Recession-hit contract research organisation (CRO) PPD set out a raft of strategic initiatives last week, including a spin-off of its compound partnering business, in an effort to unlock value in its operations and step up its presence in the Asia Pacific region.

The announcements came as the US-based company reported declines of 13% and 33% respectively in its net revenues and income from continuing operations for the third quarter ended 30 September 2009.

PPD had already applied some surgery to its flagging businesses earlier this year in the form of a management shake-up and some redundancies in the North American market. Last week’s announcements spanned the compound partnering spin-off, an acquisition in China, and a US$100 million investment paving the way for a strategic alliance with drug development specialist Celtic Therapeutic Holdings.

The CRO intends to realise the proposed spin-off through a tax-free, pro rata dividend distribution of the compound partnering arm’s stock to PPD shareholders. In the meantime, PPD expects to expand its compound partnering portfolio by licensing two additional compounds during the current quarter.

The portfolio already includes rights to milestones and royalties from Priligy (dapoxetine), the ‘on-demand’ treatment for premature ejaculation developed with Janssen-Cilag affiliate Alza; and from alogliptin, Takeda Pharmaceutical Company’s DDP-IV inhibitor for diabetes.

PPD also plans to capitalise the compound partnering business with around US$100 million in cash, so that the unit is in a strong financial position to leverage existing collaborations, seek out additional strategic opportunities and make the most of its commercial prospects.

Following the spin-off, PPD will continue under its current name with a tighter focus on its drug discovery and development services businesses, which will “no longer be coupled with the earnings dilution from the company’s compound partnering business”, it noted.

For its part, the compound partnering arm “will have the opportunity to focus on developing and commercialising its drug candidates and to access external capital, if needed, without any constraints associated with operating in combination with the CRO business”, PPD added.

“While our innovative compound partnering programme has benefited PPD over the years, we believe by separating the business from our core we can unlock the intrinsic value of both businesses,” commented PPD executive chairman Fred Eshelman.

Excel acquisition

In China, PPD has agreed to acquire market-leading CRO Excel PharmaStudies for an undisclosed sum. More than 300 Excel staff will join PPD after closing (expected during the fourth quarter) and co-founder Mark Engel will work exclusively with the US CRO as a strategic consultant. Excel will be run as a wholly owned subsidiary of PPD.

Founded in 2000, Excel offers a comprehensive range of Phase II-IV clinical services including regulatory affairs, patient recruitment, protocol design, feasibility studies, good clinical practice training and programme management. The CRO operates from more than 15 cities across China. It also has a vaccines research centre and a biometrics centre, both in Taizhou.

PPD opened a Chinese office in Beijing in 2003. Last year, the company expanded its global central laboratories network into China through an exclusive agreement with Peking Union Lawke Biomedical Development Limited.

According to PPD, the acquisition will strengthen its ability to offer Phase II-IV clinical, data management, biostatistics, regulatory and quality assurance services under a variety of operating models, ranging from functional to full-service.

“Combining its drug development expertise with its global central laboratory operations in Beijing and Singapore uniquely positions PPD to deliver a broad set of services to biopharmaceutical companies in China, Japan and throughout the region,” the CRO said.

Celtic Investment

Celtic Therapeutics Holdings is an investment partnership set up to identify, acquire and invest in a diversified portfolio of 10 to 15 novel therapeutic product candidates. The business will focus on mid-stage drug development candidates that have progressed through human proof-of-concept studies and are targeted at unmet medical needs.

The strategy is to advance these candidates to the next key product milestone – usually the beginning or end of Phase III trials. According to Eshelman, Celtic Therapeutics “has a team of seasoned drug development professionals we believe is capable of building one of the most highly valued late-stage portfolios in the global biomedical industry”.

The goal of PPD’s investment in, and planned strategic alliance with, Celtic Therapeutics is to “bring the best products to market more quickly to meet unmet needs of patients”, the CRO explained, adding that the tie-up should benefit Celtic’s mid- to late-stage pipeline across the board.

Both companies are committed to “forging a new framework for timely, cost-efficient drug development”, it noted.

Third quarter

PPD’s headline results for the third quarter were either in line with or slightly ahead of analysts’ expectations.

Net revenues dropped by 13.5% to US$341.1 million, whereas analysts polled by Thomson Reuters were looking for revenues of US$334.2 million in average. The consensus forecast for diluted earnings per share was US$0.32 and this was what PPD reported, down from US$0.43 in the third quarter of 2008.

Income from continuing operations was US$46.9 million, a decline of 33.0% compared with the year-ago quarter. New business authorisations totalled US$425.5 million for the latest quarter, with contract cancellations and adjustments coming to US$160.3 million. Backlog as of 30 September was US$3.2 billion.

“Although third-quarter new business authorisations were below target, PPD was recently selected as a strategic outsourcing partner by five sponsors and request for proposal activity is improving,” commented PPD chief executive officer David Grange.

The CRO has once again lowered its revenue and earnings guidance for 2009, reflecting “the impact of lower-than-expected new business authorisations, significant project cancellations, adjustments and delays, and expected changes within the company’s discovery sciences segment”.

Full-year net revenues are now projected at US$1.28 billion to US$1.31 billion, against a forecast of US$1.39-US$1.47 billion given at the first-quarter stage. Diluted earnings per share are expected to be US$1.38 to US$1.40, compared with US$1.54-US$1.60 previously.