Troubled UK clinical technology specialist ClinPhone ran up an operating loss of £1.35 million for the six months to 31 August 2007, compared with an operating profit of £2.18 million for the first half of the previous financial year.

Interim revenues in the latest period were 11.5% higher at £23.0 million and ClinPhone said its order book “remains healthy”. The operating loss, which came on the back of a profits warning and a £10 million reduction in the company’s revenue guidance for the full year, reflected a 35.5% increase in operating expenses for the first half, to £14.3 million.

Of that total, 16.6% was due to the amortisation of intangible assets from the acquisition of US electronic data capture (EDC) specialist Datalabs, which was completed last November. However, the jump in operating expenses also included restructuring costs and investment in quality enhancement through a business process re-engineering programme. Adverse foreign exchange movements were another contributory factor, cutting operating profit by £24,000.

ClinPhone had previously flagged up currency translation, along with the operational difficulties that put a hole in its forward order book for June/July and a faster than expected shift from licensing to service agreements in the EDC market, when it warned investors to lower their expectations for the full year. Part of the company’s response has been to restructure its organisation “in order to better align the human resources with the future of the business”. In addition, senior management have taken an average 13% reduction in salary for the remainder of the year.

The one-off cost of the restructuring was around £465,000, of which £355,000 and the resulting benefits will be recognised in the second half of the year, ClinPhone said. For the remainder of the financial year, the company plans to focus on “delivery of quality product and services to build a larger stable base for further growth”. The business process re-engineering programme, established during the half year to improve both cycle times and service quality, is expected to start generating benefits in the first half of the next financial year, although “payback on this investment will not be achieved until subsequent years”, ClinPhone noted.

'Strong' market indicators

The company’s order book as of 31 August 2007 came to £51.3 million, just 2.5% more (+8% at constant exchange rates) than at the same stage last year and comprising £38.8 million in signed contracts and £12.5 million in business authorisations. The underlying market indicators have been strong, ClinPhone noted, with 599 proposals submitted in the first half. This was an increase of 40.3% year on year but the gains were undermined by foreign exchange, a low conversion rate and a high level of cancellations in June and July.

“The demand for our products remains strong and the growth in the use of technology in clinical trials will continue,” commented ClinPhone’s chief executive Steve Kent. “Our ongoing investment in capacity, quality and research and development will leave ClinPhone well placed to benefit from this continuing growth.”