The outlook for PPD (NASDAQ:PPDI) looks very positive. It has kept its core business rolling and just turned in another impressive quarter, with business in its development services area remaining robust. The real boost, however, came from PPD's discovery sciences segment -- a sign, perhaps, that the company is poised for even further success in a lucrative new area.

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 (NYSE:LLY) and then out-licensed to Johnson & Johnson (NYSE:JNJ). The Food and Drug Administration is reviewing dapoxetine for its use in treating premature ejaculation.

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.