PharmaNet back in the red; lawsuit settled
the red after it had only just clawed its way back into the black
in the first quarter, following a string of quarterly losses.
In the same week the firm announced the settlement of an ongoing lawsuit it was defending. The contract research organisation (CRO) reported an operating loss of $3.7m (€2.7m) for the quarter, although this was a 43 per cent improvement on the loss reported for the comparable 2006 period. The recorded pre-tax loss revealed a similar pattern, coming in at $5.8m, a 47 per cent year-on-year improvement. Revenues rose 18 per cent to $85.6m. The company's early stage segment showed strong signs of recovery, with revenues increasing by 38.7 per cent to $30.7m, while operating margins increased to 14.4 per cent in the second quarter of 2007 compared to -2.9 per cent in 2006. These improvements were attributed by the firm as being primarily "due to higher volume in the company's bioanalytical laboratories". Indeed, PharmaNet has been trying to grow its early phase business back up to its former glory as the unit was dealt a severe blow back in 2004, when allegations were made over inadequate clinical trial patient recruitment and informed consent practices at its Miami facility. In addition, one of the buildings was found to be unsafe and in breach of serious building code violations. In 2006 PharmaNet shut its Miami operations, subsequently ending its ties with Phase I and bioequivalency studies in the US, and the early phase segment has experienced a continual decline in business ever since. The firm has been vigorously preparing two new facilities in Quebec City and Toronto to accommodate the Phase I unit's retreat from Miami and these finally became operational in the second quarter of 2007. Meanwhile, the group's larger late stage segment recorded an 8.3 per cent revenue increase to $54.9m, with an operating margin jump to 11.0 per cent from only 0.7% in the second quarter 2006. However, the performance was not as good as hoped: "While the early stage business performed better than expected, late stage earnings were negatively impacted by unrecognised revenue associated with unsigned change orders," said president and CEO Jeffrey McMullen. "We expect to finalise these change orders and recognise the related revenue in the third quarter 2007". Meanwhile last week PharmaNet also announced that it has entered into an agreement to settle a class action lawsuit that the firm had been fighting. Under the Agreement, the class will be paid $28.5m. It was alleged by a number of shareholders that PharmaNet made misleading US Securities and Exchange Commission (SEC) filings in regards to revenue recognition, earnings, company operations and related party transactions surrounding the Miami site. Two class actions were launched, the first in February 2006, alleging that the firm "publicly issued a series of false and misleading statements regarding its business and financial prospects, thus causing its shares to trade at artificially inflated prices." The second was instigated in November 2006, alleging that "the company and its senior officers and directors violated the federal securities laws by making false and misleading periodic filings with the SEC and making other false and misleading statements to investors." The complaint also alleged that the firm "misrepresented the condition of its Miami facility, failing to disclose that this facility violated several occupancy, zoning, and other regulations, which forced the facility to suspend operations; failed to disclose unethical and dangerous clinical testing practices and conflicts of interest; failed to disclose related-party transactions; and misrepresented the qualifications of its senior management team." In March this year PharmaNet was told by the SEC that it was to be the subject of a formal investigation. The settlement is now subject to court approval and other customary conditions, and involved no admission of "liability" by the company or any of its current and former directors, officers, and employees named in the lawsuit, the firm said. The company's second quarter results were impacted by the settlement, with an $8.9m charge being written down, however, this was largely balanced out by a $7.8m impairment of goodwill charge that was recorded in the 2006 second quarter but not in 2007.
