Cambrex cost cutting beginning to pay

By Kirsty Barnes

- Last updated on GMT

Related tags: United states dollar, Cambrex

Cambrex' cost cutting resolve is starting to pay off for the firm,
who achieved an improved profitability in the fourth quarter of
2007, although sales are still stagnant.

For the quarter the company's operating profit rose to $4.0m from the $2.5m generated in the comparable prior year quarter. Pre-tax profit also edged up to $3.3m to $2.8m. During the period, sales of $69.8m were on paper 5.7 per cent higher than in the fourth quarter of 2006, although excluding the excluding the positive effect of the weakened US dollar, sales actually remained virtually flat. Cambrex said that when comparing the current quarter to the same quarter last year, excluding the currency impact, it "experienced lower custom development revenues primarily as a result of customers ramping up inventory during the fourth quarter of 2006 for expected product launches in 2007 and lower pricing on custom manufacturing".​ However, the decrease in demand for the above services was "offset by higher demand for a neurological active pharmaceutical ingredients (APIs), controlled substances and products based on our proprietary polymeric drug delivery technology",​ the firm added. Cambrex has been tightening its belt lately and this is reflected in the sales, general and administrative (SG&A) expenses which were reduced in the fourth quarter of 2007 to $12.3m, compared to $16.1m in the same period last year. The firm said the reduction was primarily due to significantly lower expenses at the corporate headquarters which have shrunk from $9.7m to $4.7m over the year due to restructuring activities. James Mack, chairman, president, and CEO of the firm added that Cambrex has also "dramatically"​ reduced its corporate overhead to a $17m run rate heading into 2008. The company is in the process of downsizing the corporate headquarters following the divestiture of its Bio Businesses - Research Bioproducts and Microbial Biopharmaceuticals - to Swiss contract manufacturer Lonza for $460m last February. Partly because of this restructuring, Cambrex was also hit by a $4.6m charge in the quarter. Other developments for the firm during the quarter include the completion of the acquisition of ProSyntest, an Estonian API business, which Cambrex is planning to use to grow its early-stage custom development pipeline and free up internal resources to focus on expanding proprietary technologies. Moreover, the company said its new finishing facility in Italy is now in the start-up phase, with the first APIs undergoing the validation process. Meanwhile, Mack said that during the quarter the company has now eliminated most of its "significant legal contingencies",​ for the settlement of a lawsuit related to the sale of its Rutherford Chemicals business. Cambrex sold the unit to Rutherford in 2003, but a year later Rutherford said it discovered that much of the infrastructure and equipment were defective, and also alleged that several of the facilities contained environmental hazards caused by Cambrex. In March 2005, Rutherford first contacted Cambrex about indemnifying it for the alleged warranty breaches and in April 2006, the firm filed a lawsuit against Cambrex. On 30 July the two companies finally entered into a settlement deal under which they both released each other from all claims asserted in the litigation.

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