Rough quarter for Ampac Fine Chemicals

By Nick Taylor

- Last updated on GMT

Related tags Ampac fine chemicals Generally accepted accounting principles Antiretroviral drug Ampac

Ampac Fine Chemicals has posted disappointing results for the third quarter of its fiscal year, which saw operating income slump from $5m to $0.6m.

This fall in operating income was accompanied by a similar slip in revenues, which were $19.7m in comparison with $30.7m in the third quarter of 2007.

Ampac has played down the significance of the decline, which it believes is a blip created primarily by the timing of client orders. This is in turn a product of the decline in the number of companies entering into long term contracts.

Gilead recently signed a three-year contract with Ampac under which the latter will provide ingredients for tenofovir disoproxil fumarate, a HIV drug, but deals such as this and the steady revenue stream they supply are becoming increasingly rare.

The company also cited an increase in the proportion of low-margin products sold as being responsible for the challenging quarter.

In addition Ampac has faced maintenance issues at its manufacturing facility, which has had a detrimental effect on production efficiency.

With at least some of these drains on revenues now resolved Ampac believes that its fiscal 2008 fourth quarter will look significantly healthier.

Revenues for the first nine months of fiscal 2008 are up by nine per cent on the comparable period of 2007, although this year’s operating income is expected to be lower.

With regards to sales of specific products the anti-viral business is said to be in good health, although this is offset by declining demand for Ampac’s oncology portfolio.

Unlike some other companies in the field Ampac does not refer to rising raw material or distribution costs as being drains on its operating income, although it does acknowledge this may change in the future.

Investments in technology

Ampac has outlined its plans to develop its “zone reactor" approach to continuous synthesis, which the company believes could generate significant revenues in the future.

The technology uses reactor cascades and is said to enable rapid production and quickly switch between different processes.

Within weeks a batch process can be adapted to the zone reactor and achieve a substantial increase in throughput, with a 35-fold rise being cited.

Ampac now intends to have a prototype reactor ready by the end of September.

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