Credit: Shutterstock photoA s a manufacturing partner with Big Pharma, Cambrex has developed the right ingredients to ride the crest of the blockbuster drug wave.
Cambrex ( CBM ) is a life sciences company that helps large pharmaceutical and biotech companies, as well as emerging and generic drug makers, develop processes to manufacture clinical and commercial quantities of drugs. It provides small molecule products to accelerate the development and commercialization of therapeutics.
The company specializes in active pharmaceutical ingredients, or APIs, which go into pharmaceutical products.
Its lineup also includes advanced pharmaceutical intermediates, which are raw materials and advanced drug delivery products for branded and generic drugs.
Healthy Partnership
In addition, Cambrex develops, manufactures and distributes commercial quantities of cGMP controlled-substance APIs for a variety of medical indications. (CGMP means "current good manufacturing practices.") It also offers custom API development and manufacturing services for toxicology studies, clinical studies and commercial supply. Other services include process development, analytical development and safety assessments.
While Cambrex sells its products and services to a diverse group of several hundred customers, biotech giantGilead Sciences ( GILD ) is its biggest customer, accounting for 24% of consolidated sales in 2014 and 18.3% of sales in 2013.
First Analysis Securities analyst Steven Schwartz says that Cambrex has a supply agreement with Gilead to produce the APIs for its blockbuster hepatitis C drug, Harvoni, which was approved in the U.S. and Europe in the fourth quarter of 2014; and Harvoni's predecessor hepatitis C drug, Sovaldi, approved in the U.S. and Canada in 2013 and in Europe last year.
Cambrex gets paid according to contracts on a price-per-volume basis, Schwartz says, based on cumulative volume ordered, with adjustments for changes in certain high-volume, volatile-price raw materials.
The company's relationship with Gilead to produce the APIs for its hepatitis C drugs has helped Cambrex deliver double- or triple-digit profit gains in all but one of the past seven quarters.
During this year's first quarter, earnings surged more than 600% from the prior year to 29 cents a share. Sales gained 17% to $77.5 million.
"The relationship with Gilead has been the biggest growth driver," Schwartz said.
Cambrex, which was unavailable to comment for this article, might be preparing to gain even more mileage from the Gilead accord.
In February, the company announced that it has initiated the second major expansion of its Charles City, Iowa, facility in less than three years.
In a statement, Cambrex said, "Strong continued growth in demand for the company's active pharmaceutical ingredient contract manufacturing capabilities is driving the need for more capacity."
The announcement may have sparked investor attention. Cambrex's stock, which trades near 44, has roughly doubled so far this year.
"Investors appear to be connecting the capacity expansion with additional volumes to be delivered around Gilead's commercial or pipeline opportunities," Schwartz said. "They expect the added capacity to be profitable for Cambrex."
The pipeline of new drug development is "solid" right now, Schwartz says. As Big Pharma firms develop new drugs and put them through Food and Drug Administration trials, they try to find the most efficient way to produce APIs.
In a filing with the Securities & Exchange Commission, Cambrex said that big drug firms might outsource the development and manufacturing of a drug substance to access new technologies or added capacity, or to ensure multiple sources of supply.
Meanwhile, many emerging pharmaceutical and generic drug companies outsource all process development and manufacturing.
"Cambrex maintains a competitive edge in the CMO (contract manufacturing organization) business in part from its history of operating without any issues," Schwartz said. "Cambrex has generally avoided issues with the FDA, EMEA (European Medicines Agency) and DEA (Drug Enforcement Administration) at its production facilities, which reflects lower supply risk to its customers. For the most part, Cambrex has an excellent record in that regard."
Cambrex makes the occasional buyout to broaden its reach. In November 2010 it acquired a 51% equity stake in Zenara Pharma, a Hyderabad, India-based pharmaceutical company focused on the formulation of final-dosage-form products. In May 2014, Cambrex purchased the remaining 49% interest in Zenara.
In a press release, Cambrex said that the deal positions it as "one of the leading global suppliers" to the nicotine replacement therapy market, "providing both active pharmaceutical ingredients and finished dosage form products."
The deal also created the opportunity to integrate Cambrex's API and drug delivery capabilities with Zenara's broad range of formulation and finished dosage form capabilities, the company added.
Bullish Outlook
Cambrex is expected to continue to see strong growth in coming quarters and years. Analysts polled by Thomson Reuters expect full-year 2015 earnings to grow 29% to $1.72 a share. They see a 23% gain in 2016 and a 30% increase in 2017.
Cambrex has 15 active late-stage clinical projects, CFO Gregory Sargen said on the company's Q1 conference call.
Of the 15 active late-stage projects, the company estimates that four have the potential to generate more than $10 million in annual API revenue for Cambrex at maturity. Eight could generate between $5 million and $10 million, and three could generate less than $5 million, Sargen said.
Cambrex is a part of IBD's Medical-Products industry group, which ranks No. 34 out of 197 industries tracked.
It leads the group with the highest possible Composite Rating of 99. Other highly rated members of the group includeInogen (INGN,) which has a Composite Rating of 98; andAbiomed ( ABMD ), which has a Composite Rating of 97.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
