Signaling a major strategic shift, PPD is focusing on Asia-Pacific—China in particular. The company has made a big move in the region by entering into an agreement to acquire Excel PharmaStudies, one of the largest contract research organizations (CROs) in China, which will provide PPD additional capacity in China’s rapidly growing pharmaceutical market. PPD also plans to spin off its compound partnering business from its core CRO work and invest $100 million in Celtic Therapeutics.
The Excel PharmaStudies deal significantly increases PPD’s employee and client base in Asia-Pacific, the company said. Excel has about 370 employees and will operate as a wholly-owned subsidiary of PPD. Financial terms of the deal were not disclosed.
The Excel acquisition is a major coup for PPD since the China-based CRO was pursued by a number of other potential buyers in the past few years. The acquisition strengthens PPD’s ability to offer phase II through IV clinical, data management, biostatistics, regulatory and quality assurance services in China. The company said combining its drug development expertise with its global central laboratory operations in Beijing and Singapore positions PPD to deliver a broad set of services to biopharmaceutical companies in China, Japan and throughout the region.
“Biopharmaceutical companies are increasingly including China and Japan in their drug development programs because of the rapid growth of these markets,” said David Grange, CEO of PPD.
Grange told analysts that PPD is close to making several other deals in China. “We will be significantly expanding our presence in China,” Grange said.
Grange also said that PPD plans to “dominate” the region.
When the Excel deal closes, PPD will have 750 employees in 12 Asia-Pacific countries. The Excel acquisition will make PPD the largest late stage CRO in China, the company said.
Fred Eshelman, executive chairman of PPD, admitted that PPD wasn’t considered a “first-mover” in China. “We are positioning ourselves much better overseas and in these hot markets,” Eshelman said.
Founded in 2000, Excel provides a range of phase II through IV clinical services, including regulatory affairs, patient recruitment, protocol design, feasibility studies, good clinical practice training and program management. Beijing-based Excel has offices in 18 additional cities throughout China and operates a vaccine research center and biometrics center, both of which are located in Taizhou.
After the acquisition closes, Excel’s employees will join PPD, and Mark Engel, co-founder of Excel, will work exclusively with PPD as a strategic consultant.
“We look forward to combining Excel’s strong operational expertise and relationships in China with PPD’s global discovery, development and laboratory capabilities to deliver a comprehensive range of services that meets our clients’ complete drug development needs,” Engel said.
PPD opened its Beijing office in 2003, where it provides clinical development services. In 2008, it expanded its global central lab services into China through an exclusive agreement with Peking Union Lawke Biomedical Development Limited (PUL). In addition to Beijing and Hong Kong, PPD has offices in India, Singapore, Taiwan, Thailand, Korea and Japan.
Eshelmann said PPD has been losing market share, but these moves will help change that. “We’ve plain out got our butt kicked for a while and that’s going to stop,” said Eshelman.
“I am fired up and bullish,” Eshelman added.
Also last week, PPD’s Board of Directors authorized management to proceed with preparations to spin off its compound partnering business from its core CRO business.
The spinoff will result in two independent public companies. The CRO business will continue to operate under the PPD name and will be focused solely on its drug discovery and development service businesses and will no longer be coupled with the earnings dilution from the company’s compound partnering business.
“While our innovative compound partnering program has benefited PPD over the years, we believe by separating this business from our core CRO business we can unlock the intrinsic value of both businesses,” said Eshelman.
PPD anticipates it will expand its compound partnering portfolio through the licensing of two additional compounds in the fourth quarter. PPD also expects to provide the compound partnering company with approximately $100 million in cash to provide it with a strong financial position to leverage its existing collaborations, seek additional strategic opportunities and capitalize on its commercial opportunities.
In addition, PPD signed an agreement to invest $100 million in Celtic Therapeutics Holdings L.P., an investment partnership organized for the purpose of identifying, acquiring and investing in a diversified portfolio of 10 to 15 novel therapeutic product candidates. Celtic Therapeutics will focus on mid-stage drug development candidates that have progressed through human proof-of-concept studies and are targeted to address unmet medical needs, seeking to advance development of these candidates to the next key product milestone, usually the beginning or end of phase III. This investment in Celtic Therapeutics is intended to set the stage for a strategic alliance between Celtic Therapeutics and PPD.
PPD also last week released disappointing third quarter results. The company reported revenue fell $53 million to $341.1 million while operating income dropped 32% to $47 million. Third quarter diluted earnings per share were $0.32, compared to $0.43 for the same period last year.
New business authorizations for the third quarter of 2009 were $425.5 million. Contract cancellations and adjustments for the quarter were $160.3 million. Backlog at Sept. 30 was $3.2 billion.
“Although third quarter new business authorizations were below target, PPD was recently selected as a strategic outsourcing partner by five sponsors and request for proposal activity is improving,” said Grange.