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PharmaNet 2008 Outlook Cut Amid Strong CRO Growth

Friday, February 29, 2008

Contract research organizations (CROs) had a great run in the past year, but PharmaNet Development Group’s weak guidance for 2008, issued on Feb. 28, sent its shares tumbling more than 30%. That raises concerns about a possible pullback for the clinical trials industry following a strong year.

’s shares closed down 31% at $28.62 on Feb. 28 after the company said its direct revenue for 2008 would be in a range of $401 million to $409 million with earnings of $1.42 to $1.57 a share.

Both fell short of analysts’ expectations of $1.76 in earnings on sales of $414.8 million.

Princeton, N.J.-based PharmaNet’s quarterly financials were positive and the company continues its turnaround story after going through a tough transition in 2006.

The company reported it returned to profitability with net earnings for its fourth quarter of $4 million, or 21 cents a share, compared with a $11.9 million loss for the same period last year. Revenue for the quarter increased 16.7% to $92.3 million compared with $79.1 million during the same period in 2006.  PharmaNet doubled its full year net earnings in 2007, reporting $12.1 million, or $0.63 per diluted share compared with $6.1 million or $0.33 per diluted share, the year prior.

“Since the end of 2006, we have made significant strides in improving our financial metrics with respect to earnings, direct revenues, backlog and the balance sheet,” Jeffrey McMullen, PharmaNet’s president and chief executive officer, said in a conference call.

PharmaNet, which was acquired by SFBC in late 2004, took the company lead after a series of serious legal and financial issues engulfed the company in 2005 and 2006. It shed its early phase I operations in Florida – once one of the industry’s largest – and now offers early stage work through its Anapharm subsidiary in Canada. Its been slowly, but successfully, rebuilding its operations.

Yet other companies across the clinical trials industry continue to report strong financial gains in early 2008, including CROs and eClinical firms.

Fourth quarter revenue for Cincinnati-based CRO Kendle rose 31% to $154.6 million from $118.1 million a year earlier. Analysts had estimated revenue of $102.9 million. Profit was reported at $6.4 million, or 43 cents a share, from a year-earlier loss of $4.7 million, or 32 cents a share.

Dublin-based ICON reported nearly a 40% increase in year-over-year net revenue for its fourth quarter. Income from operations was $19.8 million compared with $13.8 million last year. In January, ICON expanded its presence in Central and Eastern Europe with the addition of three offices located in Prague, Czech Republic; Kiev, Ukraine; and Bucharest, Romania. The offices were sized to staff 75, 60 and 75 employees respectively.

In its second quarter reported Jan. 23, Waltham, Mass-based Parexel said net income jumped 27% to $11.5 million, or 40 cents a share, from $9.08 million, or 32 cents a share, in the year ago period. Revenue increased 29% to $284.3 million. For its fiscal 2008, Parexel boosted guidance to $1.78 to $1.83 a share from $1.75 to $1.81 a share and its revenue range to $935 million to $955 million, from $890 million to $920 million. In February, Parexel made a surprise bid for eClinical company ClinPhone. ClinPhone rejected that preliminary takeover offer saying it considered it too low.

Princeton, N.J.-based CRO Covance reported a nearly 20% jump in fourth quarter net revenue to $411 million compared with $343 million in the prior year. Net income jumped 22% to $47 million. Within the CRO’s early development services, its central lab business saw fourth quarter revenue jump by 11%. For the full year 2007, Covance’s total revenues were $1.55 billion, up 15.4% compared with 2006.
Wilmington, N.C.-based PPD has had a solid run. For its fourth quarter, PPD reported revenue of $375 million, an increase of 15% compared with the same period in 2007. Income from operations was up slightly for the quarter at $56 million.

CROs weren’t the only companies to report strong numbers.

Waltham, Mass.-based electronic data capture company Phase Forward reported stellar results as well. Revenue was up 25% for the fourth quarter at $37.8 million compared with $30.2 million during the same period last year. Net income nearly tripled to $15.7 million, or 36 cents a share, from $5.48 million. Revenues for the full year were $134.3 million, a 26% increase from $106.6 million in the previous year.

And eResearch Technology recorded a 45% gain in its fourth quarter revenue, with $28.9 million reported. Its net income rose 129.9% to $5.2 million compared with $2.2 million the year prior. In November, eRT entered into a deal worth potentially $50 million, with the acquisition of the cardiac safety business unit of Princeton, N.J.,-based CRO and central laboratory Covance. The newly acquired unit is expected to generate $20 million in additional revenue in 2008.  In February, Datatrak inked an enterprise agreement for at least $800,000, depending on the extent of services required by the client. The agreement is a three-year subscription license with an unnamed pharmaceutical company in Europe.

was one glaring exception this cycle with reported quarterly revenues of $1.8 million, down 54% from last year and a net loss of $2.48 million. The company is taking a number of cost cutting initiatives and plans to bolster sales operations this year.

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