in 2017.

We expect our 2017 effective tax rate to remain at approximately 29%. Our tax rate is highly dependent on the geographic mix of earnings, which driven by sales of high-value products has been migrating towards higher tax rate jurisdictions like the US, which has an adverse effect on our tax rate.

Our 2017 guidance includes a $0.02 EPS benefit resulting from our previously announced 800,000 share repurchase plan. We expect our Q1 2017 margins will continue to be adversely impacted by the effect of currency, including the Venezuelan bolivar, the Brazilian real, the euro and the Japanese yen, customer inventory management, and plant startup costs.

We expect a resulting Q1 consolidated operating profit margin of approximately 14.8% to 15%. All of these factors are included in our full-year 2017 guidance. With growth accelerating throughout 2017 in our generics and contract manufacturing market unit, we expect a stronger second half of 2017 compared to the first half.

We expect to deliver on our full-year 2017 earnings guidance of $2.45 to $2.57 per diluted share, which on a constant currency basis represents an increase of between 15% and 21% in diluted EPS over 2016. I'd now like to turn the call back over to Eric Green. Eric?

Great, thank you, Bill. In conclusion, we delivered a strong set of results and made significant progress in executing the first year of our long-term market-led strategy.

Our commercial team has continued to make deeper inroads with the discrete customer group we have targeted. Our global operations team has provided us a roadmap to improve quality, safety, service, and cost. Our innovation and technology team is building a strong pipeline of integrated containment and delivery products to meet customer needs.

For these reasons, we believe the future looks bright, and we will continue to deliver long-term value for our customers and shareholders. Candace, we are ready to take questions. Thank you.

Thank you.

(Operator Instructions)

Our first question comes from Paul Knight of Janney Montgomery. Your line is now open.

Hello, guys.

Can you go over the exact organic growth, excuse me, starting with FX, could you give me the impact for FY16 total and where your thoughts are on the potential impact on 2017?

For 2016, Paul, for the full year, the FX was a $0.04 negative tick to us. For 2017, we expect to see continued headwinds from currency. The euro has declined; the US dollar strengthened against that and against Asian and South American currency. So we expect to see a $0.05 to $0.07 reduction adverse headwind from currency in 2017.

And then you're off margin, the guidance for Q1 was what, Bill?

14.8% to 15%. That is consolidated operating profit margin.

Lastly, regarding Ireland, will we see any revenue contribution from that in capacity expansion here in 2017?

Yes; in regards to Waterford, the Phase 1 of the insulin sheeting, we are in process toward the end of 2017 to validate with our customers, and the commercial revenues will be observed in the first part of 2018. On the Dublin contract manufacturing facility, we have started up and will start seeing commercial revenues ramp up throughout the year for our discrete customers.

Then lastly, Eric, can you talk about what you're seeing with projects in Phase 3 or projects with Crystal Zenith, tone of market with your proprietary product line?

Yes, Paul, there's really two ways of looking at it: one, with the store the high-value product portfolio, we're our last (inaudible). We continue to see very healthy conversion of going from standard packaging up to high-value products. In addition to -- we're seeing new molecules, which is exhibited in 2016, injectable drugs that are approved, we're on 90% of those. We're seeing a very nice uptake continue in our high-value products. That said, the innovation team is continue to expand the portfolio and raising the capabilities to new formulas, new processing technology to raise the quality standard, which obviously is both involved with our customers today.

When we look at the CZ and SmartDose or in self injection devices, we've seen in bulk situations both of the product lines, an increase of number of developments. SmartDose was a slight increase in a number of developments with customers and there's more conversations going on today than we've had over a year ago. And then on the CZ to increase on formal stability. So we're still very pleased with the progress, although it's timing with our customers. We still see those two platforms very strong viable growth long-term.

Thank you.

Thank you. Our next question comes from Tim Evans of Wells Fargo. Your line is now open.

Hello, this is Sara Silverman on for Tim. Just a couple for you guys.

I wanted to follow-up on the FX guidance. We had tried to model the FX impact on EPS pretty carefully for 2017, but it still looks like we under-called the headwind. Can you help us understand the FX mix in your cost base, particularly a little more details on the yen, euro; and then any of those other currencies that are pretty impactful?

Sure. Sara, the euro versus dollar, everybody knows that one, but when we talked to you at the end of October, it's hovering right around $1.10 per euro. Now we've guided here for the full year, our view of it is that, leaving it at $1.05. Now obviously that will change, but we had to put a stake in the ground somewhere, so we would it at $1.05 per euro.

On the other pieces of the puzzle, certainly in Asia, where we sell out of our Singapore facility in both dollars and euros, we're seeing the impact of the strengthening dollar there as well. And in South America, we're seeing the volatility of those currencies continue, and that will continue to provide a headwind for us. In addition to the fact that we still have an investment in Venezuela, and we know that the situation there, should there be another official devaluation, we have an exposure somewhere between $5 million and $7 million depending on what they devalue the business to.

Those are the primary drivers. There's a lot involved in this, obviously, and we are very global business with operations all over the place, but those are the primary drivers.

Okay. In terms of percent of your cost base, do you have an idea of how much is euros, how much is yen?

I can give you on a scale and you can convert that, but it's not perfect. On the sales for 2016, we were 40% basically euro- based; and Asian and South American businesses approximately at an order of magnitude of 10%.

Okay. And then just another one on guidance: you guys took of the constant currency revenue growth guidance. Can you elaborate on the factors that give you confidence around that to raise the guidance this early in the year, considering it's a bit second-half loaded?

Yes, Sara.

No, when we take a look at what we have accomplished in 2016, looking at the pending order, list that we have with our customers, and also the investments we made in certain parts of our business, we feel really strong with the 7% to 9%. To dimension this a little bit, our Pharma business, we believe that will continue with mid-single growth; and obviously we delivered that in 2016. In the Generics business, while there is some lumpiness with our top customers, and I mentioned earlier that smaller customers in Generics are lower than 50%, but really about a third of our business is five large Generics. We have clear visibility on their stocking and they are actually moving up the high-value products curve. The strength of our operations reducing lead times by 2X has given us the confidence to continue to say high single, low double in that business.

Biologics, we have seen continued strength around double digits consistently; and then contract manufacturing is one that in 2016 we're about mid-single, but with the investments we made we are ramping up to be high single throughout 2017. If you add all that up, it's between [us], we're very comfortable at the 7% to 9% organic.

Okay. Just to clarify, if you had to pinpoint what would push the needle from October to now, would you pinpoint one thing? Or is it generally broader growth than you had previously anticipated?

Yes, I would say one is the uptake on the conversations we're having with the Generics. As we talk about the, our innovation platform, we are already looking at potentially new formulas for them that allow us to compete more in the high-value products and do the switching. That's the difference between, I would say, in October than what we are today.

Okay. Thanks, guys, so much.

Thanks, Sara.

Our next question comes from Larry Solow of CJS Securities. Your line is now open.

Good morning, guys. Just a couple quick follow-ups.

On the back-end loaded outlook, obviously backlog was down like 8% year over year, and that's obviously what you guys, your motivation, what you wanted, so clearly that was a little bit higher. You mentioned some customer change in order patterns, inventory patterns. Is that part of the reason for the back ended loaded outlook? With respect to some adjustment, I know you had some adjustment in your Generics customers this quarter, it looks like. Do you expect some of that to happen on the Biologics side as well?

When we look back in Q4, talking with our Generic customers, we knew that, because of the success we had in reducing lead times, that's going to be a reduction on the safety stock in their own manufacturing facilities. And therefore, we had that anticipated, and really first half of 2017. But that was brought forward a little bit earlier than we anticipated in the latter part of Q4. So that is one of the drivers that we see; reason why you see a little bit stronger growth in the second half of 2017 than the first half. The other is, as I mentioned earlier about the contract manufacturing, the investments we made in the tooling and getting their sites up and running are in the ramp-up phase at this point. And that's what's bringing some of the mid single to high single, and again, a lot of that is more in the back half of the year.

Got it.

You mentioned tooling in the investments in that side of the business, just in terms of gross margin, obviously your outlook is for pretty nice improvement, 120 to 160. It looks like 2016 was a little more impact than we thought, particularly in Q4, from some of the startup costs. The improvement going forward, it sounds like you continue to get the expansion from the better mix; and then your conversion to more of a commercial from the tooling and lower startup costs. Are those the factors that will draw the expansion this year?

Larry, absolutely. Two things: one is, something around contract manufacturing is that we anticipate lower levels of tooling revenues in 2017 than we did in 2016. That was a little bit unusually higher for us, and it's all mostly in the Q4 time period. I think also with the ramp-up we had with our generics, and moving more toward the high-value product, as you know, the high-value products are almost 2X on the gross margin than our standard products. We still see very strong double digit growth in high value products, and that's a major driver of this shift.

Bill, do you want to add some color to that?

Yes, on the contract manufacturing side, Larry, the tooling revenues are very low margin, as we suggested. So that mix shift; but the good news is, it's a foreshadowing of commercial business coming through on contract manufacturing. Those customers are ready; we're starting to provide them products. Q1, starting in Q1, and rolling through 2017, we'll be replacing tooling revenues with good margin revenues in contract manufacturing.

Yes, it did actually hurt us; that tooling piece was about $6.5 million of extra tooling revenues in the fourth quarter of 2016, which hurt us to the tune of 1.2 margin points in contract manufacturing. So we expect the mix shift [message] starts to come with those new customers to really bring us up on the margin scale for the contract manufacturing throughout 2017.

Got you.

It looks like price helped you, benefit, you guys benefited a little bit on the quarter, ahead a percent or so. What was the [tip with] the benefit for the full year? And going forward, do you expect maybe for the benefits to increase on pricing front?

Larry, we historically, in the last several years have been roughly around 1% price contribution in our business. I would say, in 2016 we're slightly less than that. In other words, at this point, and as we look into 2017, we believe we will still continue to be around that 1%, plus or minus slightly. Not a significant deviation from what we've seen over the last two or three years.

Got you.

The CZ and SmartDose total number, did you say that was $27 million?

$27 million, Larry, yes. 10% increase on a constant currency basis over 2016.

Got it, it was closer to flat on a reported basis?

On a reported basis it's flat, but we think our currency is about 10% up.

Then we had expected a decent amount of more growth, obviously it's a small number so the percentages get a little skewed. Was that slower on the SmartDose side, CZ side, both? Any color to add would be great.

There's two elements to that: one is the development agreements that we were working on in later part of 2016, a look into the, implement more in the early 2017 time frame. The second is around commercial ramp up, working with our customers, and we have a pretty clear line of sight, but that can push more into early 2017 than late 2016. Those are the two elements that really drove that 10% growth, a little bit higher than we anticipated.

So sounds like more timing than anything else.

Yes, Larry, it's a timing factor.

Great, just last one, on the tax rate. Obviously hovering, slowly creeping up towards 29%. Sort of a high-class problem. But as you look out going forward, excluding any potential corporate tax overhaul in the US, who knows what will happen there; as you shift more into Ireland and whatnot, do you expect this rate to maybe at least stop going up and then over time hopefully coming down a little bit?

Absolutely Larry, but you have to be patient with these things. As you know, our business, we're not expecting any real growth coming out of Waterford in 2017. It doesn't start commercial into the early part. We'll get some benefit out of contracting manufacturing in Dublin; more activity there, more sales there. It's at 20% margins as opposed to the 55% high-value product margins we expect out of Waterford.

Yes, the long-term answer is absolutely we believe we can drive our effective tax rate south. To be honest, in the interim, as we continue to sell more and more high-value product in the US and other high-tax jurisdiction countries, there is going to be upward pressure on that rate. I don't expect it to move a lot during 2017, but I wouldn't be expecting a significant decline in 2017

Great. Okay. Thanks a lot, guys, appreciate it.

Thank you, Larry.

Thank you.

(Operator Instructions)

Our next question comes from Derik de Bruin of Bank of America. Your line is now open.

Hello, good morning. This is Juan Avendano on behalf of Derik.

I wanted to start out, you used to provide gross margin guidance by segments. Just curious as to why you stopped doing that this quarter?

Honestly, what we're trying to do is just provide, be transparent, and we believe that the business, the way the business has evolved into these market units, it's more effective to talk about it the way we are.

Okay. On the adjusted operating margin, what should we expect for 2017? Just curious, what the contribution may be from any SG&A or R&D leverage?

I'm not clear on the question, Juan. Do you mean for the whole year? Or are you just talking -- we talked about Q1 and we also gave some guidance as it relates to the full year on consolidated gross margins.

I'm talking about the operating margin, full year.

From a leverage perspective, yes, absolutely, we expect leverage to come from both SG&A and R&D, so our operating profit margin expansion will be greater than our gross profit margin expansion.

Okay. My next question is on the contract sales segment. You're guiding for high single-digit organic growth this year. This is above your long-term outlook for this segment, which is mid single digit. Is this a 2017-only phenomenon? Or are you changing, or do you still expect mid single digit in the long term for contract manufacturing?

Yes, Juan, at this point we would take a look at the business. 2017 is really a ramp-up of the investments made in 2016. And just to be a little more granulary, this is really focused in the diabetes market on delivery devices, whether it's insulin pens or even continuous glucose monitoring devices. As it's a ramp-up phase, we will see a higher impact on a percent growth rate in 2017. We anticipate that to level back to the mid single at long term as what we see in the markets today, slightly better than the market. That's what we're looking at; it's more of a 2017 ramp up.

Okay; good.

And one of your, just recently at the end of last year, one of your competitors and also customers had their analyst day, and it seems like they're focusing a lot more in the self-injection market. They plan to launch a product every year with one particular product being launched this year in the diabetes market. What opportunities or challenges does this present to West?

Yes, I think when we look at the diabetes market, you're right. We look at the primary containment or where we sit with our [elastomer] business, we're basically on all the formats for the delivery devices. When it comes to device itself for contract manufacture, there are a number of players, especially when you start talking about [wearables], it's at the very early stage at this point. We feel good about where we are. We are a critical supplier partner with the large insulin manufacturers. We also have connectivity to other firms that are looking at this space from a device perspective.

You're right, there's a number of competitors that are looking at because of the attractive growth, but we're already in the market. We're expanding the market, we're adding new products that will support the growth of our customers.

Okay. Lastly, similar to the pricing question before, based on my calculations, you've got about 70 basis points of pricing in 2016. Slightly below the usual 1% typically every year. Are you seeing any pressure at all, given -- cascading down from the Biopharma direct pricing scrutiny?

I would say that, at this point it's consistent to what we have been seeing. Obviously, with products that have been in the drug market for a number of years, maybe over a decade, we may have more pressure on the standard packaging components. But when we look at be high-value products in the devices, we obviously have continued runway to capture it above approximately 1% per annum, so we're pretty comfortable with that.

Okay. Thank you.

Thanks, Juan.

Thank you; and that concludes our question-and-answer session. I would now like to turn the conference over to Quintin Lai for closing remarks.

Thank you, Candace.

Thank you for joining us today on today's conference call. An online archive of the broadcast will be available on our website at www.westpharma.com in the Investor section. Additionally, you can get a telephone replay through Thursday February 23, by dialing the numbers and conference ID provided at the end of today's earnings release. That concludes today's call. Have a nice day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a great day, everyone.