Ranbaxy's statin a drag on PPD's bottom line

By Kirsty Barnes

- Last updated on GMT

Related tags Ppd Clinical trial

PPD's decision to in-license an investigational compound is proving
to be a drag on its bottom line as the firm continues to seek a
development partner for the drug.

The contract research organisation (CRO) bought the statin from India's Ranbaxy earlier this year in a deal worth up to $44m (€31m) and the company's Research and development (R&D) spending has shot up ever since. PPD cited this as the reason for reducing its 2007 earnings outlook in its second quarter results announcement in July, as it had still has not found a partner, as it had hoped, to help shoulder the burden that the added R&D expenditure continues to have on the business. This scenario continues - PPD spent $8.4m on R&D in the third quarter, more than four times as much as in the comparable 2006 quarter, primarily related to costs incurred to conduct Phase I clinical studies of the compound. The compound showed positive results in a first-in-human study. Based on these results, PPD has started a first-in-patient study and the firm has now started a Phase II proof-of-concept study. "We are pushing the 10558 statin program very hard with the intent to reach a partnerable stage by early 2008,"​ Fred Eshelman, chief executive officer of PPD said in July. Meanwhile, the company's Discovery sciences segment, of which the statin's development is a part of, managed to nudge its sales up five per cent to $4.7m for the quarter but has continued to prove even more loss making than in the past. The Discovery sciences segment third quarter 2007 loss from operations jumped to $8.3m, compared to a loss of $1.7 m for the third quarter 2006. The loss from operations reflects the impact of increased R&D expense to further develop the statin compound, said the firm. As a result, the business as a whole largely failed to improve its third quarter financial situation year-over-year. Operating profit and pre-tax profit barely moved forward at $52.9m and $57m respectively. This is despite total revenue increasing by 14 per cent. The firm's large Development segment was once again largely responsible for this, with a 13 per cent increase in sales to $323.8m and an operating profit up 14.0 per cent to $61.2m on the same period in 2006. PPD's in-licensing move is highly unusual for a CRO like PPD​, whose primary business model is providing drug development assistance on a fee-for-service basis. However, the new compound was taken under the wing of PPD's small but growing Compound Partnering division, which currently has four compounds in development with three partners. Commenting on the decision in March, Eshelman said: "The opportunity to develop and commercialise Ranbaxy​'s statin​ is a logical extension of our compound partnering program. It meets the rigorous requirements for our partnering strategy and further strengthens our metabolic franchise."​ Eshelman did stress, however, that the company would immediately be "aggressively seeking a commercial partner"​ for the compound in order to help shoulder the burden that the added research and development expenditure will have on the business. "If we do not find a partner by the end of 2007 we will have to look at restructuring our Compound Partnering division in order to avoid having to alter our financial guidance,"​ said Eshelman in a Webcast in March. "We will take advice from outside counsel on this but the restructure will involve whatever looks most appropriate from a shareholder and a tax point of view - most likely the creation of a spin-off company."​ Now that we are heading towards the end of the year with no partnership in sight, it is unclear whether this is something that the firm still intends to do. During a conference call covering its third quarter results, Eshelman told analysts that the firm is looking for corporate partners "all the time, it just depends on what their internal diligence needs are for later clinical results and I think that's what we've been seeing". "…folks want to be sure that we can actually come up with some sort of a differentiated product here before they pull the trigger. So while we had hoped to accelerate our discussions little more, I think now that they probably will slip into 2008 as we accumulate more data to round out the diligence package." ​ Eshelman indicated that more will be revealed when the company delivers its 2008 guidance on 8 January. Although PPD normally delivers this guidance in December, the date has been pushed forward by the firm as by then it will have "more visibility around a number of issues."

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