Pharmanet profits drop
after being hurt by higher costs.
Revenue in the quarter increased 16.7 per cent to $92.3m compared to $79.1 million in the fourth quarter of 2006, primarily due to growth in both the early and late stage segments, the firm said. However, earnings from continuing operations dropped to $2.9m, down from the $7.4m reported in the comparable period last year. In addition, pre-tax profit halved from $6.0m to $3.0m year over year. Moreover, operating margin decreased to 3.2 per cent in the fourth quarter 2007 compared to 9.4 per cent in the fourth quarter of 2006. The contract research organisation (CRO) pinned much of the blame for the profit dips on higher costs during the quarter. Corporate selling, general and administrative (SG&A) expenses increased to $7.9m in the fourth quarter, compared to $4.6m a year earlier. Pharmanet said that some of this was spent on executive severance, higher professional fees and facilities expenses, a rise in direct costs to $55.9m from $46.0m, primarily due to increased headcount, as well as ongoing legal fees related to a US Securities and Exchange Commission (SEC) investigation. Mid last year the firm agreed to settle a class action lawsuit for $28.5m. It was alleged by a number of shareholders that Pharmanet made misleading 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 last year Pharmanet was told by the SEC that it was to be the subject of a formal investigation. Meanwhile, the company's backlog decreased to $457.4m as of 31 December 2007, compared to $472.5m at September 30, 2007, primarily due to cancellations of certain projects in the early and late stage segments. Jeffrey McMullen, president and chief executive officer (CEO) of the company said that he believes the firm has made significant progress over the past year, and for 2008, "we look forward to continued growth and market expansion, while optimising our operations, increasing resource utilization and reducing costs." However, during the fourth quarter announcement Pharmanet also issued revenue for 2008 of between $401m and $409m, which fell short of analysts' expectations of $414.8m.
