Patheon Turnaround Continues
Patheon's announcement last week of its second quarter results was full of more bad news about its Puerto Rico operations. Generic competition for Abbott's Omnicef antibiotic, which is made at Patheon's Carolina, Puerto Rico, cephalosporin facility, has hit the market two years sooner than expected. That follows the loss of patent protection for Merck's Zocor statin product, made in Caguas, and the declining sales of Sandoz's version of generic levothyroxine product, which Patheon makes for Sandoz. Combined with the continued downturn in OTC products, sales of which fell 32% in the quarter, and it is to see the glass as being half-empty for Patheon.
It's just as easy to see the glass as half full, however. Revenues in Patheon's European operations jumped 22% in the quarter, and development services revenues were up 12%. Moreover, EBITDA was essentially the same as a year earlier, despite a 5% overall decline in revenues. The company outside of its Puerto Rico operations appears to be quite robust.
Most importantly, it is clear that Patheon's leadership is facing the realities of its problems and will do whatever it takes to put the company back on sound footing. It has announced plans to divest four marginal operations in Ontario and get out of the OTC manufacturing business. During the Q2 conference call executives said they will have a plan for dealing with the Puerto Rico problems by the end of the summer. It would not be surprising if that involves consolidating operations by closing at least one of the three manufacturing sites.
What has been critical for Patheon executives is the support of its financial backers. The recent financial restructuring not only raised equity and took out the commercial bankers; it brought in sophisticated and patient financial players with a high tolerance for risk. Undoubtedly JLL Partners, the private equity group that put the $150 million in new equity, and lenders GE Commercial Finance and J.P. Morgan Securities, were well aware of the issues facing Omnicef and the Puerto Rico operations. They appear to have judged that substantial pieces of the business are sound, and are enabling executives to deal with the unsound elements by providing a financial cushion.
© PharmSource 2007
It's just as easy to see the glass as half full, however. Revenues in Patheon's European operations jumped 22% in the quarter, and development services revenues were up 12%. Moreover, EBITDA was essentially the same as a year earlier, despite a 5% overall decline in revenues. The company outside of its Puerto Rico operations appears to be quite robust.
Most importantly, it is clear that Patheon's leadership is facing the realities of its problems and will do whatever it takes to put the company back on sound footing. It has announced plans to divest four marginal operations in Ontario and get out of the OTC manufacturing business. During the Q2 conference call executives said they will have a plan for dealing with the Puerto Rico problems by the end of the summer. It would not be surprising if that involves consolidating operations by closing at least one of the three manufacturing sites.
What has been critical for Patheon executives is the support of its financial backers. The recent financial restructuring not only raised equity and took out the commercial bankers; it brought in sophisticated and patient financial players with a high tolerance for risk. Undoubtedly JLL Partners, the private equity group that put the $150 million in new equity, and lenders GE Commercial Finance and J.P. Morgan Securities, were well aware of the issues facing Omnicef and the Puerto Rico operations. They appear to have judged that substantial pieces of the business are sound, and are enabling executives to deal with the unsound elements by providing a financial cushion.
© PharmSource 2007
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