Pharmaceutical Technologist - November 2007 - (Page 42)

Q&A // *Riccardo Trecroce Getting back to basics Patheon re-evaluated its whole business strategy after a decline in its performance at the end of 2006. CEO, Riccardo Trecroce, spoke to Pharmaceutical Technologist about the company’s reinvention. Patheon has experienced significant challenges in the past 2 years, including disappointing financial results that led to a review of strategic alternatives in September 2006. What were the events that led the company to launch this review? Our Canadian, Cincinnati and European operations performed well in 2006, and have continued to grow in 2007. However, revenues and earnings fell significantly at our Puerto Rico operations, primarily because of the loss of patent protection on a couple of products, and losses of market share on other products. These setbacks affected Patheon as a whole. With the decline in earnings and related pressure on our financial covenants under our previous North American loan agreement, a review was essential. This process was successfully completed in April, when we recapitalized the company with financing from JLL Partners, and new debt financing with JP Morgan and GE Capital. During — and since — that time, we also have achieved many other positive developments. For example, we have expanded our site in Swindon (UK), which will be dedicated to manufacturing a new lyophilized product being developed by Janssen Cilag, an affiliate of Johnson & Johnson. We have completed two major “carve-out” projects — transfers of multiple products into Patheon’s facilities in France and Italy from two clients who are consolidating their own networks. Our pharmaceutical development services business has also been successful with the approval and launch of three new products on behalf of our clients in 2006 and one more so far this year. We have completed 12 regulatory and more than 150 client audits to date in 2007. Our client base has continued to grow, and now includes more than 250 global pharmaceutical, specialty pharma and biotech companies. Although we are still facing some challenges in Puerto Rico, we are focused on restructuring those operations to eliminate losses as quickly as possible. We are also starting to make some progress in securing new business in Puerto Rico, identifying new business opportunities that could contribute to results as early as the end of 2008. Our objective is to return these operations to breakeven before the end of fiscal 2008, through a combination of cost reduction/efficiency improvements and bringing in new business. Our disappointing earnings performance to date in Puerto Rico has been attributable to declines in high volume products, rather than to issues relating to location. We are confident that when we successfully diversify our client and product base in Puerto Rico, we will have a profitable operation in a low tax rate jurisdiction. In March 2007, JJL partners came to the rescue with a US$150 million investment. Why do you think they have faith in Patheon? JLL Partners Inc. is a private equity investor with $3.2 billion in capital under management. They are sophisticated investors looking for strong long-term returns. They see real value in Patheon, based on 42 November 2007 l pharmaceutical technologist

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Pharmaceutical Technologist Contents Editor's Comment News Morpheus Feeling the Pressure Legal Crusaders The Holy-Grail of Start-Up Biotech Special Feature Q&A

Pharmaceutical Technologist - November 2007

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