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Executives

Pat Dugan – Chairman

Jeff Smith – Interim CEO

David Stievater – SVP, Business Development

Analysts

Robbie Sada [ph] – William Blair

Sal Kamalodine – B. Riley & Co.

Mike Sloan – Harvey Partners

Brad Evans – Heartland Advisors

PDI Inc. (PDII) Q2 2008 Earnings Call Transcript August 6, 2008 4:30 PM ET

Operator

Welcome to the PDI second quarter financial results conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a Q&A session. (Operator instructions) As a reminder, this conference is being recorded August 6, 2008. I would now like to turn the conference over to Ms. Kim Golodetz. Please go ahead, ma'am.

Kim Golodetz

Thank you. This is Kim Golodetz with Lippert/Heilshorn & Associates. Thank you all for participating in today's call. We have on the call this afternoon Pat Dugan, Chairman of the Board, and Jeff Smith, Interim Chief Executive Officer. While Pat and Jeff will be making the formal comments today, also with us to answer questions are Nancy Connolly, Senior Vice President Sales Services, Kevin Connolly, Executive Vice President and President of Marketing Services, Jim Farrell, Vice President and Interim Chief Financial Officer, David Stievater, Senior Vice President Business Development.

Earlier today, PDI released financial results for the second quarter of 2008. If you have not received this news release or if you would like to be added to the company's distribution list, please call Lippert/Heilshorn in New York at 212-838-3777 and speak with Cheryl Palazzo.

Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of PDI. I encourage you to review the company's filings with the Securities and Exchange Commission, including, without limitation, the company's Forms 10-K and 10-Q that identify specific risk factors that may cause actual results or events to differ materially from those described in the forward-looking statements. The content of this conference call contains time sensitive information that is accurate only as of the date of the live broadcast, August 6, 2008. The company under takes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that said, I would like to turn the call over to Pat Dugan. Pat?

Pat Dugan

Thanks, Kim, and thanks to each of you for participating in our call. Officially, my name is John P. Dugan, but everybody calls me Pat. I founded PDI in 1987. I was CEO for a number of years and I am currently the Chairman of the Board of Directors and the company's largest shareholder. In my capacity as Chairman I have been actively involved in strategy and long term planning, and these activities continue to be my primary focus. However, since the retirement of Mike Marquard in late June, I have become more involved in the day-to-day operations and expect to continue this level of involvement until a permanent CEO is appointed.

Towards this end, we have engaged a nationally recognized search firm and I have already been screening prospective candidates. Our goal is to have a new CEO named by the end of the year, hopefully earlier. In the meantime, I believe you are all aware that we have appointed Jeff Smith as interim CEO, recognizing that he has more than 30 years of broad-based finance and general management experience, including having served as interim President of Alpharma, when it was a $350 million public, international, specialty pharmaceutical company. I must tell you that the Board and I are extremely confident the current management team is fully capable of continuing to improve the company and executing our strategic plan during this interim period. Jeff and the team are not just keeping the seats warm.

That leads us to our second quarter results. Jeff will go through the numbers in more detail in a minute, but I am very pleased to point out that the increase in revenue we are reporting today represents the first year-over-year quarterly increase in revenue in 15 quarters. The overall increase of 10% was driven by a 20% increase in sales team revenue. While only a small start, we are encouraged that our plans are working. Notably, these top line results were driven by market acceptance of our new flexible sales offerings such as Select Access, Territory Coverage, Pulsing, et cetera. As previously announced, during the quarter, we were awarded a contract from a top five pharmaceutical company that not only extended an existing agreement through May 2009, but also expanded it by $10 million to $33 million annually. In addition, near the beginning of the quarter, another important client expanded the scope of our engagement, which added revenue to the quarter and could increase revenue by up to $2 million per quarter through year end.

In looking forward, we have had changes in two existing contracts. One of our long term clients, as planned, has internalized our field sales force effective July 31. This contract represented approximately $2.3 million in quarterly revenue. We were also just notified that due to generic competition, our Select Access engagement with a major pharmaceutical company, whose contract ran through next March, will be ending at the end of September instead. This contract has revenue of about $3.5 million per quarter.

Marketing services revenue was virtually flat compared to last year, reflecting the difficult economic environment and uneven sales patterns within the three businesses in this segment. Even so, on a sequential quarter basis, marketing service sales were up 15%. As most of you are aware, during the quarter we successfully launched our first product commercialization initiative relative to the eczema product Elidel. Product commercialization is a significant component of our strategic plan to leverage our sales and marketing expertise to deliver higher long term margins than our traditional fee-for-service arrangements. We began promotion of Elidel in the second half of April, and promotional activities are proceeding as planned. We are encouraged by physicians' reaction to the relaunch of this product, and expect to see promotional responses to our efforts as we move into the eczema season near the end of the third quarter.

Now I will turn the call over to Jeff Smith who will go over the quarter's financial results in more detail and give you some color on the pipeline and strategy. Jeff?

Jeff Smith

Thank you, Pat. As Pat stated, we believe we are making progress in rebuilding the business and certain aspects of the current results reflect this progress. Relative to our press release earlier today, we hope you've noted that we have added some additional detail. Specifically, we have included segment revenue in gross profit for the first time. We have added a summary cash flow. And you should also note that product commercialization is now a separate segment. We hope this additional disclosure helps you understand the results, and as you know, we expect to be filing our 10-Q tomorrow which will have even more detail.

We believe the consolidated revenue for the quarter of $30.4 million is a clear sign of progress. As Pat said, revenue is up 10% year-over-year, and was achieved despite the fact that last year's second quarter included over $6 million in revenue from contracts that expired and are not included in our 2008 numbers, and the negative revenue of $1 million in 2008 in our product commercialization segment. Relative to this $1 million of negative revenue, accounting rules require that the non-refundable up-front payment we made to Novartis for our arrangement to market Elidel be recorded in this manner rather than as an expense spread over the life of the contract. Specifically, sales services revenue for the quarter was $3.9 million higher than last year, which is almost 20%. We were able to make up more than the $6.1 million of sales service revenue from contracts that expired last year with new business wins, particularly in on-demand services such as Select Access.

Revenue from our marketing services segment was $8 million for the quarter, virtually flat compared to last year. This represents a general reduction in spending for these types of services in the industry and the slow down in new product approvals. What is encouraging is the fact that relative to the first quarter of this year, revenue in this segment is up almost 15%. In terms of gross profit, while there was, in fact, a $3.6 million decline compared to last year, product commercialization for the quarter had negative gross profit of $5 million, hence sales services and marketing combined had an increase in gross profit of $1.4 million or 20% compared to last year. Sales services gross profit was higher in both dollars and percentage. These increases resulted primarily from higher revenue and lower program expenses. Gross profit in the marketing services segment declined in both dollars and percentage. These declines were mainly due to changes in business mix, specifically a higher percentage of this year's total coming from somewhat lower TVG and VIM business, which is slightly lower than segment average.

Total operating expenses of $11.4 million include about $700,000 in connection with the retirement of our CEO in June. Without this item, total operating costs would have been lower than last year and in line with first quarter 2008 operating expenses. As we have been advising you, we have been carefully managing our expenses within the context of preserving and strengthening our infrastructure. However, our plan is to continue to increase our investment in people and infrastructure that we believe are important to execute our strategic plan, are needed to continue to introduce innovative services and flawlessly deliver service to our customers. As a result, we expect our operating expense run rate, beginning in the third quarter, to increase modestly as we move through the rest of the year. In addition, we expect to incur additional compensation expenses in the third and possibly the fourth quarter related to staff changes, including costs related to the recruitment of a new CEO.

Our operating loss of $7.9 million is $4 million more than last year, with product commercialization incurring a loss of $5.7 million for the 2008 quarter. Excluding product commercialization then, the loss would have decreased in 2008. Other income of about $800,000, which is all interest income, is lower than last year, primarily as a result of significantly lower interest rates. While all this results in a loss per share for the quarter in 2008 of $0.53 compared with a loss of $0.18 last year, the bulk of the loss is attributable to expected activities related to our investment in Elidel. Cash flow year to date was negative by about $4.4 million, again primarily related to Elidel. Elidel related losses are almost all cash.

Total cash, cash equivalents and short term investments at the end of the quarter were approximately $103 million, and again to confirm, almost all of it is invested in conservative, highly-liquid short term instruments. Also for the record, we have not incurred any realized or unrealized losses, or required reclassifications related to any of the issues that have emerged from the current credit crisis. Without product commercialization, we expect cash flow to be slightly positive. With product commercialization, we continue to estimate approximately $10 million of negative cash flow for the year.

I would now like to comment on certain aspects of the third and fourth quarters. While we are still not in a position to give formal guidance on earnings, we would like to make the following five points; first, relative to sales services, while there is a pipeline of potential new business, as we discussed on the last call, most of the larger opportunities are for business that would begin in 2009. While we certainly expect to win new business, it is unlikely that any win at this point would have a significant impact on third or fourth quarter revenue. As a result, we are confident that sales services revenue and gross profit in the third quarter will exceed 2007, but we do not believe it will be as high as this year's second quarter, primarily due to the internalization of the sales force by the long standing customer that Pat talked about.

Secondly, given the state of the pharmaceutical industry and spending levels relative to marketing services, we expect overall marketing service segment revenue and gross profit for the third quarter to be approximately the same as the third quarter of last year. In connection with product commercialization, we will have a full quarter of expenses versus the two and a half months in the second quarter and as previously discussed, overall recurring operating expenses will be somewhat higher in the third and fourth quarter. The third quarter and possibly fourth will have additional compensation expense related to staff changes, including those related to the recruitment of a new CEO. And finally, we expect interest income will be somewhat lower due to continuing lower interest rates and somewhat lower cash. That concludes our discussion of results.

Turning briefly to operations and looking ahead, the pipeline of sales services opportunities is quite dynamic. During our conference call last quarter, we said that we had a pipeline of approximately 1,250 sales representatives. Reporting our pipeline in this manner historically has become more and more of a challenge, because many of these opportunities are full and part time and are weighted towards on-demand services, which require us to convert, in some way, the opportunity to full-time rep equivalents. For this reason, and hopefully to give you more visibility and a better sense of the value of the potential pipeline, we will be discussing the pipeline with you in a different way. So beginning this quarter, we will give you the measure of the pipeline in total dollars. We will only include those opportunities that could generate revenue in the current year and the following year. We will give you a rough split of the revenue potential by year, and we will only include actual RFPs outstanding or opportunities where we believe an RFP is eminent.

Please note, something I believe you already know, and that is that the pipeline in this industry is very fluid, so any point-in-time measurement, while interesting and possibly helpful, does not necessarily represent the full picture and direction of the industry. With all this in mind, the pipeline as we just defined is about $75 million, with more than $60 million falling into 2009. This pipeline includes programs of varying sizes, including large traditional fee-for-service contracts, flexible Select Access and many PDI ON DEMAND services.

In terms of strategy, our strategy continues unchanged, which in summary, is to recapture our position as the leading contract sales organization, to enhance our commercialization capabilities through a build, partner, or buy approach, to provide a broader base of services and more diversified source of revenue, and to leverage our sales and marketing expertise to capitalize on product commercialization opportunities like Elidel. We have made progress in all of these areas, but still have a long way to go. We have developed and successfully launched new offerings in both sales services and marketing services. We have also entered into a number of alliances in these areas, including marketing communications and analytical services. We believe that these alliances will provide us with additional avenues for growth. Acquisitions continue to be part of our strategy, and we continue to actively seek candidates that meet our criteria. We are particularly interested in businesses that are focused on interaction with the physician.

Before we open up the call to your questions, I would like to turn the call back over to Pat.

Pat Dugan

Thanks, Jeff. We thought it would be worthwhile to take a look at our view of what is happening in the contract sales market. It is no secret that we have been through two to three very difficult years for contract sales, and that is for everybody in this business, not just PDI. Pharma, our major customers; pharma is under never before experienced pressures on their profits. It is coming from government, from insurance companies, labor unions, generics, slow FDA approvals, on and on. The result of this is that they are cutting back on their own internal sales forces. Outsourcing in general is growing on a global basis; has been for sometime and is projected to grow even more. Biotech and other emerging pharma companies are developing most of the new drugs that are being approved, about 75% roughly.

If they choose to remain independent and not make deals with other pharma companies, and retain ownership of their products, they need sales and other help to get this done. There will be stratified levels of sales rep sophistication from highly trained, highly educated; in other words the current model, it has been the model for a number of years to other levels, all the way down to those who service the doctor's office with samples, literature, and other things. There are many gradations of this, hospital representatives who are extremely well trained, and other things in between. But there will be stratified levels of reps in the future. It currently costs pharma about $200,000 per year per rep, and that is for a traditional rep. PDI can do it a lot less expensively and a lot more flexibly. The client [ph], which is good for them, not so good for us; can get in and out at very short notice. This is a big part of the appeal of contract sales.

PDI can provide solutions for all these problems and opportunities that are emerging in pharmaceutical sales. The future has never been brighter for contract sales and PDI. There are, of course, opportunities and other types of promotional activities which we are currently doing or exploring, but the representative is still at the center. The way we see things, being in the contract sales business, and being PDI, it is a very good place to be in the future.

I guess now we will take calls. Thank you.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from the line of John Kreger with William Blair.

Robbie Sada – William Blair

Hi, good afternoon. This is actually Robbie Sada [ph] in for John today. Thank you for all the detail in the press release and in your commentary. That was very helpful. I guess the first question that I had was on the CEO and COO search. You mentioned that you expect to name someone by the end of the year or perhaps earlier than that. Have you actually started interviewing at this point, and have you been pleased generally with what you have seen?

Pat Dugan

The search firm has done some interviewing. We have not actually seen any candidates. This is, as you can imagine, a relatively new initiative because we had to select the search firm first, and that is done. We have been presented with a list of candidates, some of whom have not been approached yet. So it is a very early stage. But, we have not seen anybody yet.

Robbie Sada – William Blair

Okay. Just for our clarification, what kind of background are you looking for? Who do you think the ideal candidate would be?

Pat Dugan

Well, ideally, it would be a person steeped in pharmaceutical industry experience, who has been a CEO of a pharmaceutical company or a related service company who – which is a public company, has public company experience, and has a track record of driving a company to superior results. Those are all pretty general, but that is where we are starting.

Robbie Sada – William Blair

Okay. Fair enough. And then the COO search; is that still ongoing as well?

Pat Dugan

It is still ongoing, and we have talked to a number of people there, but as you can imagine, a potential COO candidate would like to know who the CEO is going to be before committing. So we are continuing to talk to some people, but there is hesitancy to come in when they don't know who they will be reporting to and I think we can all understand that.

Robbie Sada – William Blair

Yes, definitely. Switching gears a little bit, to some of the contract gains and losses that you have talked about. Given that there seems to be a little bit of fluctuation – you are winning some business in some places and losing some in others – would you characterize the current environment as better, worse or pretty much the same as you have seen over the last 12 months?

Pat Dugan

Well, I would say it is better, and maybe I could ask David Stievater to talk a little bit about the pipeline. So –

David Stievater

Sure, thanks, Pat. Yes, we have seen, actually since 2007, where there was a noticeable slow down in the rate of contract sales opportunities, an uptick in the opportunities this year, in 2008. A comment was made earlier that we have some opportunities in the pipeline that we are very excited about that are likely to be beginning in 2009. If we should be winning those, they will be 2009. But we are very pleased with the rate of increase in the sales services opportunities that we are seeing.

Robbie Sada – William Blair

Great. And just to clarify, the increases are in dollars, not in reps, is that correct?

David Stievater

It is in dollars and reps. And also what we are seeing is a larger number of opportunities. They tend to be smaller on average, but a larger number of opportunities.

Robbie Sada – William Blair

Maybe one more question, if I could. Have you seen anything different competitively that may make it more difficult for you to win the $75 million that is in the pipeline?

Pat Dugan

David, can you answer that?

David Stievater

No, it is really a very similar competitive set as we have been up against for the last couple of years. So we would expect our win rate to continue. And it is a very competitive space, but the number and type of players have remained the same.

Robbie Sada – William Blair

Great. Thanks very much.

Pat Dugan

Thank you.

Operator

Our next question comes from the line of Sal Kamalodine from B. Riley.

Sal Kamalodine – B. Riley & Co.

Did you guys recognize any revenue from the product commercialization deal outside of the contractual payment, that $1 million that was showing as a reversal of revenue?

Pat Dugan

No we did not.

Sal Kamalodine – B. Riley & Co.

And if I am not mistaken, you were expecting there to be some revenue very late in the quarter. Is that right?

Pat Dugan

I don't think we ever said that formally. I think we thought that if things went magnificently well, people started changing their ways right away, that it was possible. But that is not the expectation that we set. I think in general, we were pretty consistent in saying it is going take somewhere between eight and 10 calls on average before people would start reacting.

Sal Kamalodine – B. Riley & Co.

So then, you would expect there to be revenue from that deal in the September quarter?

Pat Dugan

Well, what we just said was that there is a somewhat of a – some seasonality to this. So, there is no doubt that if you look at the way this product declined last year up through September; that line has changed. But we would not expect to see anything that would generate revenue until near the end of the quarter. That is correct.

Sal Kamalodine – B. Riley & Co.

Okay. And then do you have any projections as to when that particular business segment ought to be break even at least on an operating basis?

Pat Dugan

I think what we will do right now is repeat what we said, that we expect this to be dilutive this year and additive in 2009. And we have no change to that view at this point. But we haven't talked about a specific month or quarter where that crosses over.

Sal Kamalodine – B. Riley & Co.

Okay. Thanks.

Pat Dugan

Thanks.

Operator

Our next question comes from the line of Mike Sloan with Harvey Partners.

Mike Sloan – Harvey Partners

Hi, guys. How are you doing?

Pat Dugan

Great.

Mike Sloan – Harvey Partners

Just wanted to get a little clarity on the one-time expenses or the $700,000 for CEO severance. Is there any unusual tax effect on that, or we can pretty much just run that to the bottom line at about $0.05?

Pat Dugan

Yes, you can just run that right to the bottom line, because we're not getting tax benefits. It's just been a loss position, correct.

Mike Sloan – Harvey Partners

Any other one time charges in here that I should be – I guess the $1 million negative revenue is essentially –?

Pat Dugan

Yes, that is a little bit of an odd ball thing. To be fair, you should probably take that out.

Mike Sloan – Harvey Partners

Okay. And then just, as far as the pipeline goes, I think it was a useful way of looking at it, can you give us a little more detail of sort of what percentage of that would fall into – which of the types of services?

Pat Dugan

When you talk about types of services?

Mike Sloan – Harvey Partners

You know, talking about the flex versus the full-time CSO –

Pat Dugan

Yes. I will collaborate with David on this one. I think we probably would feel more comfortable talking about the number of opportunities that might fall into it as opposed to trying to put a dollar value on the types of services. But at this point, we probably would feel comfortable saying that over half of this, clearly, is still maybe traditional kind of business. 30% to 40% would be the Select Access flexibility kinds of things, and then maybe 10% to 15% – that probably doesn't add up to 100% what I just did – would be other kinds of things, if that helps.

Mike Sloan – Harvey Partners

Yes. All right. Thanks a lot.

Pat Dugan

Okay.

Operator

(Operator instructions) Our next question comes from the line of Brad Evans with Heartland.

Brad Evans – Heartland Advisors

Thanks for taking the question. Can you refresh my memory as to the gross margin profile that you hope to see coming out of the product commercialization unit?

Jeff Smith

Sure. We have never actually given a specific percentage, although we obviously have it for ourselves. But our position has been consistently that product commercialization, we have entered product commercialization, at least when you are talking about the margins, with the expectation that over the term of these contracts, we will achieve a significantly higher – and I will emphasize the word significantly higher – margin than what we would normally see in sales services. So, now that you see the segment information broken out the way we have got it, you see that sales services, if you just take a blend of last year and this year, gross margin, it is probably roughly 20%, is what you would come out for that average.

Brad Evans – Heartland Advisors

Would they be greater than the marketing services gross margin or somewhere between the two?

Jeff Smith

Again, I am not going give you a specific number, but I would say marketing services is significantly higher than sales services. So it is probably got to be somewhere in that ballpark.

Brad Evans – Heartland Advisors

Is there a reason why you don't want to give us more information on this in terms of the unwillingness to provide financial targets? What is the hesitancy of providing greater granularity and clarity to shareholders and investors?

Jeff Smith

It is just that we are not yet in a position to start giving formal forward-looking guidance. You probably as well as anyone know how volatile our businesses have been. We have very high expectations for product commercialization. We have tried to directionally steer you to margins that, at least with words, that you could probably come up with ballparks with. But until we get a little experience, and we show some success, and we start smoothing this out, I think we still got to stay a little bit general.

Brad Evans – Heartland Advisors

Can you just provide some color as to the pipeline on the commercialization side? What are you seeing there?

Jeff Smith

Well, actually, the numbers that we just threw out had nothing to do with product commercialization.

Brad Evans – Heartland Advisors

Understood. That is why I asked the question.

Jeff Smith

Pat, do you want to start or I will start, either way?

Pat Dugan

Well, we have a process in place and we have a team that works on it exclusively. And we started with a large number of companies that we subjected to criteria that we would like to end up with. We have narrowed it down to a relatively small number of companies. I think the last number I heard was four companies that are prime candidates to go after. We have had some contacts with a couple of them. But it is early days on that. So it is a small number, Brad. But, we would love to pick off one more this year. And it is always going be small numbers because it is a big financial commitment and it is a big risk. We got to make sure we do it right. We are looking at somewhere around four companies as strong possibilities at this time.

Jeff Smith

And Brad, piggy backing on that, that is the formal process for identifying specific commercial products today that we might be interested in. I must tell you that on the emerging pharma side, we are getting quite a bit of activity proactively going both ways, us to them and them to us, in terms of products that they would seem to – there is a lot of interest in product commercialization in the non-big pharma space. And it is more than – we were just talking about this, we have been talking about this a lot. What is the definition of emerging?. Well, right now, it is anything almost that is not big pharma. So there are pretty big companies and some big potential opportunities. And we have got a couple of different structures that – other than the one that we have actually executed with Elidel that could work in this space that we are pursuing.

Brad Evans – Heartland Advisors

Would you expect – would you hope to enter into another engagement sometime this year or would that be aggressive?

Jeff Smith

That would be aggressive, but at this point, honestly, our absolute first priority is to show that Elidel is working the way that we had expected. So (inaudible) tomorrow? I doubt it. But the stage that we are in on the products that Pat talked about and some of the others, would allow us the opportunity, if we wanted to, potentially to do another one this year. But we're going to be cautious on one hand and opportunistic on the other, but if there is something that really is of interest, we would do it.

Brad Evans – Heartland Advisors

Just from a high level, with the prospect of some revenue coming out of Elidel this quarter, is it possible that the operating loss out of the commercialization business is lower versus the second quarter in the third quarter?

Jeff Smith

I don't think you should be thinking that way, primarily because there is just more expenses in the second quarter. So even if you just do math – I'm sorry, in the third quarter. Mathematically, you are starting with, another – whatever, two weeks of expenses. So, you should be thinking the same level or higher, really, of the operating loss for the third quarter.

Brad Evans – Heartland Advisors

That implies that you will have – so we should – we should have expectations of no revenue then from Elidel this quarter?

Jeff Smith

No, no, that is not what I said. You said could you expect that the operating – I thought you said the operating income.

Brad Evans – Heartland Advisors

No, excuse me. I asked whether the operating losses at the gross profit line would be lower in the third quarter versus the second quarter.

Jeff Smith

Correct.

Brad Evans – Heartland Advisors

Understanding that expenses will be up, but we will have revenue, no?

Jeff Smith

Well, you are not going have negative revenue, so that is a start.

Brad Evans – Heartland Advisors

So it is a possibility that the operating losses in the commercialization unit could be lower in the third quarter versus the just-completed quarter.

Jeff Smith

Yes, there is a possibility, but just recognizing that the expenses are higher. So – and most of the expenses fall into the gross profit line. So even –

Brad Evans – Heartland Advisors

Pat, when do you think you'll have – what is your hope in terms of having a permanent CEO in place?

Pat Dugan

Well, the target date is the end of the year. I am hoping we will get a little lucky and do it before that. I sure hope it doesn't drag out any longer than that. We're going to try our best. But obviously we got to pick the right guy, the right person. It is very critical that we do. So we are going to be moving carefully and we will be looking at a large number of candidates. We have a large firm that is working for us on it. And so I think we will be seeing quite a few. And hopefully we will get a break and we will get somebody before the end of the year.

Brad Evans – Heartland Advisors

I just have one last question and it is for you, Pat. With the stock, I guess trading, I don't know, I guess you got about $7 a share in cash. So your stock is trading just a little above cash and I know that it is probably going to go down a little bit in the next quarter or two. As a member of the Board, and as the Chairman of the Board, can you just articulate to me why the other members of the Board feel no urgency or desire to buy stock personally in this company at this current valuation? Is it reflecting the Board's uncertainty and concern about the direction of the company or does it reflect the fact that members of our Board don't have the financial wherewithal to buy stock personally?

Pat Dugan

Well, my sense of the Board is they absolutely feel that there is a great future for the company and they are making great contributions to make this happen. Other than me, there are eight other Directors currently. And I think the finances; the reasoning is different in every case. I am not privy to all of them. But I don't think there is a hesitancy to buy shares because they feel that the future of the company is not strong. That is about all I can say. I don't know exactly what is in all of their heads.

Jeff Smith

And Brad, part of their – they signed on with a compensation plan that did have a fairly high stock component. If you asked them individually, they would say that they each have a good amount of risk that they have taken, and if you are equating owning shares to risk, and that they are, in fact, aligned. You can debate the level. Obviously, no one has Pat's level of commitment, but each in their own way has it, as do many of the management. Again, there just might not be the level you would like to see.

Brad Evans – Heartland Advisors

I think it would be a vote of confidence if members of the Board would put some of their own capital at risk as opposed to looking at the options or the restricted shares they are receiving in lieu of compensation for their contribution to the company. Because frankly, I mean, the performance of the company has been miserable. So I don't understand their contributions surely shouldn't be lauded at this point. Hopefully the Board will listen to this call and understand that clearly it would be nice to see them suffer along with shareholders. Thank you.

Operator

(Operator instructions). There are no further questions at this time. Please proceed with your presentation or any closing remarks.

Pat Dugan

Okay, this is Pat again. Thank you all for joining us. For those of you in San Francisco or close by, Jeff will be presenting at the B. Riley Cash Rich Tech Stock Conference on Tuesday, August 12 at 2:00 local time. Hope some of you can make it there. That is Tuesday, August 12 at 2:00. Thank you all for tuning in and for your interest in PDI and we will continue to do our best to make the company successful.

Operator

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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Source: PDI Inc. Q2 2008 Earnings Call Transcript
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