PPD shares dip despite robust results

27-Jul-2008 - Last updated on 29-Jul-2008 at 12:13 GMT

Pharmaceutical Product Development (PPD) reported a bumper set of second quarter figures, well ahead of analysts expectations, but saw its share price take a dip anyway.

The contract research organisation (CRO) reported a 16 per cent hike in net revenues to $375m for the quarter, but investors seemed to get the jitters about PPD's new business authorisations. These were up nearly 17 per cent to $552m, but came in below PPD's expectations and were well short of the $690m booked in the first quarter.

This missed target, alongside a cancellation rate of 26 per cent and a cut in earnings, caused PPD's shares to decline more than 5 per cent to $38.77 on the day.

PPD may also have suffered from an overhang from the announcement by the US National Insitutes of Health (NIH) earlier this month that it was pulling a large-scale trial of an HIV vaccine and reorganising its HIV development strategy.

PPD won a major ($243m) contract from the NIH to provide contract services to its HIV programme in 2005, but in a conference call the company's chief financial officer, Dan Darazsdi, said the pulled trial would not have "any significance on our revenue guidance going forward."

Revenue growth in development services was generally good, but Phase II through IV clinical trials in North America was again "somewhat anaemic," according to PPD's CEO Fred Eshelman. The company's Latin American business was also behind target, he said.

The high points of the quarter were once again PPD's laboratory-based services and Phase I clinical trials, with the latter enjoying a 44 per cent hike in revenues to $16.5m.

Backlog (the value of future projects under contract) improved to $2.9bn, up 20 per cent said Eshelman, and while a ramp up in hiring in recent months has left the company with slight overcapacity in terms of staffing, this will allow it to make a concerted push to win new business.

"We believe the market for CRO services is strong, even though our new authorisations came in lower than expected for the quarter," said. "Request-for-proposal volume remains high, and we will continue to focus our efforts on operational excellence and sales execution."

The cancellation rate was higher than expected and seemed to consist of a lot of smaller contracts in the $1-$2m range, said Eshelman. "We think some of it is reallocation of resources and strategy by Big Pharma [with] those resources going to first-tier projects," he said.

There was little to update on PPD's compound partnering strategy, an unusual strategy for a CRO which involves the company in-licensing compounds and sharing the risk of their development.

PPD's small but growing compound partnering division currently has five compounds in development with three partners, namely dapoxetine with Johnson & Johnson, alogliptin and a follow-up diabetes drug with Takeda, a product for chronic sinusitis with Accentia BioPharmaceuticals and a novel statin originally developed by India's Ranbaxy.

Eshelman said, "we continue to evaluate the future of PPD's statin program and await news from the regulators on alogliptin and dapoxetine."PPD also announced the appointment of Christine Dingivan as its new executive vice president and chief medical officer. Dingivan joins the firm from MedImmune where she served in various capacities, most recently as a senior vice president of clinical development and operations.