Cambrex Corp. (NYSE:CBM) We took advantage of the February sell off in the market to acquire shares of Cambrex at around $38 per share, an attractive discount to our estimate of NAV. We see the combination of a strong balance sheet and a healthy revenue outlook as supportive for book value growth to continue, given the dynamics of Cambrex's business.
Cambrex is a well-financed specialty chemical company focused on life sciences; it develops and commercializes active pharmaceutical ingredients (APIs). Cambrex also produces Generic APIs, Controlled Substance APIs and is expanding into finished-dosage generic API manufacturing. Cambrex's API business is unique in that it manufactures the active ingredient in several leading pharmaceuticals and serves as a supplier to various drug companies. As such, it generates revenues from volumes sold and not price per finished pill. Cambrex's customers focus not only on product purity but also on quality, consistency and documentation of the manufacturing process ascompetitive attributes.
Several long-term drivers support revenue growth for Cambrex.
- Cambrex is a substantial beneficiary of the U.S. Federal Drug Administration's (FDA) significantly enhanced effort to ensure quality manufacturing processes. The company has benefitted as larger pharmaceutical companies have re-shored their API sourcing activities to "Western" Current Good Manufacturing Practice (CGMP) companies.
- Industry growth remains healthy, aided by the increasing number of small molecule drug developments and pending regulatory approvals in the U.S. and Europe.
- Pharmaceutical companies are continuing to reduce their own manufacturing activities and thus turning to outsourcing firms, such as Cambrex, to focus on new drug development.
Cambrex is in the midst of a capacity expansion in Charles City, Iowa that should drive significant revenue growth as this capacity is completed and filled for the next few years.
From Chip Rewey's second quarter 2016 Third Avenue Small-Cap Value Fund letter.
