Pharmanet showing signs of progress

By Kirsty Barnes

- Last updated on GMT

Related tags Cent Early clinical development Clinical trial

PharmaNet insists it is beginning to make progress in its attempt
to leave its early-phase troubles behind.

For the fourth quarter of 2006 the contract research organisation's (CRO) operating profit sharply fell by 23 per cent to $7.4m (€5.6m) from the comparable 2006 quarter, with a reflective pre-tax profit dip of 25 per cent to $6m. Sales were equally disappointing, rising by only 3.3 per cent. A strong 16.4 per cent sales growth in the company's Late Clinical Development unit was virtually neutralised by another dismal performance in its Early Clinical Development segment, where sales dropped 12.6 per cent. The Q4 results are, however, an improvement on Q3, where an operating profit of $6.0m and a pre tax profit of $3.7m was recorded, and Q2, which saw the company experience an operating loss of $6.6m and a pre-tax loss of $10.8m. PharmaNet has been clawing its way back from a defensive position after a long period of trouble with its Early Clinical unit. The segment, offering Phase I clinical trials and support services as well as bioanalytical laboratory 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 at its site in Miami. In addition, its 350-bed Miami facility, which it bought in 2004 for $12m as part of an expansion plan, was found to be unsafe and in breach of serious building code violations. This all resulted in a significant decline in business and large legal bills. PharmaNet, formerly known as SFBC, has since shut down its Miami site and is in the process of moving all early-phase operations to two existing sites in Canada - Quebec and Toronto - which are currently being prepared for the business shift. The Quebec City facility upgrade is approximately 90 per cent completed and the company said it expects to begin occupying the facility during March 2007 and complete the move by the end of May. The number of beds at the site will increase from 168 to 200. It is intended that the Quebec site will become a hub for branded early-phase work, which PharmaNet has been focusing on growing - this year it accounted for roughly 35 per cent of early-phase business, while last year it was around 10 per cent. "I believe we are beginning to make progress here, although it will take a while to migrate clients to this new location,"​ said Jeffrey McMullen, president and CEO in a recent Webcast. The Company is also completing the leasehold improvements at its Toronto site which will soon house 150 clinical beds. The company expects to have the site ready by April and open the facility mid-year 2007. "We won't open this new facility until we have enough volume of work to make sure it is profitable,"​ said McMullen. Meanwhile, this Early Clinical unit restructure has continued to have an impact on the firm's operating margin, which sank 3 percentage points to 9.4 per cent. $5.8m was spent on the Quebec facility alone during the quarter. The lower Early Clinical Development revenues, blamed on lower volume and pricing pressure, along with higher corporate expenses, contributing to a 12.5 per cent increase in selling, general and administrative (SG&A) costs, were also fingerpointed. Looking forward, this year the company is planning to open new offices in Milan, Taiwan, Brussels and Romania after just having re-entered Beijing after a period of absence, and said it is also eyeing further locations in Latin America, particularly Brazil. However, despite insisting that PharmaNet is now beginning to make a recovery from its ongoing issues and reporting a strong backlog for 2007, McMullen said that he is approaching the coming year with caution. "We are still in a transition period and will experience ups and downs in the business,"​ he said. "There are still residual issues and our growth, particularly in early-phase, will be below that of the larger sector."

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