Although total revenue for Q3 was up 3% to $62.5m, adjusted contract margins were 8%, compared with 16% for Q3 of 2013. The company said the lower margins were “driven by lower capacity utilization, including the impact of a business interruption event,” which was a weather-related power interruption at the company's newly acquired Albuquerque manufacturing facility. AMRI gained the facility when it purchased OsoBio for $110m in June.
CFO Michael Nolan added in the conference call last week: “Higher costs and lower revenues associated with the Albuquerque New Mexico facility power interruption and subsequent remediation work, along with lower capacity utilization and a weaker mix across the API business contributed to a $1.5m operating loss... This compares to a $6.4m adjusted operating income in the third quarter of the prior year.”
Q3 weaknesses in API manufacturing “revolved around timing of shipments to customers and certain unexpected delays,” Nolan said. “First, an order for which the US government is the end user did not materialize as expected in the quarter. Second, a shipment of controlled substance was delayed due to a customer’s inability to secure quota. And third, AMRI delayed shipments of certain key client batches, which ultimately shipped in the first few days of Q4.”
Net loss for the quarter under US GAAP was $8.6m in Q3, compared to US GAAP net income of $3.7m for Q3 of 2013.
"The confluence of a business interruption event at our OsoBio facility, together with lower Discovery and API revenue has resulted in a weak third quarter," said William Marth, AMRI's President and CEO. "In our Discovery business, we saw lower fee-for-service work... Additionally, a weather-related power interruption at our OsoBio facility in Albuquerque took the facility offline for a period of time, contributing to the loss of finished product and the need to remediate one of the suites at the facility.
Nolan explained the Albuquerque situation in more detail, noting, “In late July, the OsoBio facility experienced a power failure that caused a PLC malfunction that is a programmable logic controller. This allowed the doors to the aseptic core to remain open for a period of time. Backup power was available and after some remediation work the facility was brought back online and production resumed. In early September, data monitoring signaled environmental deviations in one of the primary filling suite, and we determined that it was triggered by the power interruption and subsequent conditions.”
Marth said AMRI is now working more closely with customers to ensure product supply is not disrupted. He added: “We anticipate the affected suite at our Albuquerque facility to be back online in mid-November.”
Despite the fall-off in quarterly results, Marth said he remains confident in the company’s outlook for Q4 and 2015 as “demand for complex API and Drug Product manufacturing continues to significantly expand."
Total contract revenue for the first nine months of 2014 was $170.0 million, an increase of 13% compared to contract revenue of $150.3 million for the same period in 2013. Adjusted contract margins were 18% for the nine months of 2014, consistent with the same period in 2013.
But all isn’t bad news for the company: Revenue at the Burlington site has doubled from last year as demand for parenteral fill finish work “is very high and we received commitments from current customers to increase supply,” Nolan added.