Early end to cephalosporin contract helps Patheon in Q1 fiscal 2011

By Gareth Macdonald

- Last updated on GMT

Related tags: Business, Generally accepted accounting principles

A customer decision to halt development of an antibiotic and end a manufacturing contract early helped Patheon to an improved set results for the first quarter of fiscal 2011.

Total revenue for the three months ended January 31 was $175.7m (€125.7m), up 10.3 per cent excluding currency fluctuations. Of this, commercial manufacturing made the biggest contribution, generating some $148.7m, up 12.5 per cent.

However, this included a €17.6m ($24.5m) reservation fee from customer that ended a manufacturing and supply contract early after deciding not to continue with commercial development of a lyophilised cephalosporin candidate.

Patheon, which also included $15.3m in accelerated deferred revenue related to the contract in its total for the quarter, did not name the firm involved, but did confirm that the work would have been carried out at its facility in Swindon​ in the UK.

Excluding the reservation fee and deferred revenue, the total contribution from commercial manufacturing would have been $115.8m, down around $13m on the first quarter of fiscal 2010.

In a note to Outsourcing-pharma.com Versant Partners analyst Douglas Loe suggested the customer may be Basilea Pharmaceutica, which is struggling to get its candidate ceftobiprole antibiotic approved by the US Food and Drug Administration (FDA), and predicted that the end of the contract may have a longer term impact on Patheon.

Going forward, Patheon clearly has excess cephalosporin manufacturing capacity at Swindon that will need to be absorbed by new contracts​,” predicting that this unused capacity may impact margins for some quarters to come based on management comments about it taking longer to convert quotes into new deals.

The contract manufacturing organisation's (CMO) other core business , pharmaceutical development services (PDS), saw revenue increase 1.1 per cent to $27m, although excluding currency effects this would have flat compared to last year.

Overall, operating income for the period was $14.3m up from an operating loss of $6.6m in the same period last year.

Outlook for 2011

CEO James Mullen, who was appointed last month​, acknowledged the importance of the reservation fee in Patheon’s Q1 results.

He also said that the firm saw “continued improvement in most of the North American commercial business, while results in the European commercial business and our development service business were not as robust​.”

Looking forward Mullen said that: “The market dynamics for outsourced manufacturing and development services continues to be encouraging, but is moving at a slower pace than we would like.”

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