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Cambrex Signs New Supply Agreement

Zacks Equity Research

Cambrex Corporation (CBM) recently announced that it signed a key deal with an undisclosed new customer to supply an active pharmaceutical ingredient during 2013 and 2014. This will aid the customer in conducting a phase III program for one of its candidates.

Cambrex will produce and deliver phase III and pre-launch quantities of the candidate, as per the agreement.

The deal is significant for Cambrex as it is expected to boost 2013 revenues by more than $20 million. The deal has the potential to contribute a higher amount to 2014 revenues depending on regulatory developments, the time of Cambrex’s capacity expansion related to the opportunity and the achievement of product delivery milestones.

Cambrex stated that the deal will be beneficial if the phase III program is not terminated or cut short. The non-exclusive supply agreement will not affect 2012 sales or revenues. The deal is till 2014, and does not include any further commitments beyond that period.

We note that Cambrex has revised its 2012 capital expenditure guidance, on the basis of the upcoming capital investment related to this agreement. Cambrex is set to spend around $19 million over the remainder of 2012 and in early 2013 for the expansion of its multipurpose large scale cGMP assets. Cambrex now expects its capital expenditure guidance for 2012 to be in the range of $33–$36 million (previous guidance: $16–$19 million).

Cambrex will also be receiving reservation fees of $9.5 million by next month as an advance for the expected 2013 revenues.

Our Recommendation

We are pleased with Cambrex’s new supply agreement. The deal will boost the company’s revenue in the next couple of years. We currently have an Outperform recommendation on Cambrex. The stock carries a Zacks #2 Rank (short-term ‘Buy’ rating).

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