Cambrex's Dose of Reality

Cambrex (NYSE: CBM  ) came forward with some unfortunate news last night that is likely to raise some questions about the dynamics of the biotech manufacturing market.

The company, which provides contract production and development services for pharmaceutical and biotech outfits, lowered its 2004 earnings guidance to between $0.90 and $1.00 per share from $1.10 to $1.20. Cambrex chalked up the cut primarily to customer delays and regulatory holdups for certain products.

Such delays are one of the hazards of the contract service business, and the firm's failure to factor in their possibility in its guidance, especially given its long history in the business, is disappointing. Still, customers and regulatory authorities are notoriously fickle, and Cambrex seems to expect to realize revenue from these projects in coming quarters, so the snags don't seem to be a huge deal.

More disconcerting, though, is Cambrex's comment concerning the long-term outlook for its biopharmaceuticals manufacturing segment: "The company is currently reassessing the expected rate of recovery and growth of the biopharma segment vs. previous long-term projections to determine if goodwill impairment might be necessary." No one is jumping for joy after reading that.

Cambrex insists there is increasing demand for biomanufacturing capacity, but it seems like some powerful competitors are horning in on the business. This was on display last week in Wyeth Pharmaceuticals' (NYSE: WYE  ) announcement that it will manufacture Genentech's (NYSE: DNA  ) Herceptin, a treatment for metastatic breast cancer.

With a competitor like Wyeth on the prowl, Cambrex may have more trouble snatching large deals. For now, despite the positive indicators for biotech financing, Cambrex's biopharma manufacturing outlook looks cloudy.

Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.