Encorium Group, the financially pressured contract research organisation (CRO) now based in Finland, is looking for financial and strategic partners to help improve its liquidity after emerging from what chief executive officer Dr Kai Lindevall described as “the most challenging year in the history of the Company”.
The CRO’s net loss from continuing operations swelled to US$9.1 million or US$2.40 per diluted share in the year ended 31 December 2010, compared with a US$3.1 million loss (US$1.16 per diluted share) in 2009. This was mainly due to a decline in contract volume and related values, Encorium reported.
Net revenues for 2010 were down by 27.9% year on year to US$12.9 million. Encorium’s faltering performance reflected last year’s difficulties in the financial markets and their impact on biotechnological companies’ capacity to finance clinical development, it said.
Strategic outsourcing also took its toll. The “policy of the large pharmaceutical companies to increasingly use large CRO companies as preferred providers had a detrimental effect on our business,” Encorium added.
Significant flow
Things are looking up this year, with a “significant flow” of new business awards starting in the first quarter. Preliminary results for the first six months of 2011 suggest the net loss for the period will range from US$1.5 million to US$1.9 million, against a net loss of US$2.7 million recorded in the first six months of 2010, Encorium noted.
Nonetheless, the losses of the last two years have put substantial strain on the company’s liquidity, Lindevall cautioned.
Hence its decision to seek out suitable partners that will allow Encorium to “use its full potential in the marketplace”. The company does not intend to disclose any further developments on this front “unless and until” the board of directors has approved a specific transaction.
Despite the expectation of a significantly reduced net loss when full results are published for the first half of this year, net revenues are forecast to drop by 5.9% against H1 2010 to US$6.4 million.
According to Encorium, the projected reduction in net loss is mainly thanks to cost-saving and downsizing initiatives, which brought operating expenses (excluding reimbursement of out-of-pocket expenditure) down from US$9.5 million to around US$7.7 million in the six months to June.
New business contracts in the latest half year came to US$13.1 million and Encorium’s backlog of signed contracts was worth US$16 million as of 30 June 2011. The average roll-out period for revenue recognition of these contracts is expected to be about 18 months.
Emerging-market traction
New business awards in Latin America have continued to grow, Lindevall observed. “We see a substantial traction towards our business in the emerging markets, especially Latin America,” he commented. “This means that our acquisition of Progenitor International Research is starting to provide return on investment.”
A slimmed down and repositioned Encorium announced in July 2010 that is was paying up to €3.2 million for Progenitor Holdings, a Swiss corporation with wholly owned subsidiaries pursuing emerging-market clinical research from Mexico, Panama, Argentina, Chile, Switzerland, India and Hong Kong.
