PPD says income and revs grew in Q2 but analysts unconvinced

By Gareth Macdonald

- Last updated on GMT

Related tags Contract research organisation Finance Revenue

PPD posted an improved set of financials for Q2 days after announcing a review of its long-term plan and capital structure following speculation it was looking for a buyer.

The US contract research organisation (CRO) saw net revenue grow 10.2 per cent to $407.7m (€281.6m) with increased contributions from its clinical development and laboratory services units.PPD's investment in Celtic Therapeutics also contributed $10.6m to it's revenues.

This growth, coupled with lower R&D spending and reduced operating costs following the divestiture​ of the compound partnering business Furiex, increased PPD’s operating income 29 per cent to $57.1m.

Overall the firm reported diluted earnings per share of $0.41, up from the $0.18 it posted in the comparable quarter in 2010.

One negative for the firm in the three months to June 30 was project cancellations which, at $268.6m, were “higher than expected” according to executive chairman Fred Eschelman.

The firm will hold a webcast to discuss the results later today and, as yet, has not responded to Outsourcing-pharma.com’s request for comment.

Buyout rumours

Last week the Wall Street Journal​ reported that PPD was seeking a buyer citing ‘people familiar with the matter’ as the source of the speculation.

The following day PPD announced​ that it is “looking at our long-term plan and our capital structure to see if there are any actions, which might create value at this time​,” but denied that it was in talks with any larger CROs about a takeover.

But while these comments suggest that, for the time being at least, some kind of CRO mega-merger is not on the cards, they do not rule out the possibility that PPD is in talks with a potential private equity buyer.

Analyst response

PPD's buyout potential was also a concern for analysts one of whom, David Windley from Jefferies & Company, was less than positive about the firm's performance in Q2.

Management may describe this as above guidance, but it is not. After stripping out the Celtic gain, offset by a higher tax hit, we arrive at $0.37 EPS for 2Q.

That does meet guidance but misses consensus by $0.01. Gross new wins were strong, but cancellations spiked back to concerning levels. The less investors believe in the possibility of an LBO, the lower the stock is likely to go on Wednesday...and drag the group down with it​.”

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