(Adds PPD conference call details, analyst comments; updates stock movement)
By Esha Dey
BANGALORE, July 22 (Reuters) - Shares of Pharmaceutical Product Development Inc PPDI.O fell 14 percent on Wednesday, as poor bookings and high cancellations disappointed investors even though the clinical-research service provider’s quarterly profit topped market estimates.
“The new business wins were $115 million below our expectation and cancellations were $60 million higher. That’s an unfortunate combination,” Jefferies & Co analyst David Windley said.
“That is the second quarter in a row of very weak new business wins and the fourth quarter in a row of $200 million or more in cancellations,” he added.
On Tuesday, PPD reported second-quarter new business authorizations of $465.9 million, while contract cancellations were $212.9 million.
In a conference call with analysts, the company said oncology and infectious diseases were the areas that experienced the largest amount of cancellations and adjustments.
There was one large cancellation of around $33 million from a biotech client, while all the rest were under $7 million or $8 million, the company added.
Earnings for the second quarter were $58.1 million, or 49 cents a share, compared to $49.0 million, or 41 cents a share in the year-ago period.
Income from continuing operations was 33 cents a share, that beat analysts’ expectations of 29 cents a share. [ID:nWNAB9715]
Windley said PPD’s “earnings achievement was driven by cost-cutting, which will not get them back to a growth mode.”
The company, which analysts were expecting to announce a cut in its outlook, also said in its conference call that it would not comment on its forecast currently.
In April, PPD had reduced its 2009 earnings forecast to $1.54 to $1.60 a share, on revenue of $1.40 billion to $1.47 billion.
“PPD’s earnings guidance looks increasingly difficult to achieve, and we do expect PPD to miss revenue guidance by $63 million to $138 million in 2009,” Robert W. Baird analyst Eric Coldwell said.
Coldwell, who downgraded the stock to “neutral” from “outperform” and cut his price target by $3 to $23, said, “PPD’s position in the market may be waning as lower-margin and more aggressive marketing organizations appear to be taking share.”
Shares of the company were down 12 percent to $19.44 in midday trade on Nasdaq. They had earlier touched a low of $19.
The low number of new business reported by PPD, which was the first company among the contract reasearch organisations (CRO) to report quarterly results, also suggests that the sector is probably not yet ready for a turnaround.
CROs have been hit hard by the recession, as several small biotechs closed or slimmed operations due to lack of funding and bigger pharmaceutical companies tried to cut costs.
However, analysts had expected to see some signs of stabilization in the sector during the quarter with biotech funding more becoming accessible and pharma easing out on expenses.
“The market may initially conclude that CRO sector trends are further deteriorating, as PPD is the first company to report and an industry bellwether,” Baird’s Coldwell said.
Smaller rival ICON Plc (ICLR.O) ICON.I also posted a better-than-expected quarterly profit on Wednesday, but cut the range of its 2009 earnings and revenue view. [ID:nBNG443562]
Jefferies’ Windley called ICON’s results “okay, but not quite up to my expectations.” (Editing by Aradhana Aravindan, Jarshad Kakkrakandy)