Patheon on the road to recovery
cut jobs and took steps to resolve issues at its troubled Puerto
Rico plant.
The company's pre-tax loss for the quarter ended 31 January 2007 nosedived to $841,000 (€640,000) from $12.6m last year. Operating profit increased from $778,000 in the previous quarter to $6.9m, despite being hit by repositioning expenses of $3.7m, which include $1.1m in severance costs, $1.6m in professional fees relating to the expansion of its manufacturing efficiency review process, and $1m in costs relating to work on the board's strategic alternatives review. Meanwhile, first-quarter revenues increased 9 per cent to $171.7m up from $157.9m over the same period a year ago - an improvement the firm attributed to higher production at its Canadian and European operations, as well as its Puerto Rican division. Figures were up in both prescription (Rx) drug manufacturing and pharmaceutical development services (PDS) but declined in over the counter (OTC) manufacturing. "We achieved strong revenue growth in prescription manufacturing and pharmaceutical development services, which have grown to represent almost 90 per cent of our total revenue base," Riccardo Trecroce, CEO of Patheon said in a statement. "Our earnings also improved, due mainly to efficiency gains at several Canadian sites, particularly Whitby, higher volumes at our Carolina, Puerto Rico site relative to last year, and solid growth at our PDS operations in Canada, Cincinnati and Swindon," said Trecroce. Compared with the first quarter of 2006, Rx revenues increased by 13 per cent, PDS revenues increased by 23 per cent and OTC sales fell 23 per cent. Geographically, in North America, revenues increased 4 per cent in the first quarter compared to the same period a year ago, reflecting higher Rx revenues from the Canadian and Puerto Rico operations - which Patheon gained as part of the acquisition of contract manufacturer Mova Pharmaceutical in November 2004 - and higher PDS revenues in Canada and Cincinnati, the company said. However, these results were offset by lower OTC manufacturing revenues in Canada and Cincinnati, which the company blamed on "certain clients repatriating products back to their own manufacturing network." In the same period last year Rx manufacturing revenues were constrained by the temporary closure in production in its Puerto Rico facility to resolve issues with regard to a warning letter issued by the Food and Drug Administration (FDA) and by manufacturing inefficiencies in Whitby. Patheon stressed that both of these issues were resolved during 2006. The Company said it has also made significant progress on its manufacturing efficiency review initiative during the quarter. The initiative is nearing completion at the firm's Toronto, Cincinnati, Carolina and Swindon sites, where it is expected to result in sustained process improvements and higher productivity. Meanwhile, in Europe, revenues for the first quarter of 2007 were $56.5 m - 9 per cent higher than the same period of 2006. Patheon said the year-over-year growth was boosted by higher volumes of sterile products in Italy, combined with the benefits of an initiative in Bourgoin Jallieu, France where, during the course of 2006, a client transferred production of a range of products from its own manufacturing network. Looking forward, expected revenues for the second quarter of 2007 will be roughly the same as in the first quarter, said the firm, boosted by last week's announcement of a $150m (€114m) investment by a private equity firm - a move seen by the company as the best viable option to end its financial misery. Patheon said last week that it has entered into a definitive agreement with JLL Partners under which the equity firm will purchase convertible preferred shares through a private placement. The transaction is subject to shareholder approval, but Patheon is confident that this proposed deal is the first vital step in rebuilding the value of the company in order to make it "more competitive and more profitable." The company intends to use the net proceeds of the investment - expected to be around $138m - to pay down a portion of its outstanding debt of $238m under its existing North American credit facilities. In addition, sales are expected to be slightly higher across the network with the exception of the US operations, where the firm is experiencing lower demand. In addition, Trecroce said that initiatives under the company's Performance Enhancement Programme are well underway are already having a positive impact on profitability, "as demonstrated by its first quarter results."
