The Company also announced the departure of its Chief Financial Officer, Cynthia Stephens Mignogna, who will now "pursue personal interests."
For the fiscal third quarter, >Pharsight reported an 11 per cent decline in revenue to $5.8 m (€4.8 m), compared to $6.5 m for the same time last year, in addition to a two per cent decrease in profit margin.
Net income for the quarter also took a huge dive to $274,000, from $1.4 m for the same period in 2005.
Pharsight has attributed this poor performance to lower-than-expected revenue from its strategic consulting business, due to internal changes at one of its largest customers, which has led to a slowdown in the pace of new project initiations as of the second quarter.
Since the second quarter, that pace of project initiations has slowed further throughout the third quarter, and the company expects this trend to continue into its fourth quarter.
"While this development has been disappointing, we are very confident that this customer remains focused on using Pharsight in its drug development process," said Shawn O'Connor, president and CEO.
"Late in the third quarter, this customer and another one of our largest customers both entered into agreements for our strategic consulting services that span the entire calendar 2006 year. We expect to recognise the associated revenues beginning in our fiscal 2007 year that starts on April 1, 2006," he said.
The impact of the unexpected slowdown in the consulting services business has led Pharsight to reduce its revenue and net income expectations for the full fiscal year ending March 31, 2006, to between $22 m and $23.5 m, which would represent growth of up to 4 per cent compared with fiscal 2005.
"Based upon this expected level of revenue and depending on the mix of revenue between software and strategic consulting services, we now expect full year income statement results to range between net income of $750,000 and a loss of $300,000," said O'Connor.
Since the setback, Pharsight has been making efforts to avoid a similar scenario occurring again, by diversifying its strategic consulting services customer base and reducing the company's reliance on its top two customers.
"During the third quarter, we added two of the world's 20 leading pharmaceutical companies, and excluding the aforementioned agreements with two of our largest customers, we also entered into new engagements with nine existing customers," said O'Connor.
"We believe that these new and expanded relationships illustrate the increasing interest in our consulting services," he said.
On a more positive note, Pharsight's software business revenue has continued to grow and this segment's profit margins remain healthy. Year-to-date revenue in this unit has grown 14 per cent, from $9.3 m to $10.6 m.
Pharsight expects that its software segment will continue to grow in response to customer demand, although the revenues and profit margin in individual quarters may fluctuate significantly in the future based upon timing of completion of large software installations and related revenue recognition.