PPD profits jump as global clinical trials biz booms

By Kirsty Barnes

- Last updated on GMT

Related tags: Ppd, Generally accepted accounting principles, Profit, Revenue

PPD managed a 42 per cent jump in pre-tax profit to the tune of
$63.8m (€50.1m) in the first quarter, fuelled by a strong growth in
new clinical trials business and helped by a milestone payment in
the discovery sciences segment.

During the quarter, the company also managed to achieve an increase in operating profit of 50 per cent and a profit margin increase of 2.5 per cent.

"We have a really hands on financial management team at PPD that stick tightly to achieving quarterly targets of 50 per cent gross profit and 20 per cent operating margin,"​ Steve Smith, investor relations told Outsourcing-Pharma.com.

"If it looks like a contract is going to be damaging to our profitability, the financial team considers it very carefully before taking it on,"​ he said.

This profitability gain was also partly achieved by a 22 per cent jump in net sales for the quarter to $299.4m, combined with a 92 per cent drop in R&D spending to only $681,000, due to the transference of the rights to SYR-322 - the dipeptidyl peptidase IV (DPP4) diabetes drug PPD was developing - to Takeda Pharmaceutical.

"In a quarter that is traditionally light, new business was strong - we signed a large number of new contracts with both large and small biopharma companies,"​ said Smith.

As a result, revenue from PPD's core Development unit, with 75 per cent of its focus on Phase II-IV trials, grew 21 per cent.

The biotech industry is continuing to boom and backlog and revenue in the CRO sector is continuing to grow above R&D growth, signalling that these biotech companies are outsourcing more and more to companies like PPD.

"PPD is particularly strong in this area as we focus on complex global clinical trials that require a huge amount of infrastructure and capacity. Because of this it is tough for other CROs to compete with us on this level, giving us some degree of price leverage,"​ said Smith.

"Only the big CROs, Quintiles and Covance, are able to compete with us on this global level, and perhaps maybe Parexel,"​ he said.

Net sales in the company's significantly smaller discovery sciences segment also grew by 47 per cent to $18.9m, heavily boosted by a $15m milestone payment from Takeda, triggered by the dosing of the twentieth patient in an on-going Phase III clinical trial for SYR-322.

"As the Phase III program for SYR-322 continues to advance, we will see more of these payments coming our way,"​ said Smith.

"The deal with Takeda is worth $70.5m in pre-lunch milestone payments and $33m in post-launch,"​ he said.

PPD missed out on a much anticipated milestone payment from its premature ejaculation drug, dapoxetine, after licensee Johnson & Johnson (J&J) failed to receive Food and Drug Administration approval.

The discovery science division's net revenue was boosted by a $10m dapoxetine new drug application (NDA) milestone payment in the comparable quarter last year.

However, all is not lost, as J&J now plans to continue to pursue the approval in the hope of turning the decision around. If this happens, PPD can expect a steady trickle of income from the drug in the future.

Although PPD is currently holding onto a lot of cash, Smith has ruled out plans of acquiring another CRO, unless it brings significant value in opening up a new area of business opportunity.

"As we've learnt in the past, buying a CRO is challenging, as the two cultures of the companies need to be assimilated. In addition, the workers and the backlog that you buy aren't necessarily guaranteed - technically they could leave at any time,"​ said Smith.

"We are looking more to acquire products than companies at this stage and intend to focus on growing organically."

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