Rhodia writes off former Chirex assets

By Phil Taylor

- Last updated on GMT

Related tags Depreciation Generally accepted accounting principles

French chemicals company Rhodia has effectively written off the
value of its troubled Rhodia Pharma Solutions division in its
second quarter accounts, giving it a book value of zero.

The news re-started speculation that Rhodia is planning to sell off the unit, which has been particularly hard hit by the downturn that has affected the pharmaceutical outsourcing sector over the last couple of years.

In a conference call, Rhodia's chief executive Jean-Pierre Clamadieu said that the company was considering a range of options, including and outright sale and dramatic restructuring, to stop Rhodia Pharma Solutions 'weighing on our profitability'. He said a decision on the fate of the business would be taken within months, with action taken before the end of the year.

The unit has been hit particularly hard by the recent withdrawal of Merck's Co's COX-2 inhibitor drug Vioxx (rofecoxib) and another painkiller in the same class, Pfizer's Bextra (valdecoxib), on safety grounds.

The write-off of Rhodia Pharma Solutions - just five years after the firm spent more than half a billion dollars to acquire the Chirex business that underpins the unit - will add to the pressure facing Rhodia's executive board, already under fire from rebel shareholders who have been trying to get rid of Clamadieu and other directors.

One of the gripes voiced most often by the rebels is that Rhodia paid far too much for Chirex and knew it was in trouble when it bought the contract development and ingredient manufacturing company.

Overall, Rhodia reported a net loss of €197 million in the second quarter, compared to net income of €55 million in the same quarter of 2004, after booking a €101 million charge for the pharma unit.

Earnings before interest, tax, depreciation and amortization (EBITDA) came in at €156 million, excluding restructuring charges, on sales up 7 per cent to €1.39 billion, helped by price increases. Rhodia Pharma Solutions posted an EBITDA loss of €5 million on revenues of €55 million in the second quarter, down from €62 million a year ago, Clamadieu said.

The unit employs about 1,000 people, mainly in the UK, France and the US, and facilities in all three of these countries are likely to be affected by any restructuring or sale. Rhodia stressed, however, that the write-off does not relate to its aspirin and paracetamol production assets in China and Thailand.

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