Biopharma causes Cambrex bleed
Q4 as opposed to a profit of $4.9m in Q4 last year, hit by lower
long-term profitability projections for its Biopharma unit, as
biotech companies seem to lose their appetite for outsourcing.
Cambrex would have posted a profit of $3.8m if it wasn't for the $144.1m in charges that were deducted from its bottom line.
Revenue hardly grew - $121.8m from $117.6m a year ago - and the company is under increased pressure to find strategic alternatives for its business after hiring trading and brokerage firm Bear Stearns last month to look at its options.
Earlier this year Cambrex ditched plans to transform itself into a specialty therapeutics outfit, prompting the resignation of its CEO John Leone and his replacement by the firm's chairman James Mack.
The problem stems from the poor performance of its Biopharma division which is not benefiting from the boom in biopharmaceutical manufacturing - market research firm BioPlan Associates projects the sector will grow 48 per cent over the next five years.
Even without the one-off charges, the Biopharma unit had an operating loss of $2.3m in Q4 versus $0.7m in Q4 of 2004.
This is indicative of the current tendency of big biotech to expand its self-reliance and capacity rather than opt for the biopharmaceutical manufacturing services that companies such as Cambrex offer.
Genentech for example will boost its production capacity by 200,000 litres by 2009 and Amgen is currently building in Rhode Island what is expected to be the world's largest mammalian protein manufacturing facility.
However, Cambrex suffered particularly from news in November from its client Nabi Pharmaceuticals that its StaphVax vaccine did not appear to prevent Staph infections in a phase 3 study involving dialysis patients, ceasing the development program of the vaccine.
Although Biopharma accounted for most of the charges, a total impairment of $37.1m in two reporting units within the Human Health segment also contributed.
In the Human Health segment, which consists of small molecule APIs and advanced inttermediates, sales in the fourth quarter 2005 decreased 1.2 per cent to $71.0m, a drop which Cambrex blamed on the unfavorable impact of foreign currency.
The firm also lost $16.9m in extra tax payments and $4.2m as part of Mr Leone's severance agreement.
Also worrying for Cambrex is the fact that its gross margin in its Biopharma divsion decreased to 7.1 per cent from 13.7 per cent a year ago, driven by higher material reimbursements which contribute virtually no gross profit, higher utility costs, costs associated with pre-approval inspections (PAIs) and the depreciation of its 2800-litre bioreactor that was commissioned earlier in 2005.
Full-year results for 2005 showed the same picture as the company reported a loss of $129.2m compared with a loss of $26.9m in 2004.
In an ambitious forecast, the company said it expects 4 to 8 per cent revenue growth in 2006, translating to earnings of 75 cents to 95 cents per share, excluding costs related to its purchase of Cutanogen, a privately held biotechnology company focused on products used to treat patients with severe burns, estimated at 15 cents per share.