A strong performance from its core development segment helped US-based contract research organisation PPD, Inc to lift its operating income by 24.6% to US$61.1 million for the second quarter of the year. Net revenues climbed by 13.3% to US$350 million for the quarter.
Despite these strong gains, PPD has lowered its guidance for revenues and earnings per share in 2007. The company blamed a shortfall in new business authorisations and projected research and development costs associated with a novel statin compound licensed from India’s Ranbaxy for the treatment of dyslipidaemia earlier this year.
Net revenues from PPD’s development segment were US$316.5 million in the quarter ended 30 June, 13.5% more than in the second quarter of 2006. The segment generated operating income of US$64.7 million, up by 30.4%. In the discovery sciences segment, net revenue slipped by 1.1% to US$4.5 million and PPD recorded an operating loss of US$3.7 million, compared with a US$0.6 million operating loss for the second quarter of 2006.
On top of these contributions came reimbursed out-of-pocket expenses, booked as second-quarter revenues (also as direct costs) of US$28.9 million (+13.4%). Pre-tax profit for the quarter was up by 21.6% to US$65.1 million while net income rose by 17.1% to US$42.6 million.
Full-year guidance adjusted downwards
PPD has adjusted its revenue guidance for the full year from US$1,340-US$1,390 million (excluding reimbursed out-of-pocket expenses) to a range of US$1,290-US$1,340 million. EPS are now expected to reach US$1.35-US$1.39 as opposed to US$1.46-US$1.54 previously.
While revenues and EPS for Q2 were on target, new business authorisations were not enough to meet the annual guidance given in December 2006, PPD explained. Gross new business authorisations for the second quarter were worth US$473 million, with a cancellation rate of 26%. “This was a PPD execution issue, and not reflective of the market, as RFP [request for proposal] volume for the first six months of 2007 was comparable to the same period in 2006,” commented chief executive officer Fred Eshelman.
Also cutting into the forecasts was a jump in the projected R&D expenditure needed to complete a first-in-patient study with Ranbaxy’s novel statin and to prepare for and launch a planned Phase II proof-of-concept trial. PPD has just finished a single ascending-dose, first-in-human study with the compound in 36 volunteers.
The statin, for which the US company acquired development, manufacturing and marketing rights under an exclusive worldwide licence from Ranbaxy in late February, was found to be safe and well tolerated at all the administered doses.
Development partner needed
R&D expenses in the second quarter were US$4.0 million, more than three times the US$1.3 million outlay for the same period last year. Most of this increase was down to the Phase I first-in-human trial, PPD noted. However, the company is optimistic about finding a development partner for its statin and easing some of the cost burden before too long. “We are pushing the 10558 statin programme very hard with the intent to reach a partnerable stage by early 2008,” Eshelman said.
He also put a positive gloss on the outlook for the business as a whole. “There are several opportunities at the discussion stage in the development segment that reaffirm our confidence in the market and our potential to come on strong as we approach 2008,” Eshelman commented.