PDI suffers another major contract blow

By Kirsty Barnes

- Last updated on GMT

Related tags: Pdi, Marketing

PDI has suffered another financial blow as yet another major client
has said it will not be renewing its contract sales deal with the
firm.

The contract with the undisclosed pharma company is worth $35m (€26m) in annual revenue - a loss that PDI can ill afford as it struggles to regain profitability. Although it was only a one-year contract due to expire in May, PDI had been expecting it to be extended until at least the end of the year. The news was announced only shortly after the troubled firm announced its fourth quarter results for 2006, showing positive signs that it had almost pulled itself out of the red, despite a significant drop in sales. The US contract sales organisation (CSO) reported a pre-tax loss of $1m for the quarter ended 31 December 2006, which is an 11 per cent improvement on the $9.4m loss accrued in the comparable 2005 period. Even more promising was the $4.8m in pre-tax profit made by the company, in stark contrast to the $11.4m loss notched up the previous year. The positive ground was made despite a 29 per cent drop in recorded revenue to $55.8m, stemming primarily from the scaling down, completion or termination of major contracts in the company's Sales Services segment. At the time it announced an expected cash burn rate of $10m for 2007, but after the contract loss this has now been revised to $15m. "This new development is disappointing and underscores the importance of our strategy, which focuses on diversifying our revenue stream,"​ said PDI's CEO Michael Marquard. Indeed, the troubled firm has experienced a steady decline in revenue over the past couple of years, partly due to its over-reliance on a few key customers and the loss of a number of key contracts, as well as its lack of focus on trying to diversify and expand its client base and business mix. In October GlaxoSmithKline (GSK) told PDI that it would not be renewing its sales contract with the firm at the end of the year, signalling a devastating $65m-$70m loss in annual revenue for the struggling firm. The one-year contract was an extension of an existing contract initiated with GSK in July 2003 and provided the drug giant with around 600 drug reps. PDI had been providing outsourcing services for GSK for over 10 years. PDI had already reached a particular low point prior to this when AstraZeneca pulled the plug on a long-running service contract with the firm. At the time AstraZeneca was PDI's biggest client, and along with GSK and Sanofi-Aventis, accounted for 50-60 per cent of the company's revenue. Recognising the need for serious damage control, the firm last year appointed a new CEO and CFO and said it was strengthening its business development and marketing efforts. As part of this, a number of "expense management initiatives"​ were implemented, which according to PDI, allowed it to cut its operating expenses, which helped stem the financial bleed. In addition, the firm has now announced a five year plan for growth and identified four key areas of focus, including decision support services (market research and market analysis); scientific support services (medical communications; marketing support services (teleconferencing and web-based conferencing); and sales support services (regional/seasonal or new approaches to sales). "We plan to grow these service offerings through internal development, partnering and acquisition. We are seeking to acquire companies that have top-line double-digit growth and that would be accretive within 12 months of acquisition, among other criteria,"​ said the company in a statement. Meanwhile PDI reinforced that its core business will still be focused on providing contract sales representatives. "We believe that the sales force downsizing underway at large pharmaceutical companies ultimately will benefit the contract sales services industry,"​ said Michael Marquard, CEO of PDI. By broadening our commercialisation service offerings, we intend to build a stronger, more diversified company while strengthening customer relationships."

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