09/09/2011 09:57 EDT | Updated 11/09/2011 05:12 EST

Patheon to restructure its operations in Burlington, Ont., in cost-saving move

TORONTO - Contract drug manufacturer Patheon Inc. (TSX:PTI) may spin off or sell its packaging facility in Burlington, Ont., as part of an ongoing restructuring of global operations intended to return the company to profitability.

Patheon CEO James Mullen told analysts and media Friday that the Burlington packaging operation has had "modest" revenue that will sustain its current workforce for now, but that it hasn't been a core operation.

"I think the competitors in that space have gotten larger and larger and we are just not at a scale to compete without an acquisition and we don't feel that is a good idea, at least in the near term," Mullen said on a conference call.

"What we look to do is either spin that out or sell it to a third party."

Mullen didn't disclose how many employees Patheon has in Burlington.

He emphasized that quality control lab jobs currently done in Burlington will move to the company's Toronto factory, which is within commuting distance for many people.

As for the packaging operations, Mullen said "there is sufficient business going through there today and contracts in place that will keep folks busy for some time to come, so I'm not very worried about the employment there in the short term.

"In terms of when we might likely have anything to announce, it's just completely impossible to predict because we haven't had a single discussion with anybody yet. This is really the first discussion and announcement of that activity."

He said the Burlington facility has a lease that expires in 2014.

The Toronto-based company also announced it has received indications of interest in its Swindon, U.K., manufacturing site, which produces highly specialized products known as sterile powdered cephalosporins.

Swindon also has a more generalized container filling operation that can be done more efficiently at one of the company's sites in Italy.

Patheon said it wasn't planning to sell its U.K. pharmaceutical development services. It has begun to transfer its European headquarters from Zug, Switzerland to its continuing U.K. operations — a previously announced move.

The financial impact of the consolidations won't be material and are expected to reduce costs, the company said Friday.

Mullen told analysts on a conference call that Patheon is continuing to adjust its operations to put more resources into pharmaceutical development services, or PDS, which have more potential than contract manufacturing and packaging.

Patheon's announcement came in its latest financial report, which showed the company reduced its third-quarter loss as it benefited from higher revenue and a large tax break.

The company reported a US$700,000 net loss attributable to restricted voting shareholders, including $200,000 from discontinued operations. That compared to a loss of $3 million a year earlier, including discontinued operations.

The loss for the three months ended July 31 amounted to 0.6 cents per share, an improvement from a loss of 2.3 cents per share a year earlier. However, a $2.7-million income tax benefit reduced Patheon's loss from continuing operations. Removing the impact of income taxes, Patheon's third-quarter loss would have increased to US$3.2 million from US$1 million.

Revenue for the contract drug maker, reported in U.S. currency, rose to $172.7 million from $163.3 million. The company said the improvement was almost completely due to the appreciation of the euro against the U.S. dollar and revenue would have been virtually unchanged without the currency fluctuation.

Patheon shares fell five cents to $1.55 on the Toronto Stock Exchange.