Patheon Restructures Canadian Manufacturing Operations

Toronto (Apr. 17)-Patheon, Inc. (www.patheon.com) plans to restructure its current network of six pharmaceutical manufacturing facilities in southern Ontario, Canada. The plan is part of the company’s strategy to focus on manufacturing prescription pharmaceutical products and to improve its profitability.

“This initiative represents a significant step forward in our strategy to improve the profitability of our business,” said Patheon CEO Riccardo Trecroce in a company release. “Our objective is to focus our resources and capital on the development and manufacture of prescription pharmaceutical products which represent higher-margin revenues while also improving capacity utilization and operational effectiveness at our sites.”

Divestiture of Niagara-Burlington operations

Patheon plans to divest the business related to its Niagara-Burlington operations, which provide commercial manufacturing of over-the-counter (OTC) products. The Niagara-Burlington operations consists of facilities in Fort Erie and Burlington Gateway and the commercial operations at Burlington Century. The sale will include the assets, including equipment, facilities, and land, at the Niagara and Burlington Gateway facilities. Third-party contracts will be assigned to the purchaser, subject to client approval. Patheon plans to retain its leased Burlington Century facility where its central quality control laboratory is based.

Collectively, the three sites serve 14 clients, manufacturing and packaging on their behalf about 60 products in several dosage forms, including tablets, liquids, and powders. Commercial manufacturing revenues at the three facilities were approximately $37 million in fiscal 2006, generating earnings before interest, taxes, depreciation, and amortization before repositioning costs of $2.6 million.

The 132,800-ft² facility in Fort Erie employs 250 people and the 22,800-ft² facility in Burlington Gateway has 80 employees. The 45,000-ft² facility in Burlington Century employs 20 in commercial manufacturing and also includes an 8000- ft² laboratory employing roughly 110 people who provide raw-material, finished-product, and microbiology testing for Patheon’s Canadian operations.

Restructuring of other Canadian sites

To improve capacity utilization and profitability of the remaining Canadian sites, Patheon plans to transfer substantially all commercial production and development services at its York Mills site in Toronto to its site in Whitby, Ontario, and some production to its sites in Mississauga, Ontario, Canada and Cincinnati, Ohio.

Patheon’s 160,000-ft² facility in Toronto, Ontario manufactures approximately 60 products on behalf of 15 clients and serves 30 clients with pharmaceutical development services (PDS). The 199,000-ft² Whitby site employs approximately 400 people.

The York Mills–Whitby consolidation initiative is expected to take up to two years to complete to allow time for regulatory approvals and to adapt the Whitby facility to accommodate the transferred production and PDS projects. After this process is completed, Patheon plans to close its York Mills facility. It expects that most, if not all, employees at York Mills will have an opportunity to transfer to Patheon’s Whitby site or to another site within the company. Patheon also plans to sell the land and building at the York Mills location.

The Whitby operations derives 63% of its revenues from prescription products and 37% from legacy OTC manufacturing contracts, primarily cold and flu medications, which Patheon acquired as part of its purchase of the site from Novartis Pharmaceuticals (Basel, Switzerland, www.novartis.com) in 2001. Patheon says its client intends to repatriate production of its OTC cold and flu medication to its own internal production sites in 2008.