The sale of its preclinical services subsidiary, Piedmont Research Center, to fellow contract research organisation (CRO) Charles River Laboratories last April helped lift PPD’s net earnings by 18.5% to US$58.1 million in the second quarter ended 30 June.
Without the after-tax gain of US$19.4 million from the sale, though, PPD’s income from continuing operations dropped by 20.3% year on year to US$38.7 million for the quarter. Net revenues were 11.9% lower at US$355.2 million.
Diluted earnings per share from continuing operations, at US$0.33 (US$0.40 in Q2 2008) were above the analysts’ consensus of US$0.29 per share cited by Thomson Reuters. All the same, PPD’s shares took a hit on the results as investors were discouraged by slow bookings and a higher-than-expected cancellation rate.
In the CRO’s core Development segment, second-quarter revenues sank by 13.7% to US$158.5 million while income from operations was down 18.7% at US$59.1 million.
Net revenues from Discovery Sciences doubled over the second quarter of 2008 to US$0.8 million. They included royalties from European sales of Priligy (dapoxetine), the ‘on-demand’ treatment for premature ejaculation whose development rights PPD licensed to the Janssen-Cilag affiliate Alza. This was the first quarter PPD’s compound partnering business had seen royalties come in.
Nonetheless, higher research and development expenses for Magen BioSciences, the US biotechnology company specialising in dermatology that PPD acquired in April, meant the Discovery Sciences segment recorded an operating loss of US$5.7 million for the second quarter, compared with a US$2.8 million loss a year earlier.
Unfortunate combination
New business authorisations during the latest quarter were worth US$465.9 million while contract cancellations and adjustments came to US$212.9 million. Backlog was US$3.2 billion as of 30 June 2009.
Reuters quoted Jefferies & Co analyst David Windley as saying that the new business wins for Q2 were “US$115 million below our expectation and cancellations were US$60 million higher. That’s an unfortunate combination”. Windley also noted that PPD’s earnings performance “was driven by cost-cutting, which will not get them back to a growth mode”.
David Grange, the recently appointed chief executive officer of PPD, commented: “We remain very optimistic about the long-term prospects for the CRO industry as a whole, continue to believe we are particularly well positioned for the long term and are firmly committed to pursuing our strategic initiatives to maximise value for all our shareholders”.
