US-based contract research organisation (CRO) PharmaNet Development Group is firmly on the road to recovery after the financial battering it sustained from an extended bout of negative publicity in 2005 and 2006.

Direct revenues from continuing operations, excluding reimbursed out-of-pocket expenses, climbed 31.3% to $99.8 million in the third quarter ended 30 September, generating operating profit of $13.7 million (+131.8%). PharmaNet’s early-stage segment, which suffered most from the damning media coverage of activities at a facility in Miami, Florida, was especially buoyant, with direct revenues from continuing operations 49.9% higher at $37.6 million and operating income more than doubling to $8.0 million.

In its previous incarnation as SFBC International, PharmaNet’s credibility was badly shaken by revelations of structural flaws at the early-stage clinical facility in Miami, media allegations of lax procedures and questionable practices at the same site, and an outbreak of tuberculosis during a trial at its Canadian subsidiary Anapharm’s facility in Montreal, Canada.

As a result, early-phase business slumped on reduced demand for bioequivalence testing, despite SFBC’s insistence that the vast bulk of the media claims were inaccurate or fabricated. The CRO eventually caved in and announced in May 2006 that it was ceasing all operations in Florida, including the Miami facility and another Phase I site in Ft. Myers. In August 2006 SFBC changed its name to PharmaNet Development Group, trading on the reputation of the late-stage clinical development business acquired through a merger with New Jersey-based Phase II-IV specialist PharmaNet in November 2004.

Wider margin

The third-quarter results were further evidence that PharmaNet is successfully putting these experiences behind it. The company’s operating margin increased from 7.8% to 13.7% in the quarter, despite a 16.8% hike in selling, general and administrative costs that included an additional $1.5 million provision (taking the total reserve up to $10.4 million) for a securities class-action settlement and related litigation.

Net income from continuing operations more than doubled to $6.9 million or $0.37 per diluted share, compared with $3.0 million and $0.16 per diluted share respectively in the third quarter of 2006.

In the early-stage segment, the operating margin widened to 21.4% from 15.4% in last year’s quarter, while the order backlog (which does not include verbal awards) stood at $65.8 million as of 30 September 2007, compared with $59.8 million at 30 June.

The late-stage segment, which since the beginning of this year has included the financial results of PharmaNet Specialized Pharmaceutical Services, reported direct revenues of $62.2 million in the latest quarter, a 22.1% improvement on the 2006 period. Operating profit was 85.8% ahead at $13.2 million and the operating margin rose from 14.0% to 21.2%. The order backlog for the late-stage segment was $406.7 million at 30 September compared with $384.2 million at 30 June 2007.


Book-to-bill ratios – i.e., the change in backlog between periods combined with direct revenues, then divided by direct revenues – were 1.2 times in the early-stage segment at both 30 September and 30 June 2007, and 1.4 times in the late-stage segment at 30 September compared with 1.1 times at 30 June 2007.

PharmaNet has raised its guidance for 2007 from direct revenues of $342-$352 million previously to a new estimate of $361-$365 million. Adjusted pre-tax earnings – which exclude costs of $10.4 million related to the aforementioned securities class-action settlement and related litigation, amortisation of intangible assets and non-cash share-based compensation expenses – are now expected to be $29-$31 million against previous guidance of $27-$29 million.

The forecast for adjusted fully diluted earnings per share has moved up from $1.12-$1.24 to $1.22-$1.29.