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Bayer CRO consolidation sets up Covance for rise in revenue

By Nick Taylor , 19-Jun-2012

Bayer CRO consolidation sets up Covance for rise in revenue

Bayer could spend up to 50 per cent more with Covance after it cuts ties with its other late phase CRO partner.

Last month Bayer strengthened its pre-existing relationship with Covance by inking a late phase deal with the contract research organisation (CRO). Before entering into the alliance Covance was one of two late phase CROs with which Bayer worked closely but it is now set to capture more of the work.

We view the fact that Bayer opted to shift from two clinical partners to only one as another strong indication that Covance is gaining credibility as a high‐quality, leading player in late‐stage clinical,” John Kreger, equity analyst at William Blair, wrote in a note to investors.

By becoming the main source of late phase services Covance could generate up to 50 per cent more sales from Bayer over the next several years. Kreger, after hearing from Covance management at the William Blair Annual Growth Stock Conference, said extra sales of up to $125m (€99m) are possible.

The decision by Bayer to work with one late phase CRO partner goes against the thinking at several other major biopharmaceutical companies. Firms that have chosen two or more late phase partners include Bristol-Myers Squibb (B-MS), Shire, GlaxoSmithKline, Pfizer, Takeda, and UCB.

After B-MS inked an alliance with Icon and Parexel in 2010 a spokesperson for the pharma company told that having two partners is “the best way to channel volume of work while ensuring some level of risk mitigation.”

Moving away from a two-partner model to working with just Covance suggests, as Kreger noted, that Bayer is very confident the New Jersey-headquartered service provider can reliably meet its needs.

By increasing its standing in late-phase clinical, an area it traditionally lagged its CRO rivals, Covance has offset continued weak demand for toxicology and the slowing of growth in central laboratory.

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