Troubled SFBC changes its name in hope of changing its fortunes

By Kirsty Barnes

- Last updated on GMT

Related tags: Clinical trial

Large global contract research organisation, SFBC International,
has changed its name to PharmaNet Development Group in a bid to
make a fresh start and turnaround the troubled business after a
long period of bad press, legal difficulties and poor financial
performance.

Recently reporting its second quarter financial results, SFBC experienced a pre-tax loss of $6.6m (€5.1m) compared to a $4m profit last year.

At the same time, while total direct sales for the company increased 18 per cent to $72.8m, cost of sales and administrative costs climbed higher to 24 per cent and 26 per cent respectively.

The bleed has been stemming from the company's beleaguered early phase segment, which has experienced a significant decline in business, and copped large legal bills and divestiture expenses from the selling off of segment assets, including $7.8m in impairment costs.

The segment, offering Phase I clinical trials and support services, bioanalytical laboratory services, and clinical laboratory services, has been plagued by government and media scrutiny since 2004 after allegations were made over its inadequate clinical trial patient recruitment and informed consent practices.

SFBC was later subjected to a US Senate Committee investigation, which resulted in the firm being ordered to demolish its 350-bed unit in Miami, Florida, after it was found to be unsafe and in breach of serious building code violations.

As a result, in May the firm announced plans to shut down its entire early phase operations in Florida and shift any planned Phase I studies to its clinics in Quebec City, Montreal and a new Toronto facility due to be completed later in the year.

"The recent decision by the Unsafe Structures Board will further hinder our ability to restore profitability at our Miami operation, resulting in an acceleration of our review and decision to discontinue the operations of this part of the company,"​ said a statement at the time.

The Miami site was formerly the largest drug-testing facility in the US and the source of around 20 per cent of SFBC's revenue and the decision came as a severe blow, however, after a legal appeal, SFBC was at least granted a motion in July 2006 to stay the demolition order until the outcome of the appellate proceedings.

This bought the company precious time to "shut down the facility in an orderly manner," and "facilitate the orderly completion of clients' study files and the sale or transfer of physical assets and the sale of the property at the appropriate time," Jeffrey McMullen, president and CEO said.

In August, the firm then managed to sell key assets from the Miami operations, including a clinical laboratory, as well as equipment and a 46-station cardiac monitoring suite, to Canada's Allied Research International (ARI).

While all this has been happening, SFBC has been simultaneously fighting a legal battle with its landlord over the land lease on its Miami site - the two parties finally reached a settlement in July.

During the period the company has also lost a CEO, a president and a head of legal affairs.

SFBC's new name change comes as its relatively new CEO is taking affirmative action to distance the firm from the bad press it has drawn, and the name PharmaNet plays upon the strength of its core late phase clinical development business segment of the same name.

The PharmaNet segment currently accounts for 70 per cent of SFBC's revenue and primarily conducts Phase II through IV clinical trials, data management and biostatistics, medical and scientific affairs, regulatory affairs and submissions, and provides software tools and services for use in clinical trials.

The division, which has consistently performed well, was bought by SFBC in January 2005 as it tried to make the move away from its early clinical research troubles and focus on Phases II-IV.

SFBC recently reported strong sales growth in its PharmaNet segment during the second quarter, with direct sales of $49.4m, a 26 per cent rise from the comparable period last year and a backlog increase of five per cent to $322.7m.

At the same time the segment's operating profit nearly doubled, shooting to $7.8m, while profit margins jumped 5.6 percentage points to 15.8 per cent.

The rebranded company is now hoping it can put its troubles behind it and move forward on the back of this segment's success.

SFBC was asked by Outsoucing-Pharma to comment, however, the firm failed to do so.

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