Covance delays Virginia toxicity plant by 2 years

Laurene Isip, head of Covance’s corporate communications department, told Outsourcing-pharma that work at the site, which was purchased from Eli Lilly in 2007 for $20m, would be put on hold for up to two years

Isip explained that: “Market conditions signalled a softening in the toxicology market that led to the decision​,” but maintained that “the long-term outlook for our industry is very strong​.”

Covance, like many North American contract research organisations (CRO), has struggled with falling demand for its services in the last six months, suffering particularly as a result of its focus on preclinical development.

For example, Covance’s second quarter revenue and operating income from early-stage development, which includes toxicology testing, fell 6 and 50 per cent to $200m and $27m, respectively.

And, while growth of its late-stage testing business did allow Covance to beat analysts Q2 estimates and raise its 2009 earnings forecasts, at present further investment in an underperforming preclinical business would be hard to justify.

In addition, the recently opened state-of-the-art toxicology testing facility in Arizona as well as its centre in Greenfield, Indiana, probably leave Covance’s early-stage development and testing unit with sufficient capacity at a time when demand is low.

Delayed not abandoned​

While Covance’s decision to delay construction is obviously a blow for the development of the Prince William Technology Park, the move was greeted with optimism.

Jason Grant, a spokesman for the Prince William County department of economic development told the Washington Business Journal​ that: “We understand and support the need for businesses to make decisions that will assure their long-term success​.”

Dan Gonzales of commercial real estate group Appian Realty Advisors agreed, telling the paper that the delay should not be viewed negatively. “​It’s just conservative. It would be different if they weren’t already here. But they are here and have been here for decades​.”

Further support for Covance’s long-term commitment to the Virginia site is provided by comments made by CEO Joe Herring who said that the firm has no plans to sell the site during a conference call late last year.