As the biotech industry blooms, Cambrex (NYSE:CBM), a provider of drug manufacturing services and research products, should logically be enjoying good times. Instead, the East Rutherford, N.J.-based company has been floundering. In the final analysis, Cambrex may be best served by cutting its losses.
Cambrex announced today that it has retained Bear Stearns (NYSE:BSC) to evaluate strategic alternatives. The Biopharma segment, which provides biopharmaceutical process development and manufacturing, could be on the chopping block, given its recent travails. Cambrex indicated in the same press release that it will record an $85 million to $100 million charge in 2005's fourth quarter, mostly due to lower long-term profitability projections for the Biopharma unit. The charge doubtlessly stems from client NabiPharmaceuticals' (NASDAQ:NABI) revelation in November that its StaphVAX experimental staph infection vaccine failed to meet its primary endpoint in phase 3 trials.
Today's disclosure comes just weeks after Cambrex disclosed that it would scuttle plans to transform itself into a specialty therapeutics outfit, and that then-CEO John Leone would step down. At that time, Cambrex noted that it would concentrate resources on developing business in its Bioproducts segment, which focuses on research products. Meanwhile, Biopharma and the company's third unit, Human Health, would receive "appropriate resources" to keep their market positions.
The Biopharma unit's poor performance appears to defy larger trends. A recent report on biomanufacturing from research group BioPlan Associates projects that biopharmaceutical manufacturing will grow 48% over the next five years. But a closer analysis shows why Cambrex is hurting.
First, large biotechs seem to be expanding their own capacity rather than outsourcing to firms like Cambrex. Genentech (NYSE:DNA) will add 200,000 more liters to its production capacity by 2009, while Amgen (NASDAQ:AMGN) is currently building a Rhode Island plant that is expected to be the world's largest mammalian protein manufacturing facility.
Second, there is anecdotal evidence that foreign competition is gaining ground. Bristol-Myers Squibb (NYSE:BMS), for example, announced in June that it had signed a biologics manufacturing agreement with South Korean venture Celltrion.
Finally, the BioPharma segment was probably not helped by former management's focus on remaking the company into a specialty therapeutics firm. Under the circumstances, the company has made the right decision in reevaluating its options. For now, though, investors shouldn't expect much from Cambrex.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
