PharmaNet makes a Q3 comeback

By Kirsty Barnes

- Last updated on GMT

Related tags: Cent, Clinical trial

PharmaNet has made a strong comeback during its third quarter after
previously slipping into the red and recorded its highest revenue
to date - $99.8m (€70.0m).

The contract research organisation (CRO) saw its pre-tax profit shoot up to $10.2m from $3.7m in the comparable 2006 quarter, while its operating profit more than doubled to reach $13.7m and operating margin improved vastly, from 7.8 per cent to 13.7 per cent year-over-year. The firm now has its two newly-built Phase I facilities in Quebec City and Toronto up and running and consequently its early stage segment saw revenues climb 50 per cent to $37.6m. Operating margin increased to 21.4 per cent, up from 15.4 per cent in the third quarter 2006. PharmaNet has been trying to grow its early phase business back up to its former glory as the unit was dealt a severe blow back in 2005, when allegations were made over inadequate clinical trial patient recruitment and informed consent practices at its Miami facility. In addition, one of the buildings was found to be unsafe and in breach of serious building code violations. In 2006 PharmaNet shut its Miami operations, subsequently ending its ties with Phase I and bioequivalency studies in the US and relocated these operations to two of its existing facilities in Canada (which have subsequently been moved to the newly-built sites). At the time the whole incident all resulted in a significant decline in business and large legal bills for the early phase unit. Meanwhile, in the company's late stage segment, revenue rose 22 per cent to $62.2m during the third quarter, although the figure does include sales from its Specialized Pharmaceutical Services unit, which were not previously included in the comparable 2006 quarter. Margin climbed 7.0 percentage points higher to 22.1 per cent. However, PharmaNet also incurred a number of charges which helped to push its costs up by 27 per cent, in particular, a $1.5m charge related to a class action lawsuit, which the firm agreed to settle for $28.5m last quarter. It was alleged by a number of shareholders that PharmaNet made misleading US Securities and Exchange Commission (SEC) filings in regards to revenue recognition, earnings, company operations and related party transactions surrounding the Miami site. Two class actions were launched, the first in February 2006, alleging that the firm "publicly issued a series of false and misleading statements regarding its business and financial prospects, thus causing its shares to trade at artificially inflated prices."​ The second was instigated in November 2006, alleging that "the company and its senior officers and directors violated the federal securities laws by making false and misleading periodic filings with the SEC and making other false and misleading statements to investors."​ The complaint also alleged that the firm "misrepresented the condition of its Miami facility, failing to disclose that this facility violated several occupancy, zoning, and other regulations, which forced the facility to suspend operations; failed to disclose unethical and dangerous clinical testing practices and conflicts of interest; failed to disclose related-party transactions; and misrepresented the qualifications of its senior management team."​ In March this year PharmaNet was told by the SEC that it was to be the subject of a formal investigation.

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