PharmaNet Development Group Reports Third Quarter 2008 Preliminary Financial Results

PharmaNet Development Group, Inc. (the "Company”) (NASDAQ: PDGI), a leading provider of clinical development services, today reported preliminary net income for the third quarter ended September 30, 2008, of $1.5 million, or $0.08 per diluted share, compared to net income from continuing operations of $6.9 million, or $0.37 per diluted share, in the third quarter 2007.

All financial data provided in this press release is subject to recording a goodwill impairment charge. The Company is working with its valuation consultant to determine the amount of the non-cash goodwill impairment charge which is a result of the recent decline in the Company’s market capitalization and is not indicative of its performance or ability to continue to run its operations. Until the final determination is made, the financial information contained in this press release, without taking into account the charge for impairment of goodwill, is not presented in accordance with US generally accepted accounting principles (GAAP).

Direct revenue in the third quarter 2008, decreased 10.6 percent to $89.2 million compared to $99.8 million in the third quarter 2007, due primarily to lower late stage revenue partially offset by higher early stage revenue. Foreign currency exchange translation unfavorably impacted direct revenue by approximately $1.4 million primarily due to the strengthening of the US Dollar relative to the Euro, Swiss Franc and Canadian Dollar. The early stage segment represented approximately 47.8 percent of total direct revenue and the late stage segment represented 52.2 percent. Approximately 40.6 percent of direct revenue was generated in the United States and 59.4 percent in Canada, Europe and Asia.

Operating margin decreased to 3.7 percent in the third quarter 2008, compared to 13.7 percent in the third quarter 2007, primarily due to lower resource utilization in the third quarter 2008. Foreign currency exchange translation unfavorably impacted operating margin in third quarter 2008 by approximately $0.3 million.

Cash and cash equivalents were $63.3 million at September 30, 2008, compared to $51.5 million at June 30, 2008. Net cash generated from operations was $15.8 million in the third quarter 2008, compared to net cash generated from operations of $20.3 million from continuing operations in the third quarter 2007.

The Company’s backlog was $521.6 million at September 30, 2008, compared to $579.2 million at June 30, 2008, and $457.4 million at December 31, 2007. The Company’s quarter-to-date book-to-bill ratio was 0.4x at September 30, 2008, reflecting significant cancellations and weaker bookings, compared to a book-to-bill ratio of 2.0x at June 30, 2008. Year-to-date book-to-bill ratio at September 30, 2008, was 1.2x.

Early stage segment

For the early stage segment, direct revenue increased 13.2 percent to $42.6 million in the third quarter 2008, compared to $37.6 million in the third quarter 2007, primarily due to higher revenue in the clinics. Foreign currency exchange translation unfavorably impacted early stage direct revenue by approximately $1.0 million.

Early stage segment operating margin decreased to 18.7 percent in the third quarter 2008, compared to 21.4 percent in the third quarter 2007, primarily due to lower sample volume in its bioanalytical laboratories. Foreign currency exchange translation unfavorably impacted early stage operating profit by approximately $0.1 million.

Backlog for the early stage segment was $55.3 million at September 30, 2008, compared to $77.6 million at June 30, 2008. New business authorizations were $27.1 million and cancellations were $6.8 million in the third quarter 2008. Early stage quarter-to-date book-to-bill ratio was 0.5x at September 30, 2008. Early stage year-to-date book-to-bill ratio was 0.9x at September 30, 2008.

Late stage segment

For the late stage segment, direct revenue decreased 25.0 percent to $46.6 million in the third quarter 2008, compared to $62.2 million in the third quarter 2007, primarily due the previously disclosed contract cancellations and postponement and a $3.0 million dollar benefit in the third quarter 2007 resulting from revenue recognized from the signing of change orders. Foreign currency exchange translation unfavorably impacted late stage direct revenue by approximately $0.4 million.

Late stage segment operating margin was 1.1 percent in the third quarter 2008, compared to 21.2 percent in the third quarter 2007, primarily due to lower staff utilization, severance and a $3.0 million dollar benefit in the third quarter 2007 resulting from revenue recognized from the signing of change orders for which the work had been completed in prior quarters. Foreign currency exchange translation unfavorably impacted late stage operating margin by approximately by $0.2 million.

Backlog for the late stage segment was $466.3 million at September 30, 2008, compared to $501.6 million at June 30, 2008. This decrease is primarily due to the aforementioned contract cancellations. New business authorizations were $73.0 million and cancellations were $61.7 million during the third quarter 2008. Late stage quarter-to-date book-to-bill ratio was 0.2x at September 30, 2008. Late stage year-to-date book-to-bill ratio was 1.5x at September 30, 2008.

Corporate financial summary

Corporate selling, general and administrative expenses decreased to $5.2 million in the third quarter 2008, compared to $7.5 million in the third quarter 2007, primarily due to lower compensation expense and professional fees. In addition, in the third quarter 2007, the Company reserved $1.5 million for the settlement of the class action and other related litigation, of which $0.5 million was subsequently reversed in the second quarter 2008.

Third quarter 2008 non-cash share-based compensation expense was $0.2 million and other non-cash compensation was $0.7 million, compared to $0.2 million and $1.1 million, respectively, in the third quarter 2007.

Capital expenditures decreased to $1.7 million in the third quarter 2008 compared to $6.6 million in the third quarter 2007 primarily due to the investments in clinic expansions during the prior year. Depreciation expense was $3.6 million and amortization expense related to intangible assets was $0.7 million in the third quarter 2008, compared to depreciation expense of $3.2 million and amortization expense of $0.7 million in the third quarter 2007.

Net days sales outstanding were 46 days at September 30, 2008, compared to 48 days at June 30, 2008.

Tax expense for the third quarter 2008, was $0.3 million compared to a $3.0 million in the third quarter 2007.

Convertible Senior Notes Update

The Company issued and currently has outstanding approximately $143.8 million of 2.25% Convertible Senior Notes due in 2024 (the "Convertible Notes”).

The Company has formally engaged a financial advisor and is evaluating certain options to address these Convertible Notes which include, but are not limited to, any of the following alternatives or a combination of these alternatives: 1.) cash tender, 2.) an exchange offer, and 3.) a repurchase on the open market. The Company expects to formally announce the options it intends to pursue at the conclusion of its review process.

Preliminary Non-GAAP Financial Measures

This press release contains certain non-GAAP financial measures. The Company is issuing preliminary results because it is in the process of performing a goodwill impairment assessment. The current review is being conducted as we have determined that there was an interim triggering event in accordance with Statement of Financial Accounting Standards No. 142 entitled Goodwill and Other Intangible Assets, as a result of a decrease in the Company’s market capitalization. The impairment will be a non-cash charge reducing goodwill, which amounted to $267 million as of September 30, 2008, on a preliminary basis and before giving effect to any such charge. The impairment charge will not have any impact on the Company’s future cash flows from operations. We will disclose the amount of the charge once we have completed the impairment testing process and file our quarterly report on Form 10-Q with the Securities and Exchange Commission on or before November 10, 2008.

Guidance

Conference Call and Webcast

About PharmaNet Development Group, Inc.

PharmaNet Development Group, Inc., a global drug development services company, provides 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 and bioanalytical analyses, and Phase II, III and IV clinical development programs. With approximately 2,500 employees and 41 facilities throughout the world, PharmaNet is a recognized leader in outsourced clinical development. For more information, please visit our website at www.pharmanet.com.

Forward-Looking Statements

Certain statements made in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). Additionally, words such as "seek," "intend," "believe," "plan," "estimate," "expect," "anticipate" and other similar expressions are forward-looking statements within the meaning of the Act. Some or all of the results anticipated by these forward-looking statements may not occur. Factors that could cause or contribute to such differences include, but are not limited to, the Company’s ability to refinance its outstanding Convertible Notes; the Company's assessment of its goodwill valuation; industry trends and information; whether the Company will achieve its estimated value relating to discontinued operations; developments with respect to the SEC's inquiry, the Company’s ability to successfully achieve and manage the technical requirements of specialized clinical trial services, while complying with applicable rules and regulations; regulatory changes; changes affecting the clinical research industry; a reduction of outsourcing by pharmaceutical and biotechnology companies; the Company’s ability to compete internationally in attracting clients in order to develop additional business; the Company’s evaluation of its backlog and the potential cancellation of contracts; its ability to retain and recruit new employees; its clients' ability to provide the drugs and medical devices used in its clinical trials; the Company’s future stock price; the Company’s assessment of its current or future effective tax rate; the Company’s assessment of the value of its deferred tax assets; the Company’s financial guidance; the Company’s anticipated capital expenditures; the Company’s ability to remediate its material weaknesses; the Company’s costs associated with compliance of Section 404 of the Sarbanes-Oxley Act; the impact on the Company of foreign currency transaction costs and the effectiveness of any hedging strategies it implements; the potential liability associated with the Company’s registration of its employees’ stock purchase plan; and the national and international economic climate as it affects drug development operations.

Further information can be found in the Company’s risk factors contained in its Annual Report on Form 10-K for the year ended December 31, 2007, and most recent filings. The Company does not undertake to update the disclosures made herein, and you are urged to read our filings with the Securities and Exchange Commission.