Delays, takeover bids and Puerto Rico hurt 09, but Patheon up about 2010

By Gareth Macdonald

- Last updated on GMT

Related tags Puerto rico United states dollar

Patheon says a slowdown in “outsourcing decision making,” manufacturing problems in Puerto Rico and cost related to JLL’s takeover bid hurt it in fiscal 09.

The contract manufacturing organisation’s (CMO) total revenue for the year ended October 31 was down 8.7 per cent to $655.1m (€457m) although, if currency fluctuations are taken into account, the overall drop was around 3 per cent.

This decline was felt across all core business areas with the contribution from both commercial manufacturing and product development services (PDS) falling 8.3 per cent and 10.3 per cent, respectively.

CEO Wes Wheeler said that prevailing market conditions, approval delays for key products, operating issues in Puerto Rico and costs related its Special Committee had significantly impacted on the firm’s performance in 2009.

He was more positive about 2010 however, asserting that the settlement with JLL​ and decision to consolidate operations in Puerto Rico ​mean “Patheon is well positioned for profitable growth as the market recovers to historical growth rates.

Q4 improvement driven by Europe

Wheeler’s claim is supported by the upswing in Patheon’s fortunes in the fourth quarter, with revenues for period reaching $176m, up 2.3 per cent on the same period, or 1.5 per cent if currency fluctuations are included.

For the three months ended October 31, revenue from commercial manufacturing was up 6.5 per cent to $144.5m with 16 per cent growth from Patheon’s operations in the UK, France and Italy being the key driver.

In contrast, commercial revenues from North American operations for the period fell, sliding 2.1 per cent due to a reduction in demand, fewer product introductions and repatriations from some customers.

Ironically, given Patheon’s decision to consolidate in Puerto Rico, operations on the island contributed more than in the comparable quarter last year.

However, this growth was largely a result of operational problems in the third quarter forcing Patheon to delay work until the final three months of the fiscal year.

First quarter outlook

For the current quarter, Q1 of fiscal 2010, Patheon expects to book around $2.4m of the $7m charge it will incur as a result of its Puerto Rico consolidation as well as a $1.3m impairment charge associated with the move.

The firm also predicts that the historical pattern of lower revenues from manufacturing and PDS operations will continue this quarter, primarily as a result of the low number of projects begun in the holiday period.

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