Catalent's oral biz hit by Beinheim suspension and low modified release demand

08-May-2016 - Last updated on 09-May-2016 at 11:24 GMT

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The manufacturing suspension at a French softgel plant and low demand for modified release tech stunted Catalent’s Q3 2016 results, the firm says.

For the third quarter FY2016, contract development and manufacturing organisation (CDMO) Catalent reported revenues from its Oral Technologies divison of $261m (€229m), down 3% on the same period 2015, while EBITDA dropped 25% to $55.6m.

The performance was attributed to the firm’s facility in Beinheim, France which saw production suspended in November 2015 after out-of-place capsules were discovered by the ANSM - the French pharmaceutical regulatory agency.

While the plant was given the all clear last week, the suspension has had a total impact of $41m in lost revenues and blighted Catalent’s softgel growth.

However, CFO Matthew Walsh was upbeat about softgels - representing about 70% of its Oral Tech business – saying that performance excluding Beinheim’s impact “posted robust revenue and EBITDA growth,” while Jefferies analyst David Windley said in a note “softgel growth will normalise in the 3-5% range” with the plant now poised to contribute in 2017.

But the CDMO had another challenging quarter from its modified release business, which accounts for the other 30% of Catalent’s Oral Technologies' sales.

“Due to lower customer demand for certain higher margin products, revenue within controlled release declined year-over-year,” Walsh said during a conference call discussing results. However, the firm believes this can be reversed.

“The challenges we have seen in this business through the first nine months of this fiscal year are showing positive signs of turning around in the fourth quarter, and we expect MRT [modified release technologies] to return to growth as we enter next fiscal year.”

Beinheim lessons

Perhaps unsurprisingly, much of the conference call was dedicated to the reopening of the Beinheim site which CEO John Chiminski said had taken longer than expected and will have some impact going forward.

“We do anticipate some continuing effect of the suspension of Beinheim into fiscal year 2017, due to the changes at the facility, and the business continuity plans we've implemented,” he told stakeholders, adding more details will be included in the fiscal year 2017 guidance set to be issued later this year.

He also said the CDMO has learned several lessons from the experience at Beinheim, despite the problem being attributed to “a bad actor within the facility” that Chiminski said was the crux of the problem.

“We also identified, when the ANSM came in, some other issues that we needed to remediate, and we have now gone across our facilities to understand where other changes from lessons learned at Beinheim will be rolled out.”