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Catalent Q2: Softgel growth blighted by Beinheim plant suspension

Dan Stanton

By Dan Stanton+

10-Feb-2016
Last updated on 11-Feb-2016 at 13:11 GMT2016-02-11T13:11:33Z

France's ANSM ordered a suspension of production at Catalent's Beinheim plant last year after misplaced capsules were discovered in batches, allegedly due to human interference. Image: iStock/gmutlu
France's ANSM ordered a suspension of production at Catalent's Beinheim plant last year after misplaced capsules were discovered in batches, allegedly due to human interference. Image: iStock/gmutlu

Suspension of operations at a French softgel facility reduced Catalent’s second quarter revenues by around $21m, but the firm expects full production to restart in March.

In November , France’s regulatory body ANSM hit Catalent’s Beinheim softgel manufacturing site – located about 40km north of Strasbourg – with a notice of suspension after out-of-place capsules were discovered across several product batches.

The contract development and manufacturing organisation (CDMO) believed the misplaced capsules were due to intentional human interference and has subsequently filed a criminal complaint, but the halt in production has cost upwards of $21m in lost revenues, according to Catalent.

“Beinheim reduced softgel's expected top line by $21m and EBITDA by $14m,” said CFO Matthew Walsh, during a call to discuss second quarter FY 2016 results yesterday. He added the EBITDA impact included a one-time cost of $4m.

This, along with lower demand for certain higher margin modified release offerings, offset an increased demand for certain softgel products in the firm’s Oral Technologies business, resulting in sector sales of $255m, down 23% for the quarter, year-on-year.

Begin again

But the firm is confident the problems at Beinheim will be resolved, and – according to CEO John Chiminski – full production is expected to restart by mid-March.

“Based on the productive, collaborative and constructive meetings that we've had with the ANSM that started in December, I would say that they've given us significant clarity and a roadmap to what we needed to do to restart the facility,” he told investors.

He added the date would depend on an additional inspection. The malicious act precipitated the ANSM's action, but the French regulatory body found other areas where “they wanted us to make improvements in both how we alert the authorities to these type of acts, how we assess specific deviations, and corrective actions and so forth.”

However, Jefferies analyst David Windley noted that despite management’s expectation to be back to full operation by mid-March, “given the regulatory and client coordination, we think it prudent to take the conservative side of that.”

Liability insurance

All of the key products made at the site are under contract, Catalent said and so numerous customers have been affected by the production halt. GlaxoSmithKline, for example, was prompted to delay the launch of its androgenic alopecia drug Zagallo (dutasteride) in Japan until it can secure supplies of the capsulated product.

The firm was asked whether it would be liable for any ruptures in supply.

“The contract provisions include limitations of liability, which is Catalent’s standard across our network,” Walsh said. “That's one way of protection, if you will. We also have insurance coverage.”

Total sales for the second quarter across all operations were flat at $455m, while the bottom line dropped 33% to $31m, compared to the same period last year.

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