PDI sees red after plummeting profit; loss of biggest client

By Kirsty Barnes

- Last updated on GMT

Related tags: Pdi, Pharmaceutical industry, Revenue, Income statement

AstraZeneca has pulled the plug on a long-running service contract
with PDI, adding another blow to the company who last week reported
a dive from profit to loss in 2005, with a net loss of nearly $20m
(€16m), versus net income of $21m in 2004, reflecting the company's
underperformance in generating new business.

PDI, who has worked with AstraZeneca for over twelve years supplying contract sales reps, had the contract termination confirmed by the pharma giant last week.

AstraZeneca is PDI's biggest client, and along with GlaxoSmithKline and Sanofi-Aventis, accounts for 50-60 per cent of the company's revenue.

The loss in business, effective April 30, 2006, could affect 800 field reps and cost PDI $65 to $70m in lost revenue for 2006, leaving the troubled company licking its wounds.

"We are disappointed by AstraZeneca's decision and are vigorously exploring potential opportunities to re-deploy these sales teams,"​ said Steven Budd, PDI's President.

"This termination will have a significant financial impact in 2006,"​ said Larry Ellberger, PDI's interim CEO.

Neither PDI nor AstraZeneca would comment on the reasons for the termination, however, it is likely that the loss of patent protection on one of AstraZeneca's top sellers, the hypertension drug Toprol, and the expected wave of generic competition, was behind the decision.

In addition, 2005 in itself was a challenging year for contract sales organisations (CSOs), many who suffered as a result of pharma companies moving to seriously re-evaluate and reshape their current sales force model to focus on increasing their return on investment.

As a result of the restructuring, drug companies have been cutting back sales force resources and many CSOs are now experiencing a lull in business.

Astra's abandonment is the latest in a series of large sales contracts lost by PDI over the past couple of years which has lead to a steady decline in the company's revenue, partly due to its over-reliance on a few key customers and its lack of focus on trying to diversify its client base and business mix - a situation which the company is now trying to rectify.

"This termination has reinforced our commitment to diversify our revenue and client base, particularly in the emerging pharma and biotech segment of the industry, while exiting unprofitable activities and reducing our overhead cost structure,"​ said Ellberger.

The news has led PDI to announce it is also now considering a further reduction in operating expenses beyond the reductions already planned after its poor performance in 2005.

Revenues for the twelve months ended December 31, 2005 were 12.4 per cent down on 2004 to $319.4m, and 7.4 per cent down in the fourth quarter, to $81.3m.

There was an operating loss of $26.9m for 2005 compared to operating income of $35.2m the previous year and the fourth quarter saw an operating loss of $17.9m versus an operating income of $8.1m for the same period in 2004.

This negative swing was partly due to the closure of several failing business units during the year and $14.4m in resulting asset impairment costs, including the write down of goodwill and intangible assets associated with the company's MD&D business of $8.2m; the Select Access business unit in the amount of $3.3m; and the Siebel sales force automation software asset in the amount of $2.8m.

In addition, the company dished out almost $7m in executive and non-executive severance payouts after a year of executive reshuffles, including the resignation of CEO Charles Saldarini back in October.

"2005 was a year of significant changes for PDI including the announcement of a number of executive changes. We are now continuing to improve our performance,"​ said Ellberger.

"We believe there is considerable potential for new business from the emerging biotech and pharmaceutical industry. PDI's marketing services businesses already have many customers in this area, and we look to leverage more of those relationships into new business wins in the future,"​ he said.

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