PharmaNet Shares Get Hammered
OKLAHOMA CITY -- While other healthcare companies posted some weak metrics on Thursday,
PharmaNet
( PDGI) may have suffered through the worst quarterly checkup of all.
Once again, PharmaNet has been hit hard by cancelled orders for clinical drug trials. As a result, the Princeton, N.J.-based company swung to a first-quarter loss, badly missing Wall Street estimates. Its stock plunged 30% to a new 52-week low of $16.80 on the news.
Even
Smith & Nephew
(SNN) - Get Report
and
Cigna
(CI) - Get Report
, plagued by their own quarterly setbacks, escaped that kind of pain.
Indeed, PharmaNet itself hasn't looked this weak for years. In late 2005, the company found itself fighting for survival after
Bloomberg
raised serious questions about its early-stage drug trials. Since then, the company has reinvented itself -- even adopting a new name -- as it shifted its focus more to late-stage drug trials instead.
Now, however, both of PharmaNet's core businesses appear to be hurting. After reporting heavy cancellations of early-stage trials last quarter, PharmaNet followed up on Thursday with troubling news of cancellations in its late-stage business as well. All told, PharmaNet clients have cancelled almost $60 million worth of late-stage trials during the past two quarters alone.
PharmaNet's first-quarter results took an especially hard hit. Direct revenue, excluding reimbursed out-of-pocket expenses, inched up just 2.4% to $86.8 million in the recent period. On average, analysts were looking for much higher revenue of $94.6 million.
Still, PharmaNet's bottom-line miss proved even worse. The company swung from a profit of $6 million a year ago to a loss of $10.1 million, or 53 cents a share, in the latest period. Thus, the company fell well short of Wall Street's forecast of a solid 30-cent profit for the quarter.
For its part, however, PharmaNet tried to look on the bright side.
"While earnings were adversely impacted by higher-than-expected cancellations, which occurred in the fourth quarter of 2007 and again in the first quarter of 2008, we are encouraged by the significant new business wins allowing us to build our backlog," PharmaNet CEO Jeffrey McMullen stated on Thursday. Moreover, "it is important to note that the cancellations are not the result of our performance but are instead related to clients' decisions about the product under study.
"We believe the higher backlog clearly indicates that we continue to be competitive in the fundamentally strong market for outsourced (contract research organization) services and enjoy our clients' confidence in our abilities."
Nevertheless, PharmaNet still had to slash its 2008 guidance by almost two-thirds. The company now expects to earn just 53 cents to 63 cents a share over the course of the entire year. Before Thursday's devastating update, analysts had been looking for the company to generate a full-year profit of $1.52 a share instead.
'Unacceptable' practices
Smith & Nephew weathered some first-quarter setbacks, too.
The London-based orthopedics device maker also missed Wall Street expectations for the latest period. The company blamed "unacceptable" sales practices at recently acquired Plus for part of its problems.
"We have undertaken a thorough investigation, which has progressed a long way but is not yet complete," Smith & Nephew stated on Thursday. "We have immediately moved to harmonize these practices with Smith & Nephew's standards."
But in the meantime, the company added, "this has impacted our Q1 performance ... and will continue to impact performance over the course of the year."
During the latest quarter, Smith & Nephew saw revenue grow 22% to $911 million with help from its recent acquisition. However, the company still fell short of Wall Street's $924 million revenue target.
Meanwhile, Smith & Nephew's first-quarter profit jumped 23% to $182 million. Yet,
MarketWatch
calculated, adjusted earnings per share of 12.8 cents just missed analyst expectations.
Shares of Smith & Nephew plummeted 11% to $57.92 on the news.
Cigna's turn
Cigna took a hit on Thursday as well.
The Philadelphia-based insurance giant posted first-quarter revenue of $4.57 billion -- up 4.4% from a year ago -- that topped the consensus estimate. But the company saw its net income plunge 80% to $46 million due to unfavorable developments in its run-off reinsurance business. Even after adjusting for special items, earnings of 94 cents a share still fell 2 pennies shy of Wall Street expectations.
Cigna's big health insurance division actually earned less money that it did a year ago. The company blamed rising upper-respiratory claims, as well as weak enrollment in lucrative risk-based policies, for the downturn.
Looking ahead, Cigna now expects to earn just $4.05 to $4.25 a share over the course of the full year. Up to now, analysts had been assuming that the company would hit the top end of that range.
Cigna's stock fell 4.2% to $40.94 on the report. Rival
Health Net
(HNT)
, which delivered its own quarterly disappointment earlier this week, lost some ground as well. Its stock was recently down 4.5% to $27.96 .