SFBC warns full recovery 'not imminent,' reports $4.1 million loss

By Jennifer Lanning Drey

Eugene, Ore., May 10 - SFBC International cautioned Wednesday that a return to health will take longer than anticipated and announced a net loss of $4.1 million for the first quarter.

The company reported that a greater than anticipated decrease in revenues at its Miami facility, greater than expected legal expenses and a lower than previously anticipated outlook for its Anapharm facilities in Canada all contributed to updates made to its guidance that dropped anticipated direct revenue for 2006 to approximately $308 million to $324 million.

In March, the company was anticipating direct revenue to be approximately $332 million to $347 million, according to a company press release.

SFBC reported a loss from operations for the first quarter of $3.3 million, compared to earnings from operations of $11.7 million for the first quarter of 2005. The net loss for the first quarter was $4.1 million compared to net earnings for the first quarter of 2005 of $5 million.

"We continue to review our operations and take timely and appropriate actions to ensure the long-term success of the company," said Jeffrey P. McMullen, president and chief executive officer of SFBC, during a company conference call held Wednesday.

"I'm pleased to report we are on the road to recovery. Yet as our first quarter results indicated, full recovery is not imminent, and it will take more time than we anticipated, even as recently as two months ago," said McMullen during the same conference call.

The loss of revenues at its Miami facility stemmed, in part, from structural issues that the company has since been working to correct.

In April, SFBC submitted a final building remediation plan to Miami Dade County officials, and the plan is under review with a hearing scheduled for next week. If the plan is approved, SFBC will have 180 days to carry out the work associated with the final remediation plan. The company has estimated $4.5 million for the capital expenditures involved in the renovation and plans to continue conducting business from the facility as they are being carried out.

The Miami facility is also the focus of a lawsuit filed by East Bay Corp., which owns a 99-year land lease for a portion of the property on which SFBC conducts certain operations.

Competition for generic testing

A shortfall at the Anapharm Canadian facilities, which achieved internal revenue targets in the first quarter but saw margins that were lower than expected, was attributable to the impact that increased competition for generic drug testing is having on pricing, according to McMullen.

"We anticipate the environment for generic drug testing will be very competitive for the remainder of 2006," said McMullen, during the conference call.

"Based on our current outlook, we expect that the second quarter will be challenging for Anapharm, but based on historical trends for the unit, we are anticipating stronger results for the third and fourth quarters, he said.

SFBC also saw weaker than expected performance in its early clinical development segment in the first quarter of 2006. The loss from operations for early clinical development was $5.6 million, compared to earnings from operations of $10.3 million for the first quarter of 2005.

But there was a sign of promise found among the late-phase development service segment, which includes PharmaNet, an operation that primarily conducts phase 2 through phase 4 clinical trails, data management and biostatistics, medical and scientific affairs, regulatory affairs and submissions and provides software tools and services for use in clinical trails.

In that segment, SFBC recorded direct revenue, which does not include reimbursed out-of-pocket expenses, of approximately $47.1 million as compared to $36 million in the first quarter of 2005. The company said it expects the segment to perform for the year as previously expected.

SFBC is a Princeton, N.J.-based provider of drug development services to branded pharmaceutical, biotechnology and generic drug companies.

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