Cambrex has posted a 55 per cent drop in operating profit in the first quarter, underpinned by the timing of orders, disruption to a customer’s supply chain and lower pricing of certain generic APIs.
Despite some improvements in the economy Cambrex issued a cautious forecast for the active pharmaceutical ingredient (API) market in 2010. Declining revenues, operating profit and margins in the first quarter appear to support the company’s cautious outlook.
Cambrex cited several specific areas which led to an eight per cent dip in net revenues. Primarily the company had issues related to long-term API supply agreements, with the timing of two orders and disruption of a client’s supply chain having a detrimental impact on results.
Furthermore, pricing pressures continue. In particular, Cambrex has renegotiated a three year agreement for its drug delivery technology at lower pricing levels and certain generic APIs have also been affected. These factors are the main causes of lower margins at Cambrex.
As a result of these issues net revenues at Cambrex fell year-on-year from $61.0m (€47.1m) to $56.1m. This, coupled to flat operating expenses, led to operating profit declining from $8.3m to $3.7m.
The year ahead
Challenging market conditions will continue for most of 2010, according to Steven Klosk, CEO of Cambrex, but decline in volumes and orders is temporary. Klosk expects business for some products to improve towards the end of the year and for this trend to continue into 2011.
In addition, there were some positive signs in the first quarter. Klosk said he is “encouraged by the increased level of requests for proposals for clinical stage projects, stronger generic API order trends and continued increases in sales of controlled substances”.
Cambrex also believes the acquisition of IEP, which strengthens its biocatalysis business, supports future growth. As it builds the business, which “is relatively small today”, Cambrex believes it can develop more cost-effective manufacturing processes.