Expiration of contract sales deals drove a 28 per cent drop in revenue at PDI and pushed financials below analysts’ expectations.
PDI was prepared for the expiration of certain contracts, as well as the downsizing of others, to cause a drop in first quarter sales. However, the revenue hit was bigger than analysts of PDI had forecast.
“The shortfall relative to our estimate was driven by a worse-than-expected performance in each of the company’s three segments”, John Kreger, equity analyst at William Blair, wrote. Most of the difference came from the sales unit which posted revenues $5m (€3.9m) below Kreger’s estimate.
Despite the sales drop PDI managed to cut its operating loss to $200,000, compared to more than $1m a year ago, by lowering its expenses by $2m. Nancy Lurker, CEO of PDI, noted the impact of “continued cost control measures” in her prepared remarks accompanying the first quarter results.
The next step is returning to sales growth. In the first quarter PDI inked new and renewal contracts worth $16m, most of which it will convert to sales this year. Lurker said the deals show an upswing in the contract sales and marketing sector.
Kreger expects the contract sales sector to pick up once drugmakers get past the patent expiration peak later this year. However, with big players like Quintiles and inVentiv Health strengthening in contract sales and marketing, PDI faces intense competition for the anticipated wave of work.
“We anxiously await signs that PDI can win its fair share of the potential wave of new business coming in the next few years to support a sustained return to revenue growth and profitability”, Kreger wrote.
Lurker said PDI will have more evidence of its ability to win business later in 2012. “We are very confident we will sign additional contracts and renewals in coming quarters”, Lurker told investors in the first quarter conference call.
The pipeline of opportunities at PDI is worth $350m, up from the $150m it was previously stuck at, and this is starting to convert into contracts. Lurker said the win rate at PDI is “well above 30 per cent” and the company expects to sign contracts “in the very near future”.
A handful of opportunities for Interpace BioPharma, a PDI commercialisation services subsidiary, would need investment from PDI. Lurker said Interpace could ink a deal that would require an investment of up to $10m to get going later this year, with a second, similar contract also possible.