US-based contract research organisation (CRO) PPD lifted its operating income by 15.7% to US$70.7 million for the second quarter ended 30 June.

Quarterly earnings per diluted share (EPS) were US$0.41, 13.9% higher than in the second quarter of 2007. The increase was above analysts’ expectations, as was PPD’s 16.3% rise in net revenue to US$407.0 million. Analysts polled by Thomson Financial had forecast EPS of US$0.39 on revenue of US$374.2 million.

It was not enough, though, to convince investors, who were more interested in the CRO’s weaker than expected performance on new bookings for the second quarter. Despite new business authorisations jumping 16.7% year on year to US$552.1 million, PPD’s shares dropped by around 6.5-7% on the back of the results.

The net revenue figure included reimbursed out-of-pocket expenses, which were US$32.1 million in the latest quarter compared with US$28.9 million in the year-before period. Stripping out these expenses, net revenues from development services were US$370.6 million, a 17.1% gain on the second quarter of 2007, while operating income from the segment was up by 12.2% to US$72.7 million. The operating margin for development services was 18.1% compared with 15.5% one year earlier.

In the much smaller discovery sciences segment, net revenues dipped by 5.4% to US$4.3 million, resulting in an operating loss of US$2.0 million compared with a US$3.7 million loss for Q2 2007. The smaller loss was mainly due to lower research and development expenditure, PPD said. Overall, R&D investment for the second quarter fell by 51.5% to US$1.9 million.

PPD is expecting further milestone payments to its discovery sciences business this year under its joint development arrangement with Japan’s Takeda for alogliptin (SYR-322), a DPP-4 inhibitor for the treatment of type-2 diabetes. A US new drug application for alogliptin was accepted by the Food and Drug Administration at the end of February.

As already noted, new business authorisations for the second quarter were up by 16.7% year on year, although PPD said the inflow was lower than expected. The cancellation rate for the quarter was 26.2%, giving a book-to-bill ratio of 1.09. The year-to-date book to bill ratio was 1.30. As of 30 June, PPD had a backlog of US$2.87 billion, a 20.4% increase on last year’s figure.

Chief executive officer Fred Eshelman was “very pleased” with the overall performance, noting that the management team had made “substantial progress on various internal initiatives, as evidenced by the expansion in our development segment operating margin, robust cash flow, improved DSO [days sales outstanding] and solid earnings”.

“We believe the market for CRO services is strong, even though our new authorisations came in lower than expected for the quarter,” Eshelman added. “Request-for-proposal volume remains high, and we will continue to focus our efforts on operational excellence and sales execution.”