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Cambrex strips itself to the core with sale of major units

By Kirsty Barnes, 26-Oct-2006

Related topics: Excipients, raw materials and intermediates, Processing equipment, APIs (active pharmaceutical ingredients), Processing

Cambrex has stripped itself to the core after selling two of its three business units and two further manufacturing facilities this week.

The major shake up was instigated by the firm after it decided to 'consider its strategic alternatives' in order to make a financial comeback.

In the largest acquisition in its company history, Swiss contract manufacturer Lonza bought both Cambrex's Bioproducts and its Biopharma segments for $460m (€367m) in cash in a deal expected to close in 90 to 120 days.

 

Lonza is already a big player in the biopharma arena, however, the purchase of the Bioproducts business is the company's fist foray into this field.

 

It is clear why Cambrex chose to sell its Baltimore-based Biopharma unit - the firm was crushed by a $140.3m loss in Q4 of 2005 and the bleed from the Biopharma unit was blamed for much of the company's woes.

 

The Biopharma unit has struggled in its failure to offset the volume reduction resulting from the loss of a major contract in 2003 between Cambrex and Transkaryotic Therapies (TKT) to manufacture the drug Replagal, after its approval was rejected by the Food and Drug Administration (FDA).

 

The unit also suffered particularly from news last November from its client Nabi Pharmaceuticals that its StaphVax vaccine did not appear to prevent Staph infections in a phase III study involving dialysis patients, ceasing the development program of the vaccine.

 

Indeed, the current tendency of big biotech to expand its self-reliance and capacity, rather than opt for the contract biopharmaceutical manufacturing services that companies such as Cambrex offer, has not helped either.

 

"The poor performance of the Biopharma unit is dragging the company's profit margin down," Luke Beshar, executive vice president and CFO of Cambrex told Outsourcing-Pharma.com earlier this year.

 

"This unit has a very fixed high cost base, 70 cents in every sales dollar drops to the bottom line, so when sales are down in this segment, it has a very big impact on our margin."

 

On the other hand Cambrex's Bioproducts unit, which includes biotech research products and therapeutic cell culture media, as well as contract cell therapy and testing services, was a profitable business and performed well in the company's second quarter this year due to "higher sales in most product categories," with the exception of therapeutic cell culture media, due to "seasonal downturn and timing of shipments," said Beshar at the time of the results announcement.

 

Even though the business was profitable, the sale will not really come as a surprise to the industry, Robert Thomson director of Investor Relations at Cambrex told In-PharmaTechnologist.com.

 

"This market area has been very active with mergers and acquisitions over the past few years, with industry players that are much bigger than us, such as Fisher Scientific, Sigma-Aldrich and Invitrogen, having been very aggressive in buying smaller businesses such as ours," he said.

 

"It was getting hard to compete and it became a case of either grow ourselves or sell the business - which we did - as we knew we could command a good price in the current market."

 

The news of the Lonza's purchases came a day after Cambrex said also intends to sell two the loss-making facilities in its remaining Human Health segment to Luxembourg-based firm International Chemical Investors.

 

The facilities, located in Cork, Ireland and Landen, Belgium, manufacture small molecule active pharmaceutical ingredients (API) and advanced intermediates and reported combined sales of $40.4m and an operating loss of $29.8 m during 2005.

 

"The products being manufactured at these sites are more mature and therefore subject to fierce competition," said Thomson.

 

"In addition the facilities are in need of substantial expenditures, so we wouldn't have seen a positive cash flow from the businesses for a couple more years."

 

It is for these reasons that Cambrex decided it was time to sell.

 

"The plants were facing tough headwinds and were deemed as no longer strategic our business," Thomson added.

 

"The new and leaner Human Health segment will now have an increased profit margin."

 

Cambrex said it believes, however, that the new owners, who plan to keep the plants fully functional, will be successful in turning the flagging businesses around.

 

After the clearout Cambrex is now left with three main facilities in Charles City, Iowa and Karlskoga, Sweden, which both undertake contract process development services for branded drugs for large pharma firms; as well as its generics production plant in Milano, Italy; and a smaller technology centre in Brunswick, New Jersey, that makes small quantities of commercial APIs.

 

The firm said it will now focus particularly on streamlining its three large facilities where it has the strongest market positions, with technologies such as high potency manufacturing and tastemasking, and proprietary products including Drug Enforcement Agency (DEA)-controlled substances and niche generic APIs.

 

For the time being at least Thomson said that Cambrex is not planning to sell any more aspects of its business, nor is it planning on making any site acquisitions.

 

"Instead we will focus on strengthening what we now have, while looking to make small bolt-on acquisitions with new technologies that are a synergistic fit."

 

In addition, James Mack, chairman, president and CEO of Cambrex said: "We will also now be working to aggressively reduce our corporate overhead in light of the decrease in both the size and complexity of Cambrex's operations."

 

The money gained from all the sales will be used to repay all outstanding debt under its existing credit facility and to help fund a special dividend to stockholders.