PharmaNet Development Group Reports Second Quarter 2008 Financial Results

PharmaNet Development Group, Inc. (the "Company”) (NASDAQ: PDGI), a leading provider of clinical development services, today reported net income for the second quarter ended June 30, 2008, of $2.2 million, or $0.11 per diluted share, compared to a net loss from continuing operations of $4.6 million, or $0.25 per diluted share, in the second quarter 2007. Direct revenue in the second quarter 2008, increased 13.0 percent to $96.8 million compared to $85.6 million in the second quarter 2007, due primarily to higher direct revenues in the early stage segment partially offset by lower direct revenues in the late stage segment. Foreign currency exchange translation favorably impacted direct revenue by approximately $8.4 million driven primarily by a weakening of the U.S. Dollar against the Canadian dollar, Swiss franc, and Euro. The early stage segment comprised approximately 44 percent of total direct revenue and the late stage segment comprised 56 percent. Operating margin increased to 5.7 percent in the second quarter 2008, compared to negative 4.4 percent in the second quarter 2007, primarily due to the previously disclosed $8.9 million charge related to the securities class action and other related litigation recorded in the second quarter 2007 and higher early stage segment operating margin in this period. Foreign currency exchange translation favorably impacted operating profit by approximately $2.5 million. The Company’s backlog increased 20.0 percent to a record $579.2 million at June 30, 2008, compared to $482.9 million at March 31, 2008. The Company’s quarter-to-date book-to-bill ratio was 2.0x at June 30, 2008, compared to a book-to-bill ratio of 1.3x at March 31, 2008. Year-to-date book-to-bill ratio at June 30, 2008 was 1.7x. Early stage segment For the early stage segment, direct revenue increased 40.0 percent to $43.0 million in the second quarter 2008, compared to $30.7 million in the second quarter 2007, primarily due to higher revenues in both the clinics and laboratories. Foreign currency exchange translation favorably impacted early stage direct revenue by approximately $4.8 million. Early stage segment operating margins increased to 18.6 percent in the second quarter 2008, compared to 14.4 percent in the second quarter 2007, primarily due to the mix of generic and innovator business in the clinics, higher sample volume, higher staff utilization and cost containment efforts. Foreign currency exchange translation favorably impacted early stage operating profit by approximately $0.8 million. Backlog for the early stage segment was $77.6 million at June 30, 2008, compared to $82.0 million at March 31, 2008, due to $46.7 million of new business authorizations and a cancellation rate of 11.8 percent. Early stage book-to-bill ratio was 0.9x at June 30, 2008. Early stage year-to-date book-to-bill ratio was 1.1x at June 30, 2008. Late stage segment For the late stage segment, direct revenue decreased 2.1 percent to $53.8 million in the second quarter 2008, compared to $54.9 million in the second quarter 2007, primarily due to previously disclosed cancellations. Foreign currency exchange translation favorably impacted late stage direct revenue by approximately $3.6 million. Late stage segment operating margins were 3.9 percent in the second quarter 2008, compared to 11.0 percent in the second quarter 2007, primarily due to lower staff utilization and a $1.1 million charge related to office closures. Foreign currency exchange translation favorably impacted late stage operating profit by $1.7 million. Backlog for the late stage segment increased to $501.6 million at June 30, 2008, compared to $400.9 million at March 31, 2008, due to $168.7 million of new business authorizations and a cancellation rate of 8.4 percent. Late stage quarter-to-date book-to-bill ratio is 2.9x at June 30, 2008. Late stage year-to-date book-to-bill ratio was 2.1x at June 30, 2008. Corporate financial summary Corporate selling, general and administrative ("SG&A”) expenses decreased to $4.6 million in the second quarter 2008, compared to $5.3 million in the second quarter 2007, primarily due to lower professional fees. Second quarter 2008 Corporate SG&A expense includes a reversal of the accrual for legal expenses related to the derivative litigation of $0.5 million. Second quarter 2008 non-cash share-based compensation expense was $0.1 million and other non-cash compensation was $1.6 million, compared to $0.2 million and $1.0 million, respectively, in the second quarter 2007. Cash and cash equivalents were $51.5 million at June 30, 2008, compared to $63.9 million at March 31, 2008. Net cash used in operations was $8.6 million in the second quarter 2008, compared to cash generated by operations of $15.4 million for continuing operations in the second quarter 2007. Capital expenditures decreased to $2.3 million in the second quarter 2008 compared to $6.6 million in the second quarter 2007 primarily due to the investments in clinic expansions during the prior year. Depreciation expense was $3.9 million and amortization of intangibles was $0.7 million in the second quarter 2008, compared to depreciation expense of $3.0 million and amortization expense of $0.7 million in the second quarter 2007. Net days sales outstanding (DSO) was 48 days at June 30, 2008, compared to 41 days at March 31, 2008. Tax expense for the second quarter 2008, was 27.6 percent compared to a tax benefit of 22.0 percent in the second quarter 2007. Guidance For the full year 2008, the Company is reiterating its guidance with the exception of Capital Expenditures, where the Company has adjusted the low-end of the range.                     Guidance Direct revenue $390 million to $399 million Operating margin (percent) 5.8 percent to 6.2 percent Corporate expenses $23.9 million to $24.4 million Diluted earnings per share $0.53 to $0.63 Capital expenditures $10 million to $16 million Depreciation $13.5 million to $15 million Amortization $2.8 million Tax expense 25 percent to 28 percent Conference Call and Webcast The Company will host a conference call to discuss its second quarter 2008 financial results on Thursday, July 31, 2008, at 8:00 am Eastern Time     When:   Thursday, July 31, 2008, at 8:00 am Eastern Time   Dial-in: (866) 393-6524 for U.S./Canada (706) 902-3789 for international Conference ID: 53995149 Please dial in approximately ten minutes before the call and provide the operator with the conference ID number.   Dial-in Replay: (800) 642-1687 for U.S./Canada (706) 645-9291 for international Conference ID: 53995149 The replay will be available approximately two hours after completion of the call through Thursday, August 7, 2008.   Webcast: Please visit www.pharmanet.com and select the investor tab to access the webcast. The archived webcast will be available for approximately thirty (30) days following the conference call. About PharmaNet Development Group, Inc. PharmaNet Development Group, Inc., a global drug development services company, provides a comprehensive range of services to the pharmaceutical, biotechnology, generic drug, and medical device industries. The Company offers clinical-development solutions including early and late stage consulting services, Phase I clinical studies and bioanalytical analyses, and Phase II, III and IV clinical development programs. With approximately 2,500 employees and 41 facilities throughout the world, PharmaNet is a recognized leader in outsourced clinical development. For more information, please visit our website at www.pharmanet.com. Forward-Looking Statements Certain statements made in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). Additionally, words such as "seek," "intend," "believe," "plan," "estimate," "expect," "anticipate" and other similar expressions are forward-looking statements within the meaning of the Act. Some or all of the results anticipated by these forward-looking statements may not occur. Factors that could cause or contribute to such differences include, but are not limited to, industry trends and information; whether the Company will achieve its estimated value relating to discontinued operations; developments with respect to the SEC's inquiry, the class action litigation and derivative lawsuit; the Company’s ability to successfully achieve and manage the technical requirements of specialized clinical trial services, while complying with applicable rules and regulations; regulatory changes; changes affecting the clinical research industry; a reduction of outsourcing by pharmaceutical and biotechnology companies; the Company’s ability to compete internationally in attracting clients in order to develop additional business; the Company’s evaluation of its backlog and the potential cancellation of contracts; its ability to retain and recruit new employees; its clients' ability to provide the drugs and medical devices used in its clinical trials; the Company’s future stock price; the Company’s assessment of its current or future effective tax rate; the Company’s assessment of the value of its deferred tax assets; the Company’s financial guidance; the Company’s anticipated capital expenditures; the Company’s ability to remediate its material weaknesses; the Company’s costs associated with compliance of Section 404 of the Sarbanes-Oxley Act; the impact on the Company of foreign currency transaction costs and the effectiveness of any hedging strategies it implements; the potential liability associated with the Company’s registration of its employees’ stock purchase plan; and the national and international economic climate as it affects drug development operations. Further information can be found in the Company’s risk factors contained in its Annual Report on Form 10-K for the year ended December 31, 2007, and most recent filings. The Company does not undertake to update the disclosures made herein, and you are urged to read our filings with the Securities and Exchange Commission.   PharmaNet Development Group, Inc. and Subsidiaries Statements of Operations - Unaudited For the Three Months Ended June 30, 2008 and 2007 In thousands, except per share data       2008   % of DirectRevenues   2007   % of DirectRevenues                     NET REVENUE:             Direct revenue $ 96,764 100.0 % $ 85,595 100.0 % Reimbursed out-of-pocket expenses     23,007   23.8 %   23,409   27.3 % TOTAL NET REVENUE       119,771   123.8 %   109,004   127.3 % COSTS AND EXPENSES:           Direct costs 61,499 63.6 % 52,701 61.6 % Reimbursable out-of-pocket expenses 23,007 23.8 % 23,409 27.3 % Selling, general and administrative expenses 29,770 30.8 % 27,743 32.4 % Provision for settlement of litigation     -   -     8,900   10.4 % TOTAL COSTS AND EXPENSES     114,276   118.1 %   112,753   131.7 % EARNINGS (LOSS) FROM CONTINUING OPERATIONS   5,495   5.7 %   (3,749 ) (4.4 %) OTHER INCOME (EXPENSE):           Interest income 337 0.3 % 476 0.6 % Interest expense (1,604 ) (1.7 %) (1,889 ) (2.2 %) Foreign currency exchange transaction (loss) gain, net (408 ) (0.4 %) (1,125 ) (1.3 %) Other income         125   0.1 %   478   0.6 % TOTAL OTHER INCOME (EXPENSE), NET   (1,550 ) (1.6 %)   (2,060 ) (2.4 %) EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES     3,945   4.1 %   (5,809 ) (6.8 %) Income tax expense (benefit)     1,089   1.1 %   (1,279 ) (1.5 %) EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST IN JOINT VENTURE   2,856   3.0 %   (4,530 ) (5.3 %) Minority interest in joint venture     673   0.7 %   72   0.1 % NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS   2,183   2.3 %   (4,602 ) (5.4 %) Earnings from discontinued operations, net of tax   -   -     82   0.1 % NET EARNINGS (LOSS)     $ 2,183   2.3 % $ (4,520 ) (5.3 %)                     BASIC EARNINGS (LOSS) PER SHARE:         Continuing operations $ 0.11 $ (0.25 ) Discontinued operations $ -   $ 0.01   Net earnings (loss)     $ 0.11     $ (0.24 )   DILUTED EARNINGS (LOSS) PER SHARE:         Continuing operations $ 0.11 $ (0.25 ) Discontinued operations $ -   $ 0.01   Net earnings (loss)     $ 0.11     $ (0.24 )   WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:         Basic 19,331 18,705 Diluted         19,386       18,705       PharmaNet Development Group, Inc. and Subsidiaries Statements of Operations - Unaudited For the Six Months Ended June 30, 2008 and 2007 In thousands, except per share data       2008   % of DirectRevenues   2007   % of DirectRevenues                     NET REVENUE:             Direct revenue $ 183,564 100.0 % $ 170,376 100.0 % Reimbursed out-of-pocket expenses     43,651   23.8 %   46,370   27.2 % TOTAL NET REVENUE       227,215   123.8 %   216,746   127.2 % COSTS AND EXPENSES:     -       Direct costs 122,392 66.7 % 103,179 60.6 % Reimbursable out-of-pocket expenses 43,651 23.8 % 46,370 27.2 % Selling, general and administrative expenses 63,161 34.4 % 53,433 31.4 % Provision for settlement of litigation     -   -     8,900   5.2 % TOTAL COSTS AND EXPENSES     229,204   124.9 %   211,882   124.4 % (LOSS) EARNINGS FROM CONTINUING OPERATIONS   (1,989 ) (1.1 %)   4,864   2.9 % OTHER INCOME (EXPENSE):           Interest income 885 0.5 % 1,018 0.6 % Interest expense (3,000 ) (1.6 %) (3,533 ) (2.1 %) Foreign currency exchange transaction (loss) gain, net (795 ) (0.4 %) (732 ) (0.4 %) Other income         163   0.1 %   478   0.3 % TOTAL OTHER INCOME (EXPENSE), NET   (2,747 ) (1.5 %)   (2,769 ) (1.6 %) (LOSS) EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES   (4,736 ) (2.6 %)   2,095   1.2 % Income tax expense       2,084   1.1 %   504   0.3 % (LOSS) EARNINGS FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST IN JOINT VENTURE   (6,820 ) (3.7 %)   1,591   0.9 % Minority interest in joint venture     1,096   0.6 %   201   0.1 % NET (LOSS) EARNINGS FROM CONTINUING OPERATIONS   (7,916 ) (4.3 %)   1,390   0.8 % Earnings from discontinued operations, net of tax   -   -     722   0.4 % NET (LOSS) EARNINGS     $ (7,916 ) (4.3 %) $ 2,112   1.2 %                     BASIC (LOSS) EARNINGS PER SHARE:         Continuing operations $ (0.41 ) $ 0.07 Discontinued operations $ -   $ 0.04   Net (loss) earnings     $ (0.41 )   $ 0.11     DILUTED (LOSS) EARNINGS PER SHARE:         Continuing operations $ (0.41 ) $ 0.07 Discontinued operations $ -   $ 0.04   Net (loss) earnings     $ (0.41 )   $ 0.11     WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:         Basic 19,257 18,668 Diluted         19,257       18,917       PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES Summary of Operations of Early and Late Stage Clinical Development Segments - Unaudited For the Three and Six Months Ended June 30, 2008 and 2007 In thousands         Three Months Ended Six Months Ended EARLY STAGE DEVELOPMENT   2008     2007     %variation   2008     2007     %variation   Direct revenue $ 43,007 $ 30,710 40.0 % $ 80,639 $ 60,415 33.5 %   GAAP operating earnings (loss) 8,020 4,410 81.9 % 10,631 9,451 12.5 %   GAAP operating Margin 18.6 % 14.4 % 13.2 % 15.6 %     LATE STAGE DEVELOPMENT   2008     2007     %variation   2008     2007     %variation   Direct revenue $ 53,757 $ 54,885 (2.1 %) $ 102,925 $ 109,961 (6.4 %)   GAAP operating earnings (loss) 2,110 6,050 (65.1 %) (1,375 ) 14,840 (109.3 %)   GAAP operating Margin 3.9 % 11.0 % (1.3 %) 13.5 %   PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets June 30, 2008 and December 31, 2007 In thousands, except per share data     June 30,2008 December 31,2007 (Unaudited) ASSETS   Current assets: Cash and cash equivalents $ 51,531 $ 77,548 Investment in marketable securities - 2,650 Accounts receivable, net 138,549 132,550 Income taxes receivable 2,670 1,855 Deferred income taxes 324 298 Prepaid expenses 9,874 6,589 Other current assets 7,053 5,274 Assets from discontinued operations   -   5,199 Total current assets 210,001 231,963 Property and equipment, net 68,369 67,506 Goodwill, net 266,973 266,973 Other intangible assets, net 25,157 26,442 Deferred income taxes 13,091 14,111 Other assets, net   7,277   7,840 Total assets $ 590,868 $ 614,835   LIABILITIES AND STOCKHOLDERS' EQUITY   Current liabilities: Accounts payable $ 8,369 $ 13,843 Accrued liabilities 31,782 47,978 Client advances, current portion 72,278 79,312 Income taxes payable 227 - Capital lease obligations and notes payable, current portion 3,076 3,562 Deferred income taxes 33 31 Other current liabilities 18 154 Liabilities from discontinued operations   -   1,770 Total current liabilities 115,783 146,650   Client advances 3,271 2,602 Deferred income taxes 8,563 8,518 Capital lease obligations and notes payable 4,856 5,634 2.25% Convertible senior notes payable 143,750 143,750 Other non-current liabilities 17,147 15,590 Minority interest in joint venture 4,047 2,722 Commitments and contingencies   Temporary equity: Sale of unregistered common stock, subject to rescission 2,169 2,058   Stockholders' equity: Preferred stock. $0.10 par value, 5,000 shares authorized, none issued - - Common stock, $0.001 par value, 40,000 shares authorized, 19,385 shares and 19,017 shares issued and outstanding as of June 30, 2008 and December 31, 2007, respectively 19 19 Additional paid-in capital 253,436 244,017 Retained earnings 14,701 22,616 Accumulated other comprehensive income   23,126   20,659 Total stockholders' equity $ 291,282 $ 287,311 Total liabilities and stockholders' equity $ 590,868 $ 614,835   PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES Consolidated Statement of Cash Flows - Unaudited For the Six Months Ended June 30, 2008 and 2007 In thousands           Six Months Ended June 30,   2008     2007     Cash flows from operating activities: Net (loss) earnings $ (7,916 ) $ 2,112 Earnings from discontinued operations - (722 ) Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities: Depreciation and amortization 8,991 7,204 Amortization and write-off of deferred debt issuance costs 842 789 Provision for settlement of litigation - 8,900 Loss on disposal of property and equipment 190 147 Minority interest 1,096 201 Provision for doubtful accounts 640 - Share-based compensation expense 3,157 2,282 Changes in assets and liabilities: Accounts receivable (3,675 ) (19,520 ) Income taxes receivable 283 (998 ) Prepaid expenses and other current assets (4,571 ) (4,477 ) Other assets (90 ) (591 ) Accounts payable (8,010 ) 1,453 Accrued liabilities (14,214 ) 3,529 Income taxes payable 216 - Other current liabilities (135 ) - Client advances (7,173 ) 8,061 Deferred income taxes (162 ) (687 ) Other long-term liabilities   1,852     884   Total adjustments   (20,763 )   7,177   Net cash (used in) provided by operating activities - continuing operations   (28,679 )   8,567   Net cash provided by operating activities - discontinued operations   -     62   Net cash (used in) provided by operating activities   (28,679 )   8,629   Cash flows from investing activities: Purchase of property and equipment (4,103 ) (7,490 ) Proceeds from the disposal of property and equipment - 24 Purchase of intangible assets (105 ) - Net change in investment in marketable securities   2,650     2,084   Net cash used in investing activities - continuing operations   (1,558 )   (5,382 ) Net cash provided by investing activities - discontinued operations   -     1,182   Net cash used in investing activities   (1,558 )   (4,200 ) Cash flows from financing activities: Borrowings on lines of credit - 5,000 Payments on lines of credit - (14,400 ) Payments on capital lease obligations and notes payable (1,609 ) (1,533 ) Net proceeds from stock issued under option plans, ESPP and restricted stock awards 1,259 3,379 Proceeds from sale of unregistered common stock, subject to rescission   1,114     -   Net cash provided by (used in) financing activities   764     (7,554 ) Net effect of exchange rate changes on cash and cash equivalents   3,456     1,437   Net decrease in cash and cash equivalents (26,017 ) (1,688 ) Cash and cash equivalents at beginning of period   77,548     45,331   Cash and cash equivalents at end of period $ 51,531   $ 43,643