US-based contract research organisation (CRO) Encorium Group is poised to sell off its US and European assets in an effort to secure the future of operations plagued by financial losses and the failure of Encorium’s international expansion plans.

As has been the case with previous deals announced by Encorium, though, nothing can be taken for granted. A week ago, the CRO said it had signed non-binding letters of intent (LOI) with two unnamed parties for transactions involving its US business and its wholly owned European subsidiary, Encorium Oy, respectively.

Under the first LOI, the assets of Encorium Group, Inc, USA, the company’s US business, would be sold to a “full-service internationally based contract research organisation” for an undisclosed sum, the CRO announced. Under the second, a “leading full-service clinical research organisation based in the United States and with operations globally” would acquire Encorium Oy, again for an undisclosed price.

However, it now transpires that the transaction involving Encorium's US business is off. Instead, Encorium Group Inc, USA is the subject of another letter of intent with Pierrel SpA, an international contract research organisation based in Italy and listed on The Milan Stock Exchange.

Subject to negotiation of a definitive agreement, Pierrel has the right to acquire Encorium's US business "for a purchase price equal to a percentage of the Company's US backlog calculated as of the closing or US$1.35 million, whichever is greater, less the amount, if any, that assumed current liabilities, less assumed current assets, exceed US$350,000", Encorium explained.

In addition, Pierrel has agreed provisionally to pay Encorium a 10% commission on the net value of any new contract, executed after the closing date but prior to 31 December 2009, that forms part of the Company's pipeline at closing.

Closure of the deals originally announced on 11 May was subject to the completion of due diligence, the execution of definitive agreements and the fulfillment of certain closing conditions including, in the case of Encorium Oy, shareholder approval.

While the terms of the transactions were not yet definitive, “it is not currently expected that distributions to stockholders will result in a substantial premium, if any, to the current stock price”, Encorium had noted.

The CRO has been actively pursuing opportunities to enhance and maximise shareholder value for several months now, pointed out chief executive officer Dr David Ginsberg last week.

"We believe that transferring our assets in these two transactions is in the best interest not only for our stockholders, but for our customers and employees as well”, Ginsberg added. “These transactions will enable our project teams to remain wholly intact so as to continue to provide excellent service to our customers.”

A paragraph in Encorium’s consolidated financial statements for 2008 – included in the Form 10-K recently filed with the US Securities and Exchange Commission after some delay – indicates that, “while the Company’s financial statements have been prepared on a going concern basis, there is substantial doubt about its ability to continue as a going concern”, the CRO observed.

A US$12.5 million impairment charge pushed Encorium’s operating losses for the fourth quarter of 2008 up to US$13.7 million, compared with a US$1.0 million loss in the final quarter of 2007. Operating losses for the whole of the year were US$21.3 million against a US$3.6 million loss in 2007.

On top of the general woes afflicting the contract research sector in the current economic climate, Encorium has suffered from the collapse of two deals last year that would have raised the company’s profile both at home and abroad.

In September 2008 Encorium withdrew from a deal to globalise its operations through a merger with investment vehicle Linkcon. The following month it compounded the damage by announcing it was postponing negotiations to acquire US CRO Prologue Research International, settling instead for a strategic partnership.