SFBC says independent counsel finds ethical accusations against company 'unsupported'

By E. Janene Geiss

Philadelphia, Dec. 15 - SFBC International, Inc. announced Thursday that an independent counsel reviewing ethics allegations made in a news article about the drug researcher found the criticisms were "wholly unsupported."

The company said its board of directors engaged the independent counsel to investigate claims made in Bloomberg Magazine articles, including one claim that "across the U.S. the centers that do the testing - and the regulators who watch them - allow scores of people to be injured or killed," implying that such incidents occurred at SFBC, according to a company news release.

The counsel's report, company officials said, found that the company has never had a death in its 21-year history. The report also found that SFBC has received only three participant claims over the past three years, which were resolved for an aggregate of less than $20,000, officials said.

"The results of the independent review exonerated the company. We continue to support SFBC's management efforts to overcome any near-term impact from the article on its business prospects and to build long-term value for its clients, employees and shareholders," Jack Levine, independent lead director of SFBC International, said in the release.

The report called the articles flawed with unsupported allegations, officials said.

For instance, the report found that from 1998 through 2005, SFBC received seven FDA 483 reports, which are observations by the Food and Drug Administration, and has at all times responded appropriately to the FDA. Currently, there are no open issues with respect to 483s. The company has never received a warning letter in its 21-year history, officials said.

Another allegation in the article accused the company of not properly informing poor immigrants participating in trials. The company's Miami facility was the focus of these allegations.

But the report found that consent forms, which were available in English and Spanish, contained understandable information concerning the medicine being tested, the risk factors, the study's duration and the study's compensation. The trial-specific forms are pre-approved by the IRB, which is the organization responsible for protecting the safety of human trial participants and the sponsor, officials said.

The report also found that the company requires participants to provide government-issued photo identification and a social security card prior to qualifying for a study. It also requires participants to complete a W-9 form in order to be compensated. And the participants are required to be fingerprinted to monitor the date and duration of every study in which a participant is enrolled at an SFBC facility, officials said.

The report also found the company has adequate cleaning procedures and personnel in place at its Miami facility, and the Health Department's inspection reports also confirm a clean and hygienic facility, officials said.

Advises database, IRB disclosures

Officials said the report made two recommendations for change in the industry and the company said it fully supports these recommendations.

The recommendations include an establishment of a centralized database to house basic information about clinical study participants on a regional and national basis. This change would greatly reduce enrollment in concurrent studies and failure to abide by wash-out periods, the report said.

And the report said the industry should implement disclosure obligations relating to IRB ownership. This measure would increase transparency in the system and reduce any misunderstanding among the sponsors, the testing centers and the FDA, the report said.

SFBC's board has directed the independent counsel to transmit its findings to the Senate Finance Committee as requested by senator Charles Grassley, officials said.

New earnings guidance

In addition to releasing information about the report, the company updated its 2005 and 2006 guidance.

Based on the current outlook for 2005, the company has revised guidance, but said it still anticipates about 36% - 40% earnings per share growth over 2004 earnings per share, excluding the write-off of deferred finance costs in 2005, but including an about 20% increase in its fully diluted share count.

As previously disclosed, the company saw a decrease in gross profit margins for SFBC Miami during the third quarter of 2005 as a result of lower than anticipated revenue. The shortfall in revenue, which was exacerbated by the Bloomberg articles, has unexpectedly continued in the fourth quarter, officials said.

SFBC adjusted revenue, EPS and non-GAAP EPS guidance for fiscal 2005. Current guidance for 2005 is about $329 million, $330.5 million in direct revenue, which excludes reimbursed out of pocket expenses, $1.56 to $1.61 in GAAP EPS and $1.88 to $1.93 in non-GAAP EPS.

The company's EPS and non-GAAP EPS guidance includes legal and related expenses pertaining to the Bloomberg articles of about $0.03 per share. In addition, the company said it has identified about a $0.02 in lost EPS as a direct result of one client canceling two signed contracts of ongoing studies due to the Bloomberg articles, the impact of which is included in guidance.

Non-GAAP EPS excludes non-cash expenses of about $0.18 per fully diluted share related to amortization of intangibles and $0.14 per fully diluted share related to one-time write-offs of deferred financing costs.

Sees 2006 revenue up 7.5% - 10%

In addition, SFBC said it is establishing guidance for 2006 that anticipates revenue in 2006 at about $355 million to $363 million, reflecting an increase of approximately 7.5% to 10% from the mid-point of its 2005 annual guidance.

SFBC said it anticipates that its GAAP EPS for 2006 will be $1.80 to $1.86 per share and non-GAAP EPS for 2006 will be $1.93 to $1.99.

Non-GAAP EPS excludes non-cash expenses of $0.13 per fully diluted share related to amortization of intangibles. Next year's guidance excludes any ongoing extraordinary legal expenses and implementation of FAS123 relating to the expensing of stock options, officials said.

SFBC, based in Miami, provides early- and late-stage clinical drug development services to branded pharmaceutical, biotechnology, generic drug and medical device companies.

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