{"id":12033,"date":"2022-12-07T10:00:00","date_gmt":"2022-12-07T08:00:00","guid":{"rendered":"https:\/\/sifterfund.com\/?p=12033"},"modified":"2022-12-07T11:16:58","modified_gmt":"2022-12-07T09:16:58","slug":"west-pharmaceutical-services-is-a-perfect-example-of-a-quality-company-with-strong-entry-barriers","status":"publish","type":"post","link":"https:\/\/sifterfund.com\/en\/west-pharmaceutical-services-is-a-perfect-example-of-a-quality-company-with-strong-entry-barriers\/","title":{"rendered":"West Pharmaceutical Services is\u00a0a perfect example of a quality company with strong entry barriers"},"content":{"rendered":"\n<p class=\"lead-p\">West Pharmaceutical Services (WST) company is not a household name, but every one of us has likely used its products without realizing it. With its roughly $3 billion in annual revenue, West is a goliath in a small but profitable and quickly growing market. There are plenty of reasons to believe the company\u2019s position is firmly entrenched.<\/p>\n\n\n\n<p>Sifter Fund invested in West in June 2022, so let\u2019s dive deeper why we chose to do so, what makes it a quality company and why it is suitable for the Sifter portfolio.<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<iframe title=\"West Pharmaceutical Services is a Quality Company with strong entry barriers \u2013\u00a0WST STOCK\" width=\"800\" height=\"450\" src=\"https:\/\/www.youtube.com\/embed\/vejctcQdsYE?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture\" allowfullscreen><\/iframe>\n<\/div><\/figure>\n\n\n\t\t<div data-elementor-type=\"section\" data-elementor-id=\"7189\" class=\"elementor elementor-7189 elementor-7179\" data-elementor-post-type=\"elementor_library\">\n\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-73e79c3 elementor-section-full_width ang-section-padding-initial elementor-section-height-default elementor-section-height-default elementor-repeater-item-none elementor-repeater-item-none_hover\" data-id=\"73e79c3\" data-element_type=\"section\" data-e-type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-no\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-1577f98 elementor-repeater-item-none elementor-repeater-item-none_hover\" data-id=\"1577f98\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-ae94b20 uael-heading-align-left elementor-repeater-item-none elementor-repeater-item-none_hover elementor-widget elementor-widget-uael-table-of-contents\" data-id=\"ae94b20\" data-element_type=\"widget\" data-e-type=\"widget\" data-settings=\"{&quot;toc_icon_size&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:30,&quot;sizes&quot;:[]},&quot;heading_bottom_space&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:10,&quot;sizes&quot;:[]},&quot;content_between_space&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:5,&quot;sizes&quot;:[]},&quot;toc_icon_size_tablet&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;toc_icon_size_mobile&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;scroll_to_top_offset&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;scroll_to_top_offset_tablet&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;scroll_to_top_offset_mobile&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;scroll_offset&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;scroll_offset_tablet&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;scroll_offset_mobile&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;heading_text_align&quot;:&quot;left&quot;,&quot;heading_bottom_space_tablet&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;heading_bottom_space_mobile&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;separator_bottom_space&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;separator_bottom_space_tablet&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;separator_bottom_space_mobile&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;content_between_space_tablet&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;content_between_space_mobile&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]}}\" data-widget_type=\"uael-table-of-contents.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<div class=\"uael-toc-main-wrapper uael-toc-auto-collapse\" data-headings=\"h2,h3\" >\n\t\t\t<div class=\"uael-toc-wrapper\">\n\t\t\t\t<div class=\"uael-toc-header\">\n\t\t\t\t\t<span class=\"uael-toc-heading elementor-inline-editing\" data-elementor-setting-key=\"heading_title\" data-elementor-inline-editing-toolbar=\"basic\" >Table of contents<\/span>\n\t\t\t\t\t\t\t\t\t\t\t<div class=\"uael-toc-switch\" data-hideshow=\"yes\" data-is-collapsible=\"yes\">\n\t\t\t\t\t\t\t<span class=\"uael-icon fa\"><\/span>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t<div class=\"uael-toc-toggle-content\">\n\t\t\t\t\t<div class=\"uael-toc-content-wrapper\">\n\t\t\t\t\t\t\n\t\t\t\t\t\t\t<ul data-toc-headings=\"headings\" class=\"uael-toc-list uael-toc-list-disc\" data-scroll=\"500\" ><\/ul>\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"uael-toc-empty-note\">\n\t\t\t\t\t<span>Add a header to begin generating the table of contents<\/span>\n\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t\t\t\t\t\t<a id=\"uael-scroll-top\" class=\"uael-scroll-top-icon\">\n\t\t\t\t\t<span class=\"screen-reader-text\">Scroll to Top<\/span>\n\t\t\t\t<\/a>\n\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t\n\n\n\n<p>The identification of a quality company always starts off by looking at <a href=\"https:\/\/sifterfund.com\/en\/quality-investing\/#numeric-factors\" target=\"_blank\" rel=\"noreferrer noopener\">the numerical facts<\/a>. These tell us whether the company has demonstrated the ability to produce superior financials, at least historically.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><a href=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-numerical-facts.png\"><img fetchpriority=\"high\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-numerical-facts-1024x576.png\" alt=\"West Pharmaceutical and Numerical Facts\" class=\"wp-image-12083\" srcset=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-numerical-facts-1024x576.png 1024w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-numerical-facts-500x281.png 500w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-numerical-facts-768x432.png 768w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-numerical-facts-1536x864.png 1536w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-numerical-facts.png 1600w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/a><figcaption>West\u2019s historical numbers. Exceptionally notable is the high growth combined with a strong operating leverage resulting in a massive annual net income growth of over 30%.<\/figcaption><\/figure>\n\n\n\n<p>This is in short, the first step in our research process that gives us a reason to believe the potential candidate is worthy of further investigation.<\/p>\n\n\n\n<p>However, numerical superiority indicators are only backwards looking and therefore the heaviest workload for a quality investor is to study the company\u2019s qualitative advantages.<\/p>\n\n\n\n<div class=\"wp-block-group box is-layout-flow wp-block-group-is-layout-flow\">\n<h3 class=\"wp-block-heading\" id=\"qualitative-factors\">Qualitative superiority factors enable future success<\/h3>\n\n\n\n<p>When we find a potential quality company among thousands of candidates we analyze the company\u2019s business using qualitative criteria.<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>The earnings model has a clear competitive edge<\/li><li>High barriers to market entry<\/li><li>The products and services are critical to customers<\/li><li>The product represents a minor share of the customer&#8217;s total costs<\/li><li>A large share of the revenue is recurring<\/li><li>The company&#8217;s products possess pricing power<\/li><li>There is growth in the industry<\/li><li>Seasoned management team and strong company culture<\/li><\/ul>\n<\/div>\n\n\n\n<p>Essentially, we assess and calculate the firm\u2019s ability and likelihood of producing the same superior, or better financial profile in the future, as it has done in the past. <\/p>\n\n\n\n<p>In this article I&#8217;ll summarize our key findings on West and it\u2019s qualitative superiority factors.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">How does West Pharmaceutical make money?<\/h2>\n\n\n\n<p>West designs and manufactures drug packaging and delivery products for pharmaceutical companies. More precisely, <strong>West\u2019s products are the rubber components that come into physical contact with the drug, such as the cap, stopper, seal, and plungers.<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><a href=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-manufactures-rubber-products.png\"><img decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-manufactures-rubber-products-1024x576.png\" alt=\"\" class=\"wp-image-12086\" srcset=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-manufactures-rubber-products-1024x576.png 1024w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-manufactures-rubber-products-500x281.png 500w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-manufactures-rubber-products-768x432.png 768w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-manufactures-rubber-products-1536x864.png 1536w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-manufactures-rubber-products.png 1600w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/a><figcaption>West Pharmaceutical manufactures drug packaging and delivery products for pharmaceutical industry. The products are critical yet a tiny fraction of the final cost of the drug.<\/figcaption><\/figure>\n\n\n\n<p>At first glance, these might seem like commodities, low-value products that ought to be mass-produced in a low-cost country, but since this is the pharmaceutical industry, there is a catch. That catch is, of course, that it is of utmost importance that whatever touches the drug does not interfere with its safety and efficacy.<\/p>\n\n\n\n<p>Consider that pharmaceutical companies spend billions and closer to a decade on developing drugs, bringing them to market as soon as possible to get a return on their investment. If the drug must pulled from the market due to contamination from a low-quality rubber stopper, that\u2019s a massive waste of resources and opportunity.<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\"><p>West\u2019s products, although a tiny fraction of the drug&#8217;s final cost, are a small but critical piece of the puzzle that ensures pharmaceutical companies can sell safe and effective medicines.<\/p><\/blockquote>\n\n\n\n<h2 class=\"wp-block-heading\">West Pharmaceutical has two business models<\/h2>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-business-models-1024x576.png\" alt=\"\" class=\"wp-image-12045\" srcset=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-business-models-1024x576.png 1024w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-business-models-500x281.png 500w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-business-models-768x432.png 768w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-business-models-1536x864.png 1536w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-business-models.png 1600w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption>West Pharmaceutical business models, revenues and operating margins.<\/figcaption><\/figure>\n\n\n\n<p><strong>Contract manufacturing is<\/strong> roughly 15% of the business in terms of revenue. It is a reasonably stable but uninspiring business where West manufactures medical devices based on its customer&#8217;s owned intellectual property. West is, for example, the world&#8217;s largest manufacturer of insulin auto-injectors.<\/p>\n\n\n\n<p><strong>The proprietary business <\/strong>is, however, where the magic happens.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large graafi\"><a href=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-value-chain.png\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-value-chain-1024x576.png\" alt=\"\" class=\"wp-image-12047\" srcset=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-value-chain-1024x576.png 1024w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-value-chain-500x281.png 500w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-value-chain-768x432.png 768w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-value-chain-1536x864.png 1536w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-value-chain.png 1600w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/a><figcaption>The graph depicts the main products that West offers pharmaceutical manufacturers. As we move to the right and up, the value and customer intimacy increase, and from an income perspective, the sales price and margins increase.<\/figcaption><\/figure>\n\n\n\n<p>West produces a lot of simple rubber components &#8211; <strong>roughly 40 billion pieces annually<\/strong>. This is the lowest value offering \u2013 a standard simple rubber component. But these pieces are not ready to be fitted into the vial or syringe just yet \u2013 somebody must wash, sterilize, coat, and inspect them.<\/p>\n\n\n\n<p>Over time, as drug manufacturers have looked to drive down costs, reduce non-core operations, and maintain consistently high-quality components, <strong>West has been positioned perfectly to take over this value-add process from its customers.<\/strong><\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\"><p>Through performing increasingly high value-add to the simple rubber components, West has carved out a profitable business. <\/p><\/blockquote>\n\n\n\n<p>And again, for the final price of the drug, the cost of West&#8217;s operations is a rounding error, but customer&#8217;s drug quality cannot be jeopardised.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">West Pharmaceutical business is protected by high entry barriers<\/h2>\n\n\n\n<p>Now, It wouldn&#8217;t be a Sifter business if just anyone could do it. So what are the entry barriers? <\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\"><p>If the margins get too attractive, what&#8217;s stopping competitors from entering the market? <\/p><\/blockquote>\n\n\n\n<p>The answer is the quality risk of switching supplier, technological expertise or resource requirements to build out manufacturing facilities. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The biggest barrier to entry is called the Drug Master File (DMF)<\/h3>\n\n\n\n<p>The goal of regulators around the world is to protect the consumers by ensuring the safety and efficacy of drugs. Therefore, very strict regulation requires pharma manufacturers to specify the methods, facilities, manufacturing controls, processing, and, of course, the drug packaging components.<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\"><p>In essence, pharmaceutical companies are required to lock in a recipe for how to make the drug.<\/p><\/blockquote>\n\n\n\n<p>While changing the Drug Master File is theoretically possible, it is a very costly process requiring testing and re-approval from the authorities. Therefore, drug manufacturers are, in practice, hesitant to do so, especially for components whose costs are counted in cents per finished product like West products.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">West Pharmaceutical is a market leader in a growing niche-market<\/h2>\n\n\n\n<p>So, West has seemingly carved out an attractive niche for itself, but is the underlying market growing? To answer that, we must look closely at the end market \u2013 meaning &nbsp;the pharmaceutical industry.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><a href=\"https:\/\/sifterfund.com\/wp-content\/uploads\/pharmaceutical-industry-market-size.png\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/sifterfund.com\/wp-content\/uploads\/pharmaceutical-industry-market-size-1024x576.png\" alt=\"Pharmaceutical Industry\" class=\"wp-image-12049\" srcset=\"https:\/\/sifterfund.com\/wp-content\/uploads\/pharmaceutical-industry-market-size-1024x576.png 1024w, https:\/\/sifterfund.com\/wp-content\/uploads\/pharmaceutical-industry-market-size-500x281.png 500w, https:\/\/sifterfund.com\/wp-content\/uploads\/pharmaceutical-industry-market-size-768x432.png 768w, https:\/\/sifterfund.com\/wp-content\/uploads\/pharmaceutical-industry-market-size-1536x864.png 1536w, https:\/\/sifterfund.com\/wp-content\/uploads\/pharmaceutical-industry-market-size.png 1600w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/a><figcaption>West Pharmaceutical is a niche-market leader in a huge pharmaceutical industry.<\/figcaption><\/figure>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\"><p>A high-level distinction can be made between two major classes of drugs: small molecule drugs, and large molecule drugs.<\/p><\/blockquote>\n\n\n\n<p><strong>Small-molecule drugs<\/strong> are the class of drugs that first comes to mind for most people. Pills that are orally consumed treat an endless variety of ailments and diseases, like simple painkillers. The market growth has been driven by simple factors such as population growth.<\/p>\n\n\n\n<p><strong>Large molecule drugs<\/strong> are, as can be seen in graph, expected to be the growth engine of the wider industry. These are <strong>biological drugs<\/strong>, complex molecules made in living cells. <\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\"><p>Biologic drugs already make up most of the best-selling medicines treating age and lifestyle-related diseases such as cancer, autoimmune disorders, and diabetes.<\/p><\/blockquote>\n\n\n\n<figure class=\"wp-block-image size-large\"><a href=\"https:\/\/sifterfund.com\/wp-content\/uploads\/pharmaceutical-industry-small-molecule-drugs-vs-large-molecule-drugs-growth-1.png\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/sifterfund.com\/wp-content\/uploads\/pharmaceutical-industry-small-molecule-drugs-vs-large-molecule-drugs-growth-1-1024x576.png\" alt=\"\" class=\"wp-image-12051\" srcset=\"https:\/\/sifterfund.com\/wp-content\/uploads\/pharmaceutical-industry-small-molecule-drugs-vs-large-molecule-drugs-growth-1-1024x576.png 1024w, https:\/\/sifterfund.com\/wp-content\/uploads\/pharmaceutical-industry-small-molecule-drugs-vs-large-molecule-drugs-growth-1-500x281.png 500w, https:\/\/sifterfund.com\/wp-content\/uploads\/pharmaceutical-industry-small-molecule-drugs-vs-large-molecule-drugs-growth-1-768x432.png 768w, https:\/\/sifterfund.com\/wp-content\/uploads\/pharmaceutical-industry-small-molecule-drugs-vs-large-molecule-drugs-growth-1-1536x864.png 1536w, https:\/\/sifterfund.com\/wp-content\/uploads\/pharmaceutical-industry-small-molecule-drugs-vs-large-molecule-drugs-growth-1.png 1600w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/a><figcaption>Large Molecule Drugs are expected to be the growth engine in the pharmaceutical industry.<\/figcaption><\/figure>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\"><p>A catch of large molecule drugs is that they cannot be orally consumed but are generally injected.<\/p><\/blockquote>\n\n\n\n<p> These drugs are also generally more susceptible to contamination and sensitive to heat and light. These factors further increase the demand for high-quality, purposefully designed rubber components.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What are the competitive advantages of West Pharmaceutical?<\/h2>\n\n\n\n<p>Although West dominates the drug packaging industry with a roughly 70% market share, it is not the only supplier. <strong>D\u00e4twyler<\/strong> and <strong>Aptar<\/strong> are two formidable competitors with significant elastomeric expertise. <strong>So what competitive advantages does West have over these players?<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><a href=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-and-competitors-aptar-datwyler.png\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-and-competitors-aptar-datwyler-1024x576.png\" alt=\"\" class=\"wp-image-12053\" srcset=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-and-competitors-aptar-datwyler-1024x576.png 1024w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-and-competitors-aptar-datwyler-500x281.png 500w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-and-competitors-aptar-datwyler-768x432.png 768w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-and-competitors-aptar-datwyler-1536x864.png 1536w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-and-competitors-aptar-datwyler.png 1600w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/a><figcaption>Market shares and competition: West Pharmaceutical, Datwyler and Aptar.<\/figcaption><\/figure>\n\n\n\n<p>Thanks to West\u2019s leadership position, the company is at the forefront of solving customers\u2019 newest and most demanding challenges and anticipating future needs. West can then apply this accumulated knowledge to serve subsequent customers facing similar issues.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><a href=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-win-rate-new-injectables.png\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-win-rate-new-injectables-1024x576.png\" alt=\"\" class=\"wp-image-12102\" srcset=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-win-rate-new-injectables-1024x576.png 1024w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-win-rate-new-injectables-500x281.png 500w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-win-rate-new-injectables-768x432.png 768w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-win-rate-new-injectables-1536x864.png 1536w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-win-rate-new-injectables.png 1600w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/a><figcaption>West has nearly monopolistic participation in new injectables development.<\/figcaption><\/figure>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\"><p>This expertise advantage is visible to us because West has shown an almost monopolistic participation in helping pharmaceutical companies bring the demanding injectables drugs to market.<\/p><\/blockquote>\n\n\n\n<p>Secondly, as the largest manufacturer, it has <strong>the most significant global manufacturing facility footprint<\/strong>. As a reminder, the components are not interchangeable, so choosing a supplier is done with utmost care. West can best secure supply chain resilience in this regard.<\/p>\n\n\n\n<p>And lastly, choosing a company like West that can fully support you from the start-up to commercialization and whose products have been tested more than anyone else\u2019s, is an attractive prospect for risk-averse pharmaceutical companies.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">West Pharmaceutical and investment risks<\/h2>\n\n\n\n<p>Finally, we have to consider the risks &#8211; What could hurt this business? The general answer is anything that would reduce demand for drug packaging, especially high-quality packaging.<\/p>\n\n\n\n<p>The mRNA-based COVID vaccines are, in fact, biologic drugs, and as you should be able to deduce by now, the explosion in demand resulted in a considerable boost in revenue and profits for West in 2020 and 2021.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><a href=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-covid-demand.png\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-covid-demand-1024x576.png\" alt=\"\" class=\"wp-image-12063\" srcset=\"https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-covid-demand-1024x576.png 1024w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-covid-demand-500x281.png 500w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-covid-demand-768x432.png 768w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-covid-demand-1536x864.png 1536w, https:\/\/sifterfund.com\/wp-content\/uploads\/west-pharmaceutical-covid-demand.png 1600w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/a><figcaption>The rapid slowdown in COVID vaccinations will be a headwind for the next few years.<\/figcaption><\/figure>\n\n\n\n<p>And from an investor\u2019s perspective, the company\u2019s valuation is on the high end of our portfolio \u2013 the market is not oblivious to the company\u2019s enviable position.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Why did we choose to invest in West Pharmaceutical?<\/h2>\n\n\n\n<p>The fundamental strength of West\u2019s business is, without a doubt, very attractive.<\/p>\n\n\n\n<p><strong>1. It has dominant competitive positioning in a growing profitable industry with multiple high entry barriers.<\/strong><\/p>\n\n\n\n<p><strong>2. The products are critical yet a tiny fraction of the final cost of the products, which are in demand regardless of economic conditions.<\/strong><\/p>\n\n\n\n<p><strong>3. The company\u2019s management is experienced and consistent, growing nearly solely organically and preserving a clean balance sheet with a net cash position.<\/strong><\/p>\n\n\n\n<p>We, therefore, see West as an investment that should compound earnings beyond the short-term headwinds and reward the long-term investor.<\/p>\n\n\n\n<p><strong>Karl Lidsle<\/strong><br>Analyst<\/p>\n","protected":false},"excerpt":{"rendered":"<p>West Pharmaceutical Services has dominant competitive positioning in a growing profitable industry with multiple high entry barriers.<\/p>\n","protected":false},"author":13,"featured_media":12196,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[],"class_list":["post-12033","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>West Pharmaceutical Services is\u00a0a perfect example of a quality company with strong entry barriers - Sifter Fund<\/title>\n<meta name=\"description\" content=\"West Pharmaceutical Services (WST) is a quality company with strong entry barriers. 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