PharmaKinetics on an upswing Company that tests generic drugs nears profitability, stability


March 27, 1998|By Mark Guidera | Mark Guidera,SUN STAFF

Baltimore's downtown business district near West Fayette Street is peppered with businesses struggling to survive. And until a few years ago, PharmaKinetics Laboratories Inc. certainly fit that profile.

But today the company, which contracts with pharmaceutical companies to test their generic drugs and other products, is in the midst of a turnaround and on its way to stability and profitability.

That's caught the eye of stock analysts, who see favorable prospects for the 22-year-old public company.

PharmaKinetics has seen good times and bad at its headquarters in the former Hecht's department store building that it converted into high-tech clinical testing laboratories and executive offices a decade ago at a cost of $10 million.

The seven-floor facility houses 170 employees, including five physicians, as well as analytical laboratories, offices and areas where paid subjects bunk down for long weekends while participating in drug testing.

It also operates a small clinical test site near the University of Maryland, Baltimore County in Catonsville as part of an effort to interest more college students in participating in its paid study programs.

While most of Maryland's growing biotechnology industry is in Montgomery and Howard counties, PharmaKinetics prefers its city site near major bus routes and mass transit. That makes it more accessible to the scores of paid volunteers the company needs for its clinical drug tests. Their profile: healthy (they have to pass a medical exam) men and woman, age 18-50.

Jennifer M. Monahan, marketing specialist for PharmaKinetics, said the company estimates that it paid more than 2,200 people to participate in clinical studies of generic drugs last year. Those payments infused about $1.25 million into the local economy last year, she said. The average payment for taking part in a four-day study is $500.

Company executives said Baltimore is near major pharmaceutical clients' headquarters in the "Big Pharm" corridor that stretches from Philadelphia to New York, but without those areas' high costs.

While generic drug testing services are the company's bread and butter, President and Chief Executive Officer James K. Leslie's growth strategy includes diversifying into related fields.

"We don't want to be too dependent on the generics industry," said Leslie, 53.

And with good reason: revenue streams from the industry can be erratic because drug companies often have many projects in various stages of development, any number of which can be shelved suddenly because of unpromising laboratory results or other factors. Moreover, the $8 billion contract research industry is consolidating, leading to increased competition.

Also history has its lessons: When business from a major client dried up in the late 1980s as a result of a federal fraud probe and indictment, PharmaKinetics ended up in bankruptcy. It emerged 1993 from Chapter 11.

A cornerstone of Leslie's diversification plan involves leveraging company's expertise to assess the safety of investigational drugs for the pharmaceutical and biotechnology industries.

tTC He sees opportunity for the company in managing trials of niche market products, such as anti-fungal medicines. Large companies that specialize in managing clinical drug trials often shun this business because it's too small, Leslie said.

"That opens up a good opportunity for us," he said.

He estimates that business could be significant for PharmaKinetics, which had about $10 million in revenue last year.

The executive is also hoping shareholders approve a 1-5 reverse stock split at its annual meeting April 6.

While that would shrink the number of shares to about 4 million, it would boost the stock price above $4, a requirement for listing on the Nasdaq smallcap market.

Shares in PharmaKinetics, which now trades over-the-counter, closed yesterday at $1.4375, up 54 percent since the beginning of the year.

"Being listed on the Nasdaq does a whole lot of things for you, including hopefully getting more brokers interested in the company," Leslie said.

More brokers means the potential for stirring up more institutional investors, which could serve to further boost the company's stock value.

The company lost its Nasdaq smallcap listing in 1989 when its stock price dived after revelations of its ties to Bolar Pharmaceutical Co., which was convicted of fraud in the aftermath of a federal probe of the generic drug industry. The firm was fined $10 million for filing falsified test results with the Food and Drug Administration.

PharmaKinetics was further swept into the maelstrom when its chief scientific officer was charged with obstruction of justice in the probe.

Since coming out of bankruptcy, PharmaKinetics has shaken off the stigma of the generic drug scandal, rebuilt its client base, invested in new high-tech equipment and shored up its financial strength, analysts say.

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