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Covance CEO defends company’s earnings report from Q1

By Zachary Brennan , 13-May-2014

A few clinical trial cancellations seem to be the cause behind Covance’s weaker-than-expected growth in the last quarter, Joe Herring, chairman and CEO of Covance, said.

Speaking at the Baird’s 2014 Growth Stock Conference last week, Herring noted that the company has over the past two quarters experienced an unexpectedly high number of trial cancellations.    

Once a drug went into Phase III development [in the past], almost nothing stopped it unless there was a significant safety issue,” whereas today companies are looking more closely at comparative effectiveness issues, as well as other concerns that might stop a trial, he said.

The lower than expected results caused Covance to reforecast its revenue growth to between 6% and 9%.

Despite the fall-off of a couple of late-phase trials, Herring sounded almost exuberant over the company’s prospective early phase work. He said the company is seeing a robust number of new orders through April for early development work and that it’s the “most positive we’ve felt about that business in the past five years.”

As far as early development margins are concerned, Herring said that the “first quarter is always seasonally soft” but there will be a “sharp increase going into the second quarter.”

We have a pile of proposals that we’re working on now,” he added.

Higher than expected facility utilities in the quarter also drove down the company’s expectations in the previous quarter, in addition to an extraordinarily high number of stock option exercises, he said.

Covance also has seen its spending on IT, which was “the most expensive thing we’ve ever done,” almost come to a close as the company is “95% done” with its projects, Herring said.

For 2014, he added, Covance is looking at working with about 30 different companies, with the potential for some acquisitions, as selling IT services has some potential.

M&A

Herring also re-iterated what he told investors on the company’s quarterly call – that recent pharma M&A has the potential to boost the company’s bottom line.

With the ones that are in the paper right now, we don’t see a scenario where we lose work,” Herring said, noting there’s “probably some upside from this.”

He also noted that he’s in talks with some of top pharma companies’ senior staff over how to further cut research and development that could lead to new business.

There are a couple of clients I’m personally spending time with that have huge targets for taking R&D spending, and a couple of others that need to do something similar,” he said without citing specific companies.

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