Shares in US clinical research organisation SFBC shed more than a quarter of their value today after the company posted a quarterly net loss of $4.1 million and dramatically scaled back its forecasts for the year.
SFBC said it was struggling to win new contracts in its early phase clinical development and laboratory services business, which reported revenues down nearly 20% compared to a year ago, which was not offset by a 30% increase in late clinical development (Phase II-IV) revenues to $47 million, accounted for largely by its PharmaNet subsidiary.
The early segment posted an operating loss of $5.6 million, while the late clinical segment saw its operating income double to $7.5 million. Before now, SFBC has relied on the higher margins in the early segment to contribute a disproportionate amount of profit to the group.
SFBC has been hit hard by a Bloomberg report, published in the last quarter of 2005, which claimed to have uncovered safety problems, sloppy reporting and lax procedures at the company’s early clinical facility in Miami, Florida, which prompted an enquiry into the matter by Republican Senator Charles Grassley. And this was compounded after local government officials raised concerns about the structural safety of the facility.
The resulting impact on SFBC’s credibility seems to have driven customers away both from Miami and another early-stage clinical facility operated by the company in Fort Myers, Florida, according to chief executive Jeffrey McMullen.
Meanwhile, another pillar of its early business – Anapharm, which focuses on generic bioequivalency testing – has also been hit by a reduction in demand, possibly a result of increased competition from newer companies that are cutting process in order to build market share.
In a conference call, McMullen suggested that Food and Drug Administration (FDA) inspections of the Miami facilities and another in Quebec City, Montreal, which would have led to actions by the agency if evidence of the allegations made in the Bloomberg report had been uncovered, gave the facilities a green light, while one ‘Form 483’ detailing a compliance issue with a clinical trial at Miami had already been resolved to the agency’s satisfaction.
Meanwhile, a building remediation plan for the Miami unit is due to be reviewed next week, and if cleared will kick off a $4.5 million round of renovations to bring it back up to code. In the meantime, business will continue at the facility, said McMullen.
Not helping sentiment to the firm, the fallout from the early-stage problems culminated in the ousting of two senior executives, founders Lisa Krinsky and Jerry Seifer, who are now being investigated by the Securities & Exchange Commission following concerns about corporate governance
SFBC chief financial officer David Nathan said the firm now sees 2006 earnings of 73 to 85 cents a share, down significantly from its previous guidance of $1.44 to $1.58 a share. The company lowered its forecast for direct revenue to a range of $308 million to $324 million from an earlier view of $332 million to $347 million.
Shares in SFBC fell 27% to $17,32 by the close of trading today (May 10).