Return to the black for PharmaNet
The return to form was rewarded with a run on PharmaNet’s shares, which rose more than 30 per cent to $24.13 on the day, although they have since slid back to $23.71 on some profit-taking.
Investors looked favourably on the results, and while PharmaNet has yoyo-ed between profit and loss over the last year or so, there are signs that the management team led by CEO Jeff McMullen is building a lasting turnaround.
This time a year ago the company had just reported a loss of $4.6m as it continued to cope with the hangover of its emergence from the ashes of its former incarnation, SFBC International, which had had been plagued by government and media scrutiny after allegations were made of a failure to maintain standards at an early clinical trial site in Miami.
Now, the return to the black was driven by a 13 per cent in revenues to $97m, with the early-stage development unit now leading the charge and offsetting a decline in revenues from the late-stage development business. Favourable exchange rates also helped boost the numbers in the order of around $9m.
Early-stage – which has been booming across the contract research industry as small and medium-sized firms increasingly outsource these functions - now accounts for 44 per cent of PharmaNet’s total revenues.
Revenues at the division rose 40 per cent to $43m, with contributions from both clinical and laboratory services, and the group had $78m in backlog – contracts that have been booked but not delivered yet. This was a little down on the first quarter of 2008.
McMullen noted that the early-stage group had benefitted from a “more favourable mix” of innovator and generic projects in the clinics, as well as “higher sample volumes in the labs.”
In simplistic terms, the company as striving to shift its business mix into more “high-end” work – both in the labs and the clinics – as this is less susceptible to competition from overseas, said McMullen.
For that reason he has been particularly gratified by rising numbers of high-end, complex generic projects in clinical studies, as well as more work with innovator companies.
This change of mix in the clinic was sufficient to move the company from a historical 60:40 lab-to-clinic ratio closer to a 50:50 revenue mix helped boost margins to above 18 per cent, but the firm still expects an average 15 per cent margin in future quarters.
PharmaNet’s late-stage development business saw a slight (2 per cent) dip in revenues to $54m, mainly as a result of “previously-disclosed cancellations from the fourth quarter of 2007 and early 2008,” said McMullen. Backlog increased to $502m, well up on the first quarter, and along with the early-stage backlog set a new company record, he added.
Costs across the company have been cut, in part as a result of the completion of a range of capital investments in clinical capacity that took place during 2007, including the opening of a new facility in Toronto, Canada. Costs are also being cut by staff reductions and office closures aimed at saving $7.1m a year. And further to this the company has just introduced a flexible staffing approach to make the best use of resources.
Further investment is required however. Spending in the labs will have to take place to mirror the 2007 effort in the clinical units, said McMullen, and this will be directed towards lab automation and adding immunochemistry capabilities and capacity.