Negative impact from contract cancellations and weakness of US dollar
Patheon saw revenues for the second quarter of fiscal 2011 US$170.0m or 3.1% lower than the same period last year, although revenues for the first half of 2011 were $345.7m up from $330.2m, an increase of 4.7% from the prior period. A major factor in the second quarter year-over-year decline in profitability relates to weakness in the US dollar, resulting in $8.8m of negative currency impact on Adjusted EBITDA in the second quarter compared with the same period last year.
‘The Commercial production forecast for the remainder of fiscal 2011 has strengthened and we have a strong book of business in Pharmaceutical Development Services (PDS),’ said James C. Mullen, Patheon's chief executive officer. ‘We expect underlying operating performance in the second half to improve significantly from second quarter levels.’
The second quarter results reflect an unusual level of contract cancellations and delays in the PDS business during the first half of 2011. Patheon's Commercial business was also affected negatively by operating performance issues and production delays at several of Patheon's Commercial sites, partially offset by income related to the previously disclosed contract termination at Patheon's Swindon site, which related to a cephalosporin sterile facility in the UK that had been dedicated under the contract. Patheon has recently entered into agreements with two customers for the facility, one of which involves a reservation fee.
The company reported a loss before discontinued operations for the second quarter of 2011 of $11.1m, compared with income before discontinued operations of $11.3m for the same period last year.
‘We are actively addressing the Commercial production challenges of the second quarter, which included higher than normal inventory write-offs at several sites, as well as increased overtime at two sites related to a major new product launch, and significant increases in market demand for an existing product,’ Mullen stated. ‘This has led to some orders shifting into the second half of the year.
‘Our PDS business experienced an unusual level of contract cancellations and delays during the first half related to customer regulatory approval and clinical trial outcome issues, as well as industry M&A activity. This created short-term weakness in demand at some of our PDS sites, which had staffed for a higher level of activity.’
Revenues from commercial manufacturing operations for the second quarter of 2011 were $138.5m compared with $142.2m in the same period last year. Second quarter revenue included $9.4m related to the customer contract in the UK versus the same quarter last year. This was more than offset by lower revenues across other sites, and the non-recurrence of $4.2m of accelerated deferred revenue recognised in Cincinnati in the prior year quarter.
Adjusted EBITDA from the commercial manufacturing operations for the three months ended April 30, 2011 was $17.0m compared with $18.8m in the same period of 2010. Adjusted EBITDA for the second quarter included the benefit of the contract amendment in the UK, and a $1.8m Adjusted EBITDA improvement in Puerto Rico, which was more than offset by non-recurrence of the Cincinnati deferred revenues and lower revenues at some other sites.
PDS revenues for the three months ended April 30, 2011 was $31.5m compared with $33.2m in the same period of 2010. The change in revenue reflects the impact of contract cancellations and delays noted above. Adjusted EBITDA from the PDS operations was $7.3m compared with $16.9m in the same period of 2010. The reduction was due to lower revenues and non-recurrence of $4.4m of prior year Canadian research and development investment tax credits that were recognised in the same quarter last year.
Revenue for the six months ended 30 April 2011from continuing operations was $345.7m, an increase of 4.7% from the prior period’s $330.2m. Commercial manufacturing revenues increased to $287.2m from $270.3m, or 6.3%, from the same period of fiscal 2010. PDS revenues for the six months ended 30 April 2011 were $58.5m compared with $59.9m in the same period of fiscal 2010.