Cambrex cost-cutting helps in ‘difficult’ Q3

Cambrex joined a number of its peers in the contract services sector by reporting pressure on third quarter sales and earnings, providing further evidence that outsourcing companies are not immune to the economic downturn.

One of they factors affecting Cambrex’ business is the “continuous review of R&D pipelines” at big pharma companies, coupled with decisions among smaller drugmakers to focus their efforts on fewer projects, often those in late-stage testing.

As a result, there are fewer new projects coming into the market, and in some cases, delays or deferrals of existing projects, both of which impacted our third quarter results,” said Cambrex’ CEO Steve Klosk.

The US contract manufacturer said it would be continuing its wide-ranging cost reduction efforts in an effort to improve cash flow throughout the business.

Specifically, Cambrex was hit by price declines on one of its largest active pharmaceutical ingredients (API), as well as lower sales in its feed additives business, said Klosk.

The contract development business also came under increased pressure, but there were positive developments in Cambrex’ generic API business and controlled substances. The latter business brought in $12m in 2007 and should see sales increase to $19m in 2008, said Klosk in a conference call.

Overall sales rose 3 per cent to $56.5m but dipped slightly after being adjusted for currency impacts. Meanwhile operating profit increased to $4.5m from $3.5mn in the third quarter 2007, thanks to cost reduction efforts which slashed corporate expenses to $2.3m from $4m.

Margins were also pegged back five points to 29 per cent in the quarter compared to a year ago, as a result of higher raw material costs and expenses related to the validation of Cambrex’ new API finishing facility in Milan.

Cambrex currently has 15 development projects in late-stage development, and believes that a number of these have the potential to drive revenues of $5-$10m a year if approved.

We remain optimistic that we will be able to introduce at least three new commercial products in the next 12 months to 18 months,” said Klosk. Two of these products already in the process of being qualified by one of our large customers, he added.

We are nearing completion of our new mid-scale API manufacturing facility at our Swedish operation, which is expected to be on line in early 2009.”

This investment, along with the Milan facility and Cambrex’ recently-announced push into high-potency APIs “position us well for future growth,” concluded Klosk.