Funding for acquisition fully committed

Guidance for fiscal 2012 updated

TORONTO, Oct. 29, 2012 /PRNewswire/ – Patheon Inc. (TSX: PTI), a leading
provider of contract development and manufacturing services to the
global pharmaceutical industry, today announced that it has entered
into a definitive agreement with VION N.V., a global manufacturer of
foodstuffs and ingredients based in the Netherlands, to acquire Banner
Pharmacaps (“Banner”), a specialty pharmaceutical business dedicated to
the research, development and manufacturing of unique gelatin-based
dosage forms.

In connection with the funding of the acquisition, Patheon has obtained
committed financing, which it expects to use on or after the closing
date to finance the purchase of Banner, repurchase its existing senior
secured notes and repay any borrowings outstanding under its existing
revolving credit facility, pay fees and expenses associated with the
transactions, and for general corporate purposes.

Patheon has received commitments from Morgan Stanley, UBS, Credit Suisse
and KeyBank to provide, in the aggregate, U.S. $650 million senior
secured facilities, comprised of a U.S. $565 million term loan facility
and a U.S. $85 million revolving facility, on the terms, and subject to
customary conditions, including the closing of the acquisition, set
forth in a debt commitment letter (the “Debt Commitment Letter”). It is
anticipated that the U.S. $85 million revolving facility will not be
significantly drawn upon at the time of the closing of the acquisition.

In addition, Patheon has received an equity financing commitment from
JLL Partners Fund V, L.P., an affiliate of Patheon’s majority
shareholder, to contribute (through one or more affiliates) equity
financing, without any fees or charges, by participating in a rights
offering or private placement of Patheon’s restricted voting shares, in
an amount up to U.S. $30 million, less amounts invested in Patheon by
other shareholders. Under any such rights offering all shareholders
would be offered a pro rata right, including any oversubscription
privilege, to purchase restricted voting shares of Patheon. Any rights
offering would be subject to approval by applicable securities
regulatory authorities, including the Toronto Stock Exchange.

Patheon is also raising its revenue guidance for the 12 months ending
October 31, 2012. Revenue is expected to be between U.S. $740 million
and U.S. $745 million. In addition, the company expects Adjusted EBITDA
for the 12 months ending October 31, 2012 to be approximately $69
million.

EBITDA per the Debt Commitment Letter (as defined below) for the 12
months ending October 31, 2012 is expected to be approximately U.S.
$140 million, comprised of (i) approximately U.S. $102 million from
Patheon, (ii) approximately U.S. $25 million from Banner, and (iii)
approximately U.S. $13 million from anticipated annual run-rate savings
resulting from the combination.

The table below includes a reconciliation of Adjusted EBITDA for each of
the first three quarters of fiscal 2012, as well as management’s
expectation for the fourth quarter of fiscal 2012, to EBITDA per the
Debt Commitment Letter. All amounts are in U.S. dollars and expressed
in millions.

			Actual results				Estimated results
			Q1’12	Q2’12	Q3’12		Q4’12	FYE’12
Adjusted EBITDA			(9.2)	9.7	34.6		33.9	69.0
Non-cash items			0.7	1.3	0.4		0.9	3.3
Consulting fees			6.3	6.0	1.0		0.0	13.3
Other items			0.4	2.4	0.0		0.0	2.8
Pro forma cost savings			7.8	5.2	0.6		0.2	13.8
		Patheon EBITDA per the Debt Commitment letter	$6.0	$24.6	$36.6		$35.0	$102.2
		Estimated Banner pro forma adjusted EBITDA						25.0
		Estimated cost savings from combination						12.5
EBITDA per the Debt Commitment Letter								$139.7
Patheon (loss) income before discontinued operations			(19.3)	(79.6)	15.5		(19.2)	(102.6)
Patheon operating cash flow			9.9	(32.8)	29.7		16.8	23.6
Patheon investing cash flow			(6.5)	(11.0)	(15.2)		(16.6)	(49.3)
Patheon financing cash flow			(2.9)	30.6	2.6		(4.3)	26.0

Costs associated with the refinancing of Patheon’s debt, and the planned
acquisition of Banner, will generate significant book losses for our
Canadian legal entity. As a result of these losses, Patheon expects to
record a non-cash charge to income tax expense of approximately U.S.
$37 million for a valuation allowance on its net Canadian tax assets in
the fourth quarter of fiscal 2012. This non-cash charge does not
impact Adjusted EBITDA or EBITDA per the Debt Commitment Letter. If
our Canadian legal entity returns to sustained profitability in future
periods the valuation allowance may be reversed.

“We are excited about the acquisition of Banner and the refinancing of
the company,” stated Stuart Grant, Patheon’s Executive Vice President
and Chief Financial Officer. “We expect the improvements to our
capital structure as a result of the refinancing to reinforce operating
flexibility and liquidity as we continue to execute against our
strategic goals.”

Conference Call and Webcast Information

Patheon will host a conference call and live internet webcast, along
with a slide presentation on Monday, October 29, 2012 at 8:30 a.m. ET
to discuss the transaction. Interested parties are invited to access
the conference call, via telephone, toll free at 1-888-231-8191 (U.S.,
including Puerto Rico) and 1-647-427-7450 (Canada and International).
Listeners are encouraged to dial in five to fifteen minutes in advance
to avoid delays. Interested parties may access the accompanying slide
presentation and live internet webcast of the conference call on
Patheon’s company website at http://ir.patheon.com/events.cfm.

A telephone replay of the conference call will be available between
October 29, 2012 and November 5, 2012 by dialing 1-855-859-2056 (toll
free) or 1-403-451-9481, and by entering identification number
59278067, followed by the number key. The internet webcast and slide
presentation will be archived at http://ir.patheon.com/events.cfm.

About Patheon Inc.

Patheon Inc. (TSX: PTI) is a leading global provider of contract
development and manufacturing services to the global pharmaceutical
industry. The company provides the highest quality products and
services to approximately 300 of the world’s leading pharmaceutical and
biotechnology companies. Patheon’s services range from preclinical
development through commercial manufacturing of a full array of solid
and sterile dosage forms.

The company’s comprehensive range of fully integrated Pharmaceutical
Development Services includes pre-formulation, formulation, analytical
development, clinical manufacturing, scale-up and commercialization.
The company’s integrated development and manufacturing network of nine
manufacturing facilities and nine development centers across North
America and Europe, enables customer products to be launched with
confidence anywhere in the world. For more information visit www.Patheon.com.

Use of Non-GAAP Financial Measures

References in this press release to “Adjusted EBITDA” are to income
(loss) before discontinued operations before repositioning expenses,
interest expense, net, foreign exchange losses reclassified from other
comprehensive income, refinancing expenses, gains and losses on sale of
fixed assets, gain on extinguishment of debt, income taxes, asset
impairment charge, depreciation and amortization and other income and
expenses. Adjusted EBITDA is used by management as an internal
measure of profitability. The company has included this measure
because it believes that this information is used by certain investors
to assess its financial performance, before non-cash charges and
certain costs that the company does not believe are reflective of its
underlying business.

References in this press release to “EBITDA per the Debt Commitment
Letter” are to Adjusted EBITDA adjusted for certain non-cash or other
costs, including stock-based compensation expenses, consulting fees and
executive severance, cost savings, on a pro forma basis, from
transformational initiatives implemented by management and the
estimated annualized cost savings from the acquisition. The company has
included this measure because it is consistent with the definition of
“EBITDA” calculated on a “Pro Forma Basis” in the Debt Commitment
Letter and further believes that this measure provides useful
information about the company’s liquidity to investors, lenders,
financial analysts and rating agencies, which have historically used
EBITDA-related measures, along with other measures, to estimate the
value of a company, make investment decisions, evaluate a company’s
leverage capacity and its ability to meet its debt service
requirements, and assess a company’s liquidity. The company believes
that including the pro forma impact of the acquisition and the
company’s transformation activities and excluding certain non-cash
charges and certain costs that the company does not believe are
reflective of its underlying business provides useful information for
such purposes.

Since Adjusted EBITDA and EBITDA per the Debt Commitment Letter are
non-GAAP measures that do not have a standardized meaning, they may not
be comparable to similar measures presented by other issuers. Readers
are cautioned that these non-GAAP measures are not based on any
comprehensive set of accounting rules or principles and should be
considered only in conjunction with, and not as a substitute for, or
superior to, income (loss) before discontinued operations determined in
accordance with GAAP as indicators of performance, and EBITDA per the
Debt Commitment Letter should be considered only in conjunction with,
and not as a substitute for, or superior to, operating cash flow as an
indicator of liquidity. These non-GAAP measures are subject to
inherent limitations because (i) they do not reflect all of the
expenses and cash flow associated with income (loss) before
discontinued operations and operating cash flow, respectively,
determined in accordance with GAAP and (ii) the exclusion of the items
from these non-GAAP measures involved the exercise of judgment by
management. Reconciliations of Adjusted EBITDA, and EBITDA per the
Debt Commitment Letter to their closest U.S. GAAP measures are included
in the appendix to this press release.

Caution Concerning Forward-Looking Statements

This press release contains forward-looking statements which reflect our
expectations regarding our future growth, results of operations,
performance (both operational and financial) and business prospects and
opportunities. All statements, other than statements of historical
fact, are forward-looking statements. 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”,
“should”, “would”, “might” or “will” be taken, occur or be achieved
have been used to identify these forward-looking statements.
Forward-looking statements include statements regarding our financial
guidance for fiscal 2012 and our expectations for our future financial
performance, our plans for the closing of the planned Banner
acquisition and the establishment of new credit facilities, and our
expectations for the commencement of a rights offering or private
placement. Although the forward-looking statements contained in this
press release reflect our current assumptions based upon information
currently available to us and based upon what we believe to be
reasonable assumptions, we cannot be certain that actual results will
be consistent with these forward-looking statements. Our current
material assumptions include assumptions related to customer volumes,
regulatory compliance, foreign exchange rates, employee severance costs
associated with termination, and the timing and completion of the
proposed acquisition of Banner and the related equity and debt
financings. Forward-looking statements necessarily involve significant
known and unknown risks, assumptions and uncertainties that may cause
our 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, risks related to our ability to complete the
proposed acquisition of Banner and the related equity and debt
financings; integration of and achievement of our intended objectives
with respect to our acquisition of Banner; compliance with our debt
covenants and our debt service obligations; international operations
and foreign currency fluctuations; customer demand for our products and
services; regulatory matters affecting manufacturing and pharmaceutical
development services; impacts of acquisitions, divestitures and
restructurings; implementation of our new corporate strategy; our
ability to effectively transfer business between facilities; the global
economic environment; our exposure to complex production issues; our
substantial financial leverage; interest rate risks; potential
environmental, health and safety liabilities; credit and customer
concentration; competition; rapid technological change; product
liability claims; intellectual property; the existence of a significant
shareholder; supply arrangements; pension plans; derivative financial
instruments; and dependence upon key management, scientific and
technical personnel. For additional information regarding risks and
uncertainties that could affect our business, please see Item 1A “Risk
Factors” in our Annual Report on Form 10-K for the fiscal year ended
October 31, 2011 and our subsequent filings with the U.S. Securities
and Exchange Commission and the Canadian Securities Administrators.
Although we have attempted to identify important risks and factors that
could cause actual actions, events or results to differ materially from
those described in forward-looking statements, there may be other
factors and risks that cause actions, events or results not to be as
anticipated, estimated or intended. Forward-looking statements are
provided to help stakeholders understand our expectations and plans as
of the date of this release and may not be suitable for other purposes.
There can be no assurance that forward-looking statements will prove to
be accurate, as actual results and future events could differ
materially from those anticipated in such statements. Accordingly,
readers should not place undue reliance on forward-looking statements.
These forward-looking statements are made as of the date of this press
release and, except as required by law, we assume no obligation to
update or revise them to reflect new events or circumstances.

ADJUSTED EBITDA BRIDGE (U.S.D., in millions) (unaudited)
						Actuals				Estimate
						Q1 2012	Q2 2012	Q3 2012		Q4 2012	Full Year
Adjusted EBITDA						(9.2)	9.7	34.6		33.9	69.0
Depreciation and amortization						(10.6)	(10.8)	(9.3)		(9.9)	(40.6)
Repositioning expenses						(0.8)	(6.0)	(0.1)		1.7	(5.2)
Interest expense, net						(6.5)	(6.5)	(6.8)		(6.6)	(26.4)
Impairment charge						–	(57.9)	–		–	(57.9)
Loss on sale of capital assets						–	–	–		(0.6)	(0.6)
Benefit (provision) for income taxes						7.7	(8.0)	(3.3)		(38.3)	(41.9)
Miscellaneous						0.1	(0.1)	0.4		0.6	1.0
(Loss) income before discontinued operations						(19.3)	(79.6)	15.5		(19.2)	(102.6)

EBITDA per the Debt Commitment Letter Bridge (U.S.D., in millions) (unaudited)
			Actuals			Estimate
		Q1 2012	Q2 2012	Q3 2012		Q4 2012	Full Year
EBITDA per the Debt Commitment Letter							139.7
Estimated Banner pro forma adjusted EBITDA (1)							(25.0)
Estimated cost savings from combination (2)							(12.5)
Patheon EBITDA per the Debt Commitment Letter		6.0	24.6	36.6		35.0	102.2
Non-cash items (3)		(0.7)	(1.3)	(0.4)		(0.9)	(3.3)
Consulting fees (4)		(6.3)	(6.0)	(1.0)		–	(13.3)
Other items (5)		(0.4)	(2.4)	–		–	(2.8)
Pro forma cost savings (6)		(7.8)	(5.2)	(0.6)		(0.2)	(13.8)
Depreciation and amortization		(10.6)	(10.8)	(9.3)		(9.9)	(40.6)
Repositioning expenses		(0.8)	(6.0)	(0.1)		1.7	(5.2)
Interest expense, net		(6.5)	(6.5)	(6.8)		(6.6)	(26.4)
Impairment charge		–	(57.9)	–		–	(57.9)
Loss on sale of capital assets		–	–	–		(0.6)	(0.6)
Benefit (provision) for income taxes		7.7	(8.0)	(3.3)		(38.3)	(41.9)
Miscellaneous		0.1	(0.1)	0.4		0.6	1.0
(Loss) income before discontinued operations		(19.3)	(79.6)	15.5		(19.2)	(102.6)
Adjustments for non-cash items
	Depreciation and amortization	10.6	10.8	9.3		9.9	40.6
	Stock-based compensation expense	1.0	0.8	0.7		0.9	3.4
	Impairment charge	–	57.9	–		–	57.9
	Loss on sale of capital assets	–	–	–		(0.6)	(0.6)
	Deferred revenue amortization	(2.4)	(2.6)	(2.6)		(4.1)	(11.7)
	Deferred financing charge amortization	0.3	0.3	0.3		0.2	1.1
Working capital changes		16.1	(27.7)	1.7		(3.1)	(13.0)
Change in other long term assets/liabilities		(1.4)	2.0	(2.6)		29.0	27.0
Change in deferred revenue		5.3	5.3	8.1		4.3	23.0
Miscellaneous		(0.3)	–	(0.7)		(0.5)	(1.5)
Cash flow from operating activities		9.9	(32.8)	29.7		16.8	23.6
Cash flow from investing activities		(6.5)	(11.0)	(15.2)		(16.6)	(49.3)
Cash flow from financing activities		(2.9)	30.6	2.6		(4.3)	26.0
(1) Represents Banner Pharmacaps expected earnings before interest expense, income tax expense, depreciation and amortization, foreign exchange gains and losses, management fees, other income and expense, and $1.7 million in pricing allowances related to prior period sales recorded in the 12 months ended October 31, 2012.
(2) Represents estimated annual synergies resulting from Patheon’s expected acquisition of Banner Pharmacaps assuming completion of integration activities.
(3) Represents amortization of stock-based compensation and non-cash foreign exchange gains and losses.
(4) Represents consulting fees related to Patheon’s operational excellence program recorded in the 12 months ended October 31, 2012.
(5) Represents expenses related to a 2011 product recall by one of Patheon’s customers for product returns recorded in the second quarter of fiscal 2012 and executive severance paid to the company’s former CFO in the first quarter of fiscal 2012.
(6) Represents additional estimated savings from operational excellence projects and Puerto Rico overhead savings that Patheon expects that it would have recognized in fiscal 2012 had all such projects been completed and fully implemented as of November 1, 2011.

SOURCE Patheon Inc.