The contract research organisation (CRO) has been yo-yoing between red and black for the past few quarters as it has dealt with the ghosts from its former SFBC international past.

In August the firm reported second quarter results that placed it back in the red after it had only just clawed its way back into the black in the first quarter of 2007, but in its third and fourth quarters the company appeared to be making a come back, sitting back in the black and recording its highest revenue to date.

However, a spate of contract cancellations during the first quarter within its late stage development division, totalling in an unexpected loss of $30m and a 10.7 per cent sales drop in revenue in this business segment, saw the company slip back into the red.

This was on the back of a loss of contracts to a similar value in the fourth quarter.

As a result, during the first quarter the late-stage unit swung to an operating loss of $3.5m down from an operating profit of $8.8m this time last year.

The firm said that two thirds of the contract cancellations this quarter resulted from the drugs that were being investigated showing a lack of efficacy.

"The majority of these were ongoing studies from biotech clients who decided not to continue their studies. None of the cancellations were the result of our inability to perform nor did the canceled studies go to any of our competitors", company president and CEO Jeffrey McMullen said in a conference call with analysts.

He added: "I'm not sure this (susceptibility to contract cancellations) is a particular reflection of our size or the way we are configured". The extent of the cancellations would be "difficult" for any company to absorb.

Meanwhile, PharmaNet's early-stage segment performed well in terms of sales, with a 26.7 per cent jump to $37.6m, primarily due to the fact that its new facility in Toronto, Canada is now operational, in addition to higher volume in its bioanalytical laboratories division.

The firm said that two thirds of the contract cancellations this quarter resulted from the drugs that were being investigated showing a lack of efficacy.

However, the operating profit of $2.61m was 48.2 per cent less than in the first quarter of 2007 with the firm blaming this on investments in business development and clinical personnel, and greater expenses for the expansion of clinic in Canada and a laboratory in Spain.

Overall, for the first quarter of 2008, PharmaNet reported an operating loss of $7.5m, compared with an operating income of $8.6m in the first quarter of 2007, a pre-tax loss of $8.7m as opposed to a $7.9m pre-tax profit this time last year, while revenue grew only slightly, up 2.4 per cent to $86.8m.

This is in stark contrast to many of its CRO competitors, such as Parexel, Covance and Charles River Laboratories, who have recently reported robust growth in sales and profits.

Moving forward, McMullen revealed his plans to bring the company back to profitability, which will involve implementing a number of cost cutting measures in order to "right-size its later stage business".

McMullen said that the impact suffered due to the contract cancellations was "significant and concentrated", adding "We have reacted...we've started cost saving measures, but they don't happen overnight".

Unfortunately this will involve cutting staff numbers in a repositioning of the workforce, designed to save the firm $7.1m this year.

Furthermore, the CRO is planning to close its offices in Australia and Washington, DC, at a time when many of its competitors are actively opening new offices. The move is expected to cost the company $1.5m in the second quarter of 2008, but generate significant savings in the long term.

As part of this consolidation strategy, PharmaNet will allow many of its staff in the late-stage segment to be based at home.

However, it is not all cutbacks at the company. McMullen indiacted that the firm will still be hiring new staff members in the emerging market regions, such as Latin America, India and the Asia-Pacific, which he said were current places of "increased client demand".