PharmaNet Development (PDGI): Helping firms develop drugs

The development of a marketable drug is one of the more expensive endeavors a corporation can undertake. If you have a good idea, but need some help along the way, there is an outfit in Princeton that can back your play.

PharmaNet Development Group (NASDAQ: PDGI) is a drug development company, providing 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, bioanalytical analyses, and Phase II-III-IV clinical development programs. Services include test subject recruitment, data management and assistance with the FDA approval process. The firm operates from thirty-five facilities around the world.

PharmaNet pleased investors earlier in the month, when it reported Q3 EPS of 52 cents (ex-items) and revenues of $99.8 million. Analysts had been expecting 31 cents and $88 million. The CEO noted that the company recorded the highest direct revenues in its history and continued to increase backlog. Management also guided FY07 EPS to $1.22-1.29 ($1.17 consensus) and FY07 revenues to $361-365 million ($348.2M consensus). UBS and Jeffries subsequently declared the stock a "buy" and boosted their targets to the $44-45 range.

The PDGI price jumped from 30-day moving average support on the earnings news and has since been defining a bullish "flag" consolidation pattern. Stocks frequently exit flags moving in the same direction they were traveling on entry. In this case, that would be to the upside.

Brokers now recommend the issue with one "strong buy", two "buys" and one "hold". Analysts see a 25% growth rate, through the next year. The stock's Price to Sales ratio (1.51), Sales Growth rate (31.30%) and EPS Growth rate (184.62%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 95% of the outstanding shares. The issue is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $18.59 and $38.15. A stop-loss of $31.10 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.