The contract manufacturing organisation (CMO) has responded to challenging market conditions by restructuring the business but Wes Wheeler, CEO of Patheon, acknowledged that the results fail to reflect this.
A “significant proportion” of the 45 per cent decline in year-on-year EBITDA was attributed to Puerto Rico operations, which have caused Patheon numerous problems since they were acquired from Mova Pharmaceuticals in 2004.
The latest setback was caused by difficulties in releasing enough product lots because of efforts to optimise manufacturing parameters. Furthermore, the stringent release specifications of one product caused the CMO difficulties.
Patheon believes it has resolved all known technical issues and significantly improved output. This has been accompanied by management, regulatory and operating improvements.
Over this difficult period a backlog has grown, in part because of increased demand, but Patheon expects to clear this in the fourth quarter, which it also predicts will show better results from the Puerto Rico operations.
As a result of the problems in Puerto Rico, and other issues discussed below, Patheon’s operating income for the quarter fell by 51 per cent to $3.7m (€2.5m). This was accompanied by a 16 per cent drop in revenue, although the situation was improved by lower operating costs.
Industry issues
Patheon Development Services (PDS) also experienced a challenging quarter, with cutbacks in the pharmaceutical industry still affecting business. Total revenues fell as a consequence of weak new business awards in the first quarter, although Patheon did have some encouraging signs.
In the first nine months of its fiscal 2009 Patheon added 34 new customers and experienced higher quotation rates. In addition the total number of projects underway increased year-on-year by 17 per cent but the average value has declined.
Patheon attributed this to increased price competition and more cautious R&D spending by pharma companies but believes it is a temporary problem, with recent new business suggesting a more positive trend.
The difficulties facing the pharma industry have also impacted on Patheon’s manufacturing business. Revenues fell in the quarter, even with Puerto Rico operations excluded, and Patheon attributed this to delayed product approvals and disappointing prescription uptake for certain new drugs.