Patheon Announces Plans to Restructure Canadian Site Network

Website: www.patheon.com    

TORONTO, April 17 /CNW/ - Patheon Inc. (TSX: PTI) announced today that as part of its strategy to focus on developing and manufacturing prescription pharmaceutical products and to improve the Company's profitability, it plans to restructure its current network of six pharmaceutical manufacturing facilities in southern Ontario, Canada.
    
Patheon plans to divest its Niagara-Burlington Operations business which is focused on the commercial manufacturing of over-the-counter ("OTC") products. The Niagara-Burlington Operations consist of facilities in Fort Erie and Burlington Gateway and the commercial operations at Burlington Century.

The sale will include the assets, including equipment, facilities and land, at the Niagara and Burlington Gateway facilities. Third-party contracts will be assigned to the purchaser, subject to client approval. It is anticipated that the purchaser will assume responsibility for substantially all of the commercial manufacturing staff at all three locations. The Company plans to retain its leased Burlington Century facility where its central quality control laboratory is also based. The Company has retained PriceWaterhouseCoopers to manage the sales process.

To improve capacity utilization and profitability of the remaining Canadian sites, Patheon also plans to transfer substantially all commercial production and development services at its York Mills site in Toronto to its site in Whitby, Ontario, and some production to its Mississauga and Cincinnati
sites. Following completion of this process, expected to take up to two years, the Company plans to close its York Mills facility. The Company expects that most, if not all, employees at its York Mills facility will have an opportunity to transfer to its Whitby site or to another site within the
Patheon network. The Company plans to sell the land and building at the York Mills location.
    
"This initiative represents a significant step forward in our strategy to improve the profitability of our business," said Riccardo Trecroce, Chief Executive Officer, Patheon Inc. "Our objective is to focus our resources and capital on the development and manufacture of prescription pharmaceutical products which represent higher-margin revenues, while also improving capacity utilization and operational effectiveness at our sites."

"The OTC market is a highly competitive and consumer-driven business," Mr. Trecroce said. "We believe that another company with a strategic focus on this specialized market will be better positioned to grow these high-quality, well-established operations more profitably."
    
"The transfer of production from our York Mills to our Whitby facility is expected to improve profitability by reducing excess manufacturing capacity, reducing anticipated capital expenditure requirements at York Mills, and accelerating the shift towards a higher-margin mix of business at Whitby," Mr. Trecroce explained.

"Meeting the needs of our clients for the secure supply of their products will be of paramount importance as we implement these initiatives," said Nick DiPietro, President and Chief Operating Officer of Patheon. "We will work closely with our clients, developing plans to ensure the uninterrupted supply of their products as we work through the process. Similarly, employment continuity for our employees also will be a key priority in our negotiations with potential purchasers of the Niagara-Burlington Operations business and in the transfer of business from York Mills to Whitby."
 
Niagara-Burlington Operations Divestiture
 
Patheon's Niagara Burlington Operations comprise: 1) the Fort Erie facility, a 132,800-square-foot facility in Fort Erie, Ontario, employing  approximately 250 people; 2) the Burlington Gateway facility, a 22,800-square- foot site with approximately 80 employees; and the commercial operations at Burlington Century, a 45,000-square-foot site employing 20 people in commercial manufacturing. The Burlington Century facility also comprises an 8,000-square-foot laboratory employing approximately 110 people who provide  raw material, finished product and microbiology testing for the Canadian operations. Patheon intends to retain Burlington Century as part of its network. Collectively, the three sites serve 14 clients, manufacturing and packaging on their behalf about 60 products in a range of dosage forms, including tablets, liquids and powders. Commercial manufacturing revenues at the three facilities were approximately $37 million in fiscal 2006, generating EBITDA before repositioning costs of approximately $2.6 million.
 
York Mills-Whitby Initiative
 
Patheon's York Mills site is a 160,000-square-foot facility located in Toronto, Ontario, employing approximately 215 people. The facility currently manufactures approximately 60 products on behalf of 15 clients, and serves about 30 clients with pharmaceutical development services. Patheon plans to transfer substantially all of the commercial manufacturing and PDS business to its facility in Whitby, Ontario, a 199,000-square-foot site, employing approximately 400 people, and some production to its Mississauga and Cincinnati sites. Whitby Operations currently derives approximately 63% of its revenues from prescription products, and 37% from legacy OTC manufacturing contracts, primarily cold and flu medication, acquired as part of Patheon's purchase of the site from Novartis Pharmaceuticals in 2001. As previously communicated, the client intends to repatriate production of its OTC cold and flu medication to its own internal production sites in 2008. The repatriation, combined with this initiative, will accelerate the shift towards higher-margin Rx revenues and a more diversified client base at Whitby. It will also provide capacity to grow the Company's PDS operations in Canada.

The York Mills-Whitby consolidation initiative is expected to take up to two years to complete, to allow time for regulatory approvals and to adapt the Whitby facility to accommodate the transferred production and PDS projects. It is expected to be accretive to earnings in fiscal 2009.
 
     Caution Concerning Forward-Looking Statements
 
This news release contains forward-looking statements which reflect management's expectations regarding Patheon's future growth, results of operations, performance (both operational and financial) and business
prospects and opportunities. Wherever possible, words such as "plans", "expects" or "does not expect", "forecasts", "anticipates" or "does not anticipate", "believes", "intends" and similar expressions or statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved have been used to identify these forward-looking statements. Although the forward-looking statements contained in this press release reflect management's current assumptions based upon information currently available to management and what management believes to be reasonable assumptions, Patheon cannot be certain that actual results will be consistent with these forward-looking statements. Forward-looking statements necessarily involve significant known and unknown risks, assumptions and uncertainties that may cause Patheon's actual results, performance, prospects and opportunities in future periods to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things: the inability to close the offering as a result of the failure to achieve the closing conditions, including the receipt of regulatory or shareholder approvals on terms acceptable to Patheon and the subscribers; the market demand for client products; dependence on key clients; the ability to identify and secure new contracts; regulatory matters,
including compliance with pharmaceutical regulations; management of expanded operations; international operations risks; currency risks; competition; product liability claims; integration of new operations; financing risks; and interest rate risks. Although Patheon has attempted to identify important risks and factors that could cause actual actions, events or results to differ materially from those described in the forward-looking statements, there may be other factors and risks that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward- looking statements will prove to be accurate, and results and future events could differ materially from those anticipated in such statements.

Accordingly, readers should not place undue reliance on forward-looking statements. Except as otherwise stated, these forward-looking statements are made as of the date of this news release and, except as required by law, Patheon assumes no obligation to update or revise them to reflect new events or circumstances.
 
About Patheon
 
Patheon (TSX:PTI; www.patheon.com) is a leading global provider of drug development and manufacturing services to the international pharmaceutical industry. Patheon operates a network of 14 facilities in the United States, Canada and Europe, employing more than 5,300 people and serving a client base of more than 250 pharmaceutical and biotechnology companies.
 

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For further information: Mr. Riccardo Trecroce, Chief Executive Officer,
Patheon Inc., Tel: (905) 812-6877, Fax: (905) 812-6613, Email:
rtrecroce@patheon.com; Mr. Nick DiPietro, President and Chief Operating
Officer, Patheon Inc., Tel: (905) 812-6767, Fax: (905) 812-6613, Email:
ndipietro@patheon.com; Mr. John Bell, Chief Financial Officer, Patheon
Inc., Tel: (905) 812-6812, Fax: (905) 812-6613, Email:
john.h.bell@patheon.com; Shelley Jourard, Director, Corporate
Communications, Patheon Inc., Tel: (905) 812-6614, Fax: (905) 812-6613, Email:
sjourard@patheon.com/

Posted: April 2007


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