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CenterWatch Commentary: PharmaNet Down in Rough Seas

Tuesday, September 16, 2008 11:00 AM

The contract research business has always been a bit choppy. Projects from drug sponsors often get delayed or canceled. It’s the nature of contract work. But quarterly results should not be as erratic as what PharmaNet Development Group announced late last week.

PharmaNet’s shares cratered more than 60% to $9 a share after the contract research organization (CRO) slashed its financial guidance for the year. The company expects a loss now, instead of a predicted profit, following the Sept. 12 announcement of $19 million in project cancellations.

Just a little more than month ago, PharmaNet released a positive second quarter earnings report. In its second quarter, the company swung to a profit with net income of $2.2 million, compared with a net loss of $4.5 million, in the prior year quarter. They blew away analysts’ estimates.

Then came the project cancellation bombshell. Yes, this CRO business can be choppy quarter to quarter, but PharmaNet’s ups and downs seem extreme.

“Nobody’s luck is this bad,” noted Dave Windley, healthcare equity analyst at Jefferies & Company.

Other CROs, usually larger global ones such as Covance, have been able to produce somewhat predictable results quarter in and quarter out. PharmaNet had the advantage of being in a select group of global CROs that were well positioned for future growth. The company may have lost that advantage for now.

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