In the fourth quarter the CMO (contract manufacturing organisation) slipped to a loss, having made a $13.3m (€10.2m) profit a year ago, as consulting fees for the new strategy dragged on results. With the areas of cuts, closures and investments now known consulting fees should fall again next year.
“SG&A (selling, general and administrative) costs, which have increased due to consulting expenses associated with our transformation efforts, should become less of a factor in the fourth quarter of fiscal 2012”, James Mullen, CEO of Patheon, said.
By the end of next year the efficiency push at Patheon will be advanced. The project began at its struggling Puerto Rico sites before spreading to Canada and Cincinnati, Ohio. In January the project will move to Italy before being implemented later in the year at all remaining plants.
“In the locations where we have rolled out our operational excellence programs, we have already realised enhanced capacity, decreased cycle times and improved efficiency”, Mullen said.
Development demand
The fourth quarter drop in operating income mirrored full year results, although Patheon managed to post a profit in fiscal 2011. Consulting fees again played a role but weak performance at the pharmaceutical development services (PDS) unit was also significant.
Full year EBITDA (earnings before interest, taxes, depreciation, and amortisation) at PDS dropped by 36 per cent on lower than expected sales at certain sites. Patheon attributed weak sales to project cancellations related to client regulatory approvals, clinical trial outcomes and industry consolidation.
Despite difficulties in 2011 Patheon expects the PDS unit to drive growth in coming years and is investing in the business. In the fourth quarter Patheon opened a PDS facility in San Francisco, US and will support organic growth at this site and in the UK with acquisitions, possibly in drug delivery.
Patheon said revenues will be ‘modestly higher’ next year. Shares in Patheon closed up 2.65 per cent.