US contract research organisation PRA International is restructuring and refocusing its operations under interim chief executive officer Terrance Bieker, following a difficult year marked by low revenue growth, high staff turnover and a sharp drop in income.
Operating income for 2006 was US$33.2 million, 35.2% below the previous year, while net income dropped by 16.7% to US$26.8 million. PRA’s service revenues edged up 2.9% to US$303.2 million, but these included US$21.3 million from last summer’s acquisition of Dutch clinical development and bioanalytical laboratory company Pharma Bio-Research.
Bieker took over at PRA in December when Patrick Donnelly stepped down as president and CEO, saying it was “time for PRA to be led by a CEO with a more scientific and therapeutic focus”. Presenting the annual results yesterday, Bieker acknowledged PRA’s performance in 2006 had disappointed both the company and its shareholders. The plan for this year was to “do fewer things and do them better”.
He was not promising any quick fixes, though, and expected 2007 to be a “rebuilding year”. After that, growth could return to market levels or better in 2008 and beyond, Bieker believes. But PRA will need to capitalise on progress in its Early Development and Scientific & Medical Affairs businesses while turning around its much larger Product Registration arm, which Bieker said had not been meeting expectations for the last two years.
These three units form the hub of PRA’s restructuring programme, which includes closing facilities in Eatontown, New Jersey and Ottawa, Canada. Associated support functions will be consolidated into larger offices and no redundancies are expected. The closures reflected increased regionalisation in the CRO sector and the desire of PRA’s project managers and lead clinical research associates to work from home, Bieker explained, commenting: “With this change, our client-facing employees will be in a better position to serve our clients’ needs.”
The move should also generate annual cost savings of around US$4 million. A restructuring charge of about US$9 million will be taken in the first two quarters of this year.
PRA is sharpening up its sales efforts by placing dedicated specialists in high-growth areas, concentrating on the therapeutic areas (oncology, cardiovascular, central nervous system, respiratory) where it has the most expertise, expanding the breadth and geographical reach of its core activities, and shifting more of its business from biotechs to large pharmaceutical companies. The former accounted for 67% of new business awards in 2006 and mainstream pharmaceutical companies for 22%.
On this last point, Bieker noted the trend of the last quarter, in which biotechs and Big Pharma made up 63% and 30% respectively of new business awards. Expanding PRA’s mainstream pharmaceutical base was likely to delay revenue flows by lengthening the “implementation tail” on new business, he pointed out. On the upside, it should also mean fewer cancellations, which reached an unusually high 30% (US$150 million) of new business awards in 2006.
The acquisition of Pharma Bio-Research has bolstered PRA’s Early Development activities (Phase I clinical trials and laboratory testing), while a recent alliance with cancer research network US Oncology Research should enhance efficiencies in this area by enabling PRA to conduct more detailed feasibility studies. Geographical expansion was served last year by a new office in Buenos Aires and an expanded presence in Brussels. Bieker noted that strategic acquisitions would be “de-emphasised” for the time being in favour of organic growth.
PRA is expecting pro forma growth of 20% from its Early Development arm (including Pharma Bio-Research) this year, while Scientific & Medical (Phase IV, regulatory affairs) should advance in the “high teens”. “Low single-digit” growth is slated for the beleaguered Product Registration Arm (Phase II and III trials), although it is still expected to produce more than 70% of PRA’s service revenues, forecast at US$330-350 million for 2007.