Deja vu as PRA sees Q1 profit slashed by half

By Kirsty Barnes

- Last updated on GMT

Related tags: Quarter, Profit

PRA saw its first quarter profits for 2007 slashed by more than
half from the comparable 2006 period, in a case of déjà vu for the
firm and disappointment for analysts.

Operating profit sank 51 per cent to $4.4m (€3.2m), pre-tax profit nosedived by 54 per cent to $4.1m and profit margin slid even further, by nearly 60 per cent, to 5.1. The results are reminiscent of the US-based contract research organisation's (CRO's) fourth quarter profits, which also more than halved, and at the time the firm announced a major restructure was about to be undertaken in a bid to stem the bleed. Part of this involved the closure of two facilities - located in Eatontown, New Jersey and Ottawa, Canada - and as a result, a $958,000 restructuring charge was responsible for roughly a quarter of the operating profit reduction displayed in the first quarter. Speaking to back in March, PRA spokesperson John Lewis said the total charge related to the restructuring is expected to be about $9m, and likely to be expensed in the first two quarters of 2007. PRA also decided to revamp its business structure to focus on three basic service areas: Early Development, Product Registration, and Scientific & Medical Affairs, in a bid to make the business "more efficient and profitable in the long-term". ​ Meanwhile, a $701,000 slice into the company's first quarter profit also came from a non-cash amortisations charge relating to the identifiable intangible asset from the acquisition of early-phase clinical development and bioanalytical company, Pharma Bio-Research, for €84.6m last July. However, a $2.5m shortfall in profitability between the first quarter of 2007, and the comparable period in 2006, remains, although the firm did pay off $24m in debt, leaving it with cash and equivalents of $41.5m, down from the $62.7m in Q1 2006. It now has no debt. A recent research note published by analysts at Robert W Baird described the Q1 results as "disappointing".​ On a more encouraging note, analysts also said that the acquisition of the Pharma Bio-Research operations was lending support to the company's performance. 2007 has been lauded as a "rebuilding year"​ for the firm, which has among other things, suffered from a high number of unexpected product cancellations during past quarters. "Because a big part of our business comes from biotech clients, contracts tend to be less predictable,"​ Lewis has been quoted as saying in the past. Things appear to be turning around - cancellations in the first quarter totaled $5.9m, compared to $17.5m in the first quarter of 2006. The company's net book-to-bill ratio for the first quarter was 1.40, compared to 1.00 in last year's first quarter. In addition, revenue was up by 23 per cent to $85.1m, and new business awards for the first quarter totaled $125m, compared to $87m in the comparable period in 2006. Backlog at March 31, 2007 was $654m, an 18 per cent increase on that of one year ago. Meanwhile, PRA appears to be raking in the cash wherever it can: its cash flow from operations was $21.7m for the first quarter of 2007, compared to $11.6m the previous year and its days sales outstanding, which includes accounts receivable and unbilled services less advanced billings, was negative 6 days, compared to positive 39 days in the same period last year. Advanced billings shot up to $106.6m from $66.7m in 2006. "The actions we took in the first quarter yielded positive results in line with our targets. We believe this continued focus on client-based activities will restore PRA to the growth trajectory our stockholders and management expect,"​ said Terry Bieker, CEO of PRA. "The execution of our plans by our business development teams is proceeding well, creating an encouraging pipeline of new business opportunities. We continue to make the investments necessary to fuel our future growth."

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