Strong clinical development revs offset PPD lab cancellations

By Nick Taylor

- Last updated on GMT

Related tags Revenue

Laboratory service cancellations impacted PPD in the first quarter but strong clinical development performance kept results in line with expectations.

Higher than normal project cancellations and postponements, coupled to increased investment, caused a 38 per cent drop in operating income at the laboratory service unit. However, the larger clinical development unit performed well and ensured results were close to expectations.

Relative to expectations and recent share performance, [the first quarter] was a modest disappointment. Relative to peers and recent historical performance, this was a solid report​”, said Eric Coldwell, an RW Baird analyst, in a note to investors.

Strong clinical development performance offset flat laboratory results and drove a double-digit increase in total net revenue. With total costs being restricted to a slight increase, development unit operating income soared 44 per cent year-on-year to $52.4m (€35.7m).

Fred Eshelman, executive chairman of PPD, said the company “[remains] committed to…controlling costs​”. Selling, general and administrative expenses fell seven per cent year-on-year and research and development costs also declined.

Cost containment is benefiting PPD but the company must also improve laboratory services revenues. “The key to near-term performance lies in understanding drivers of the lab services segment weakness​”, said Coldwell.

Bookings & cancellations

PPD again posted strong bookings in the latest quarter and gross authorizations were up five per cent on the first three months of 2010. Backlog was $3.6bn at the end of the quarter, a double-digit year-on-year increase.

Cancellations were also up year-on-year. In the first quarter contract cancellations and adjustments totalled $174.1m, up from $127.3m a year ago. At this stage it is unclear what proportion of the increase is accounted for by the laboratory services unit.

PPD posted its results after the market closed on Tuesday. A conference call with investors will be held today, 27 April, at 9am ET. Outsourcing-Pharma will be on the call and will post live highlights to Twitter as @OutsourcPharma​.

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