The outlook for PPD
The Wilmington, N.C.-based company indicated that net revenue increased almost 27% to $273 million compared with the third quarter of 2004. Net income climbed more than 53% to $38.4 million, which translated to $0.66 per share. The development services business contributed the lion's share of revenue and earnings, and the outlook for the unit looks good -- backlog rose 41% year over year to $1.73 billion.
The discovery sciences unit, though, was the most impressive gainer. Revenue surged 748% to $19.5 million versus the same period in 2004, while income from operations arrived at $13.2 million, compared with a 2004 loss from operations of $3.6 million. The huge improvement resulted from a payment from Takeda Pharmaceutical to gain rights for a development program in the treatment of Type 2 diabetes.
The Japanese pharmaceutical giant's purchase of the program, which is investigating dipeptidyl peptidase IV inhibitors (DPP4) as a treatment, is another vindication of PPD's partnering strategy. The idea is to in-license neglected compounds, develop them until they demonstrate commercial potential, and then out-license them. The company's first success was dapoxetine, which it in-licensed from Eli Lilly
The best part of PPD's deals is that if an out-licensed drug is approved, royalties flow in for years. Dapoxetine's odds of approval look good, and PPD's cut from U.S. sales is expected to be in the mid-single to low-double digits. Given that dapoxetine would be the first drug for treating premature ejaculation, many are predicting it will be a blockbuster, which bodes well for PPD.
As for the DPP4 program, Takeda expects to begin a phase 3 program this year. Again, PPD's royalties would be in the mid-single to high double digits. The DPP4 drugs are not as much as a slam dunk as dapoxetine when it comes to sales, but the compounds will address a large market, which PPD estimates at $12 billion.
PPD continues to be a strong performer in its core business even as it demonstrates savvy in its new drug-partnering initiative. And that's a powerful combination.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.