Asterand 'has weathered the worst of the storm'

Asterand has weathered the worst of the storm that has hit the contract research (CRO) market, according to chief executive Martyn Coombs.

But unlike some of his colleagues in the sector, a cautious Coombs is not predicting a rapid rebound in spending by the world’s largest drug companies.

A spate of mergers and cost cutting initiatives has put the brakes on outsourcing to firms such as Asterand, which specialises in human tissue research.

This was evident in the company’s interim results earlier today which revealed a loss for the period of US$1.5 million based on revenues of US$8.7 million.

And while some of the larger CROs expect Big Pharma to begin spending again in the second half of this year, Coombs believes demand is unlikely to pick up until early 2011.

‘I hope the other operators are right. But in our projections we don’t assume they will come back as soon as that,’ he told Proactive Investors.

Despite a tough first six months for Asterand, broker Daniel Stewart this morning left its forecasts intact.

It is predicting a pre-tax loss of £900,000 (US$1.35 million) on turnover of £13.2 million (US$21 million).

Coombs said he is comfortable with the broker’s numbers, which suggests we’ll see the company making up lost ground in the second six months of the financial year.

‘We are expecting the second half to be a lot better than the first half,’ the Asterand chief executive confirmed.

Payment for the February’s BioSeek acquisition is due early next year, and Coombs said he is still evaluating options open to the company.

Right now, finance director John Stchur is predicting a total purchase price of US$9.1 million, which could be paid in cash, or by issuing shares – or combination of the two.

The group has a US$5 million facility with Silicon Valley Bank that it has yet to draw down and just under US$4 million of cash on its balance sheet.

‘It is not a bad problem to have deciding how to pay for this incredibly profitable acquisition,’ said Stchur.

‘We will consider our options as we get closer to the end of the year and we will talk to a number of lenders.’

BioSeek has developed a series of cell-based, high throughput assays called BioMap, and its success was the stand out feature of the interim figures.

During the period, four collaboration agreements were signed and extended with BioSeek clients.

The integration is currently on track with revenues flowing in at expected levels and poised for an increase in the second half.

Despite a difficult trading environment, a 12 per cent fall in sales at Asterand represented a robust performance, Coombs said.

Digging down into the result, it emerges that the year-earlier figure was boosted by US$3.1 million of income from a contract with the Baylor School of Medicine in the US, which is now complete.

If the proceeds from this source are excluded, revenues including BioSeek jumped 29%.

Excluding BioSeek, sales showed only a marginal decrease to US$6.4 million.

Other achievements included the successful diversification of the company’s revenue base with the top clients accounting for 45% of the revenues compared with previous 61%.

Operating expenses in the first half increased from US$5.3 million a year ago to US$6 million as a result of the BioSeek acquisition.

However the underlying cost base has been trimmed back by around US$300,000 a month in response to the more difficult business climate.

The shares were down 1.5p, or 12.5%, to 10.5p in the wake of the figures.

‘Asterand’s interims reflect how R&D downsizing within the global
pharmaceutical sector is taking its toll,’ said Vadim Alexandre of Daniel Stewart.

‘The company has responded by cutting costs and diversifying revenue streams.’