Last week Covance unveiled aggressive spending plans for the next two years. Much of the CRO’s (contract research organisations) spending is focused on IT (information technology) but it is also bolstering its sales team in response to new business opportunities.
“Covance sees some distracted competitors that have been involved in [acquisitions or leveraged buyouts], and some growing client opportunities that merit additional focus”, Eric Coldwell, equity analyst at RW Baird, wrote in a note to investors.
After a year of consolidation many of Covance’s peers are undergoing transformations. PPD, INC Research, Kendle, inVentiv Health, PharmaNet, i3, Clearstone, and LabCorp were all involved in big deals last year.
In August Joe Herring, CEO of Covance said it will be “very, very difficult” for CROs to integrate big acquisitions. Herring also hinted that these challenges could present an opportunity for Covance.
“I think we've seen clients take time out when they see those sort of things happen. And so I think it's going to take a while for roll-up companies to get their feet under them and compete”, Herring said.
Covance is now investing in its sales, marketing, and client services teams to “to capture more of the new business opportunities [it is seeing]”. Coldwell thinks the investment is “no more than a few million” and, if successful, could drive strong bookings and revenue growth.
Herring also singled out the strategic partnering team as a focus for the investment. It is possible that some of Covance’s peers have alliances that are approaching renewal. The first wave of partnerships began around 2008 and many had terms lasting three to five years.
Renewals represent a chance, however slim, for CROs to steal business. “We think most incumbents will be in the throes of too much work to swap them out, unless the incumbent really falters, which certainly can, and is happening” David Windley, equity analyst at Jefferies & Company, wrote in July.
Most of Covance’s investment is focused on its IT capabilities. The investment will move all central laboratory activity on to one platform, strengthen clinical development capabilities, help staff work while out of the office, and consolidate 36 data centres into three hubs, one in Europe, two in the US.
Covance is also trying to predict what will give it an edge in five years. Big pharma companies are “starting to talk about the pre-competitive space”, Herring said, and considering how to create an “independent database for drug safety or efficacy data in a particular indication or therapeutic area”.
By boosting its IT capabilities Covance could become a more attractive partner for such a project. Covance is also looking to add “analytics forecasting simulation that will potentially be earthmoving for our clients”, Herring said.