PRA International, the US-based contract research organisation (CRO) set to merge with affiliates of its one-time majority shareholder, Genstar Capital, gave some further evidence in the third quarter that the restructuring programme it launched last February is having the desired effect.

Service revenue growth in the quarter ended 30 September 2007 lagged behind the 29% increase seen in Q2 but still came out at a very respectable 18.6%, taking revenues (which excluded reimbursed out-of-pocket costs) up to US$96.7 million. However, restructuring charges, along with amortisation of intangibles and higher regular costs, cut into PRA’s third-quarter earnings, with net income diving 20%.

Operating income for the quarter fell by 12.9% to US$9.6 million. Adjusted for US$403,000 in restructuring charges – mainly related to the closure of two offices – and an additional US$624,000 charge for the amortisation of intangible assets from the acquisition of Dutch clinical development and bioanalytical laboratory company Pharma Bio-Research in July 2006, operating income came out at US$10.6 million, down by just 3.5%.

These one-off costs, as well higher selling, general and administrative expenses (+14.1%) were also reflected in net income, which was 20.4% lower at US$6.5 million or US$0.26 per diluted share against US$0.33 per diluted share in Q3 2006. The consensus analyst forecast had been for US$0.24 per share. Without the restructuring and amortisation charges, net income would have been 11.4% down at US$7.2 million.

PRA’s order backlog increased by 24.5% to US$753 million in the quarter and gross new business awards rose by 20.7% to US$204.4 million. However, cancellations more than doubled to US$48.2 million from US$21 million in the third quarter of 2006, giving a net book-to-bill ratio of 1.62 compared with 1.82 a year earlier.

Merger nearing completion
The merger agreement with affiliates of Genstar Capital, a private equity firm, is expected to be completed during the current quarter.

Part of last February’s restructuring plan was to capitalise on progress in PRA’s Early Development and Scientific & Medical Affairs businesses while turning around its much larger Product Registration arm. At the end of October the US company reinforced its Early Development offering by acquiring Pharmacon, a CRO based in Berlin, Germany and specialising in Phase I clinical studies conducted in a number of Central European countries.

The acquisition included Pharmacon’s Berlin headquarters and operational sites in Poland, Hungary and the Czech and Slovak Republics. John Horkulak, the former owner and chief executive officer of Pharmacon – in which PRA already held a 25% stake – joined the US CRO as vice-president of Early Development Services for Central and Eastern Europe.