Solid half for PharmaZen but head winds looming

For Immediate Release

August 25, 2011

Solid half for PharmaZen but head winds looming

Inspite of a solid half year, biotechnology company PharmaZen believes the strengthening New Zealand dollar and the present global uncertainty will make for more difficult trading conditions throughout the rest of the year.

In the half-year result to June 30 the company recorded a profit of $216,000 after interest and depreciation, compared with $210,000 in 2010. Turnover was $3.705 million compared with $2.981 million last year.

PharmaZen chief executive, Craig McIntosh, said that the result, while pleasing, was extremely frustrating and cautioned trading conditions were becoming increasingly difficult.

“We have had a record six months in sales which were up almost 25% on last year, but most of the benefit has been eroded by the high NZD. This time last year we were bemoaning the fact the dollar had risen from .57 to .70 against the US – today we would be ecstatic to have that rate,” he said.

In real terms – the result reflects an increase of volume of just under 40% - but McIntosh advised that the levels would not be sustained on the current exchange rate.

“The fact is we are competing in a global market with rivals who are operating from countries with far more favourable exchange rates. This makes that part of our business that is price sensitive vulnerable.

“In the short term there is little we can do other than continue to drive costs from the business. Here we have been extremely successful as direct manufacturing costs increased only 4% compared with last year despite the significantly greater volumes.”

The first six months of the year saw demand up in all markets with the exception of Japan which has all but dried up post Tsunami but that demand is looking a little softer for the third quarter and certainly exporting with the kiwi above .80 is an added challenge for the company.

“Despite these concerns we will continue to drive costs out of manufacturing and further capital investment in the second half of the year will continue this commitment.

“We have a significant R&D programme under way which we believe will produce outcomes of international interest in the area of bone health and the safety of calcium supplements.”

The one disappointment for McIntosh is the delay in the planned expansion.

“The company has come through all the major quakes without any significant disruption, but the June 13th event caused a rethink. While we remain committed to the expansion, the simple fact is the risks of undertaking it in this environment with the continued aftershocks and uncertainty with insurance could not be justified in terms of the cost of delaying the project.

“It is definitely not through any lack of confidence. In fact the opposite as we have added another $300k of CAPEX projects to the pipeline aimed not only at improving efficiencies but improving our business continuity in the face of future events.”

McIntosh holds very strong views on the business’s need to be “quake proof” and suggests that the quake – and more so the Tsunami in Japan - are causing manufacturers to look much more closely than ever before at the stability of supply lines.

“At the high end - if we want to have unique products adopted internationally, we need to be able to provide high levels of confidence that we are equipped to supply in the most challenging of situations. At the commodity end – where supply is interchangeable - we do not want to see business lost on the basis that customers feel the need to split their risk.

“The programme we have under way is designed to give us a much lower dependence on utility supply and will go a long way to addressing the concerns of the market and insurers,” he said.

PharmaZen’s trading division, Waitaki Biosciences International, manufactures a range of powder products extracted from a wide range of animal and marine sources. The range includes green-lipped mussel, shark cartilage, natural calcium and Chondroitin Sulphate. The products are used by other companies as a base for health products, mainly in the areas of bone health, joint health, immune and digestive support as well as hair care and cosmetic applications.

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