Catalent plant suspension takes financial toll

Softgel

After a nearly 6-month-long suspension, Catalent has restarted operations at a softgel plant in France where a “bad actor” had sabotaged them. But the episode played havoc with Catalent’s financial results last quarter and will have some impact throughout this year. Otherwise, the pharma services company saw some strong results.

Catalent ($CTLT) last week reported Q3 2016 revenue of $438 million, which was off by 2% compared to the same time last year. Adjusted diluted earnings per share of 20 cents fell short of analysts’ expectations by 11 cents a share, while revenue beat them by about $11 million.

"Our third quarter operational performance was impacted by the challenges we faced in our oral technologies segment related to the Beinheim facility temporary suspension,” CEO John Chiminski said in a statement. “We are very pleased to announce that on April 28th, the ANSM reinstated the Beinheim GMP license.While it took longer than we had anticipated to bring the facility back online, we remain encouraged by the underlying trends across our softgel business.”

The company reported that revenue in its development and clinical services unit grew 9% to $112.6 million, while revenue in its medication delivery solutions operation grew 12% to $68.3 million.    

French regulator ANSM had Catalent suspend operations at the 92,000-square-foot Beinheim plant in November after the company reported that it suspected someone in the softgel capsule plant had sabotaged products. French authorities launched a criminal probe after a series of incidents within the facility involving out-of-place capsules, which peaked in July. No arrest was made, but Catalent put a number of new protections in place to ensure the safety of its products

CFO Matthew Walsh told analysts in a call last week that while the plant is operating, it will continue to ramp up through the end of the fiscal year. “So we'll be gradually bringing the facility back online,” Walsh said according to a transcript of the call from Seeking Alpha. “So you shouldn't think about it as a flick of a switch and everything is sort of back to pre-November levels.”

The production shutdown forced Catalent to move some business to some of its 11 other softgel plants, and the episode cost it some customers, but not many. “But generally in the dosage forms that we operate in we have very, very sticky customers,” Chiminski said on the call. “So … there is not a customer switching issue that we are having here or customer retention issue.”

The company did lower some of its forecasts for the year as a result of the plant shutdown and operational changes there. It is now projecting adjusted EBITDA of $400 million to $410 million instead of $410 million to $435 million. Its guidance for adjusted net income is now $145 million to $160 million, compared to the previous range of $185 million to $205 million.

- here’s the earnings release 
- here’s the Seeking Alpha transcript (reg. req.)    

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