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Patheon recently announced results for the second quarter ended April 30, 2009. Total revenues were $167.4M or 10.0% lower than the same period last year. Excluding currency fluctuations, current year second quarter revenues would have decreased by approximately 1.2%.

Operating income for the period increased to $13.4M from $3.3M in the same period last year. Included in current period operating income are $2.9M in expenses associated with the JLL Offer and $0.8M in repositioning expenses as compared to repositioning expenses of $8.3M in the prior year. The JLL Offer expenses consist primarily of fees for legal and financial advisors and Special Committee retainers and meeting expenses. Income from continuing operations of $1.8M improved significantly compared to a loss of $6.0M from the prior year and Adjusted EBITDA of $20.2M was down from $23.1M in the same quarter last year. All amounts are in U.S. dollars unless otherwise indicated.

"The continuing improvement in profit performance reflects the results of our ongoing restructuring activities and rigorous cost containment efforts. These improvements were achieved despite lower revenues due to the stronger U.S. dollar, some volume declines and ongoing expenses related to the JLL Offer," said Wes Wheeler, Chief Executive Officer and President of Patheon Inc.

Second Quarter 2009 Operating Results from Continuing Operations

Gross profit for the second quarter of 2009 increased by $2.1M to $42.4M. Gross profit margin increased to 25.3% from 21.7% in the prior year second quarter. Margin growth resulted from the improved cost structure and favorable foreign exchange impact on operating costs.

Selling, general and administrative costs were $28.2M or 1.8% lower than prior year. Favorable foreign exchange rates and cost structure improvements were partially offset by internal costs of $2.9M associated with the JLL Offer. Selling, general and administrative costs were also impacted by $0.5M of transitional expenses for the opening of the U.S. headquarters in North Carolina, which was primarily severance.

Repositioning expenses for the three months ended April 30, 2009 were $0.8M in connection with the ongoing shut down and transition of business out of the York Mills facility, which is expected to be completed by the third quarter of this fiscal year. During the three months ended April 30, 2008, the Company incurred $8.3M of repositioning expenses in connection with changes in executive management, a workforce reduction in Swindon and the manufacturing networks in Puerto Rico and Canada.

Operating income for the second quarter of 2009 increased to $13.4M or 8.0% of revenues from $3.3M or 1.8% of revenues in the same period last year as a result of higher gross profit, lower repositioning expenses and favorable foreign exchange partially offset by costs associated with the JLL Offer.

The income from continuing operations for the three months ended April 30, 2009 was $1.8M, compared with a loss of $6.0M in the same period last year. The loss per share from continuing operations, after taking into account the dividends on the convertible preferred shares, for the quarter was 2.1 cents compared with a loss of 6.6 cents a year earlier.

Second Quarter 2009 Highlights of Business Segment Results

Commercial Manufacturing - Revenues from commercial operations for the three months ended April 30, 2009 decreased by 10.6% to $135.2M. Had local currencies remained constant to prior year, commercial manufacturing revenues would have been approximately 1.7% lower than 2008.

North American commercial revenues were $67.0M or 7.2% less than 2008. Had the Canadian dollar remained constant to the prior year rates, North American revenues would have been approximately 5.3% lower than 2008. This reduction was primarily due to reduced customer demand for some products. The Company expected new product introductions would more than cover normal business erosion in the quarter, however, they were negatively impacted by product approval delays and slower prescription uptake for certain new products from the Whitby and Cincinnati operations. This was partially offset by higher revenue in the Puerto Rico and Toronto operations.

European commercial revenues were $68.2M or 13.6% lower than last year. Had European currency rates remained constant from the prior year, European revenues would have been approximately 1.9% higher than the same period of 2008. The primary drivers for the increase in local currency were stronger revenues from Swindon and Ferentino partially offset by lower volumes in Bourgoin.

Adjusted EBITDA from the commercial operations for the three months ended April 30, 2009 decreased by 7.1% to $19.6M. This represents an Adjusted EBITDA margin of 14.5% compared with 13.9% in the prior year. Had local currencies remained constant to prior year rates and after eliminating the impact of all foreign exchange gains and losses, commercial manufacturing Adjusted EBITDA would have been approximately $1.2M lower than 2008.

North American operations reported an Adjusted EBITDA increase of 8.2% to $6.8M. The improvement in Adjusted EBITDA was driven by improvements in Puerto Rico, partially offset by weakness in the Canadian operations. Although Puerto Rico reported significantly improved results versus prior year, it did generate a loss for the quarter due to operational issues.

European operations reported an Adjusted EBITDA decrease of 13.6% to $12.8M. This decrease was due to lower results in Bourgoin partially offset by better results in Swindon and Ferentino.

Pharmaceutical Development Services ("PDS") - PDS revenues for the three months ended April 30, 2009 decreased by 7.6% to $32.2M. Had the local currencies remained constant to prior year rates, PDS revenues would have been approximately the same as 2008. This reflects a slowdown in demand for development activity due to general market conditions.

Adjusted EBITDA from the PDS operations for the three months ended April 30, 2009 decreased by 9.1% to $8.7M. Had local currencies remained constant to prior year rates and after eliminating the impact of all foreign exchange gains and losses, PDS Adjusted EBITDA would have been approximately $0.7M lower than 2008.

Second Quarter YTD 2009 Operating Results from Continuing Operations

Revenues for the period were $314.6M, which was down 10.2% from the prior period. Excluding currency fluctuations, current year revenues would have decreased by approximately 2.4%. Revenues from commercial manufacturing decreased 11.3% to $252.9M from $285.2M in the prior period. PDS also saw a reduction in revenues of 5.2% to $61.7M from $65.0M in the prior period.

Gross profit for the period increased 10.3% to $73.2M. Gross profit margin for the period increased to 23.3% from 18.9% in the first half of 2008. Margin growth resulted from favorable foreign exchange impact on operating costs, improved cost structure and lower inventory reserves.

Selling, general and administrative costs were $1.8M or 3.1% lower than the prior year. Favorable foreign exchange rates and cost structure improvements were partially offset by higher marketing costs as well as internal costs of $3.4M associated with the JLL Offer. Selling, general and administrative costs were also impacted by $1.7M of transitional expenses for the opening of the U.S. headquarters in North Carolina, which included severance and relocation expenses.

Repositioning expenses for the six months ended April 30, 2009 were $1.3M in connection with the ongoing shut down and transition of business out of the York Mills facility. During the first half of 2008, the Company incurred $10.6M of expenses in connection with changes in executive management, and a workforce reduction in Swindon and the Puerto Rico and Canadian manufacturing networks.

Operating income for the six months ended April 30, 2009 increased to $17.4M or 5.5% of revenues from a loss of $0.6M or (0.2)% of revenues in the same period last year as a result of higher gross profit, lower repositioning expenses and favorable foreign exchange partially offset by costs associated with JLL Offer.

The income from continuing operations for the six months ended April 30, 2009 was $0.5M, compared with a loss of $17.6M in the same period last year. The loss per share from continuing operations, after taking into account the dividends on the convertible preferred shares, for the six months ended April 30, 2009 was 7.5 cents compared with a loss of 19.4 cents a year earlier.

Update on Announced Intention by JLL to Make an Unsolicited Offer

On March 11, 2009, JLL announced by way of press release that it was commencing its unsolicited offer (the "JLL Offer") to acquire any or all of the outstanding restricted voting shares of Patheon that it does not already own at a price of US$2.00 per share in cash and filed an Offering Circular on SEDAR. In response to JLL's Offer, 33,667,752 Restricted Voting Shares in the capital of Patheon have been deposited and taken up by JLL as of 6:00pm on June 1, 2009, the second expiry date of JLL's Offer. The offer has been further extended and will now expire on June 15, 2009. JLL now holds 35,317,752 outstanding restricted voting shares or 38.7% of the outstanding amount.

About Patheon
Patheon Inc. is a leading global provider of contract development and manufacturing services to the global pharmaceutical industry. Patheon prides itself in providing the highest quality products and services to more than 300 of the world's leading pharmaceutical and biotechnology companies. Patheon's services range from preclinical development through commercial manufacturing of a full array of dosage forms including parenteral, solid, semi-solid and liquid forms. Patheon uses many innovative technologies including single-use disposables, liquid-filled hard capsules and a variety of modified release technologies. Patheon's comprehensive range of fully integrated Pharmaceutical Development Services includes pre-formulation, formulation, analytical development, clinical manufacturing, scale-up and commercialization. Patheon can take customers direct to clinic with global clinical packaging and distribution services and Patheon's Quick to Clinic™ programs can accelerate early phase development project to clinical trials while minimizing the consumption of valuable API. Patheon's integrated development and manufacturing network of ten facilities, and six development centers across North America and Europe, strives to ensure that customer products can be launched with confidence anywhere in the world. For more information, visit: www.patheon.com.

Use of Non-GAAP Financial Measures

References in this press release to "Adjusted EBITDA" are to income (loss) from continuing operations before repositioning expenses, interest expense, foreign exchange losses reclassified from other comprehensive income, refinancing expenses, gains and losses on sale of fixed assets, gain on extinguishment of debt, income taxes, asset impairment charge, depreciation and amortization. "Adjusted EBITDA margin" is Adjusted EBITDA as a percentage of revenues.

Since Adjusted EBITDA is a non-GAAP measure that does not have a standardized meaning, it may not be comparable to similar measures presented by other issuers. Readers are cautioned that these non-GAAP measures should not be construed as alternatives to income (loss) determined in accordance with GAAP as indicators of performance. Adjusted EBITDA is used by management as an internal measure of profitability. The Company's major credit facilities also have certain covenant calculations that are based on Adjusted EBITDA. The Company has included these measures because it believes that this information is used by certain investors to assess financial performance of the Company, before non-cash charges and large non-recurring costs. Please see Note 5 of the consolidated interim financial statements for an Adjusted EBITDA bridge.

SOURCE: Patheon Inc.