For the final three months of the year, Covance's total operating income was $55m (€39m), down 13.6 per cent from the comparable period of 2008, with the contribution from clinical trial services rising 45 per cent to $63.8m on revenue that was 25 per cent higher at $282m.
Unfortunately for the US contract research organization (CRO) this growth was effectively cancelled out by 50 per cent drop in operating income from its early stage discovery and development services.
The decline was a result of continued low demand and falling revenue for Covance’s preclinical toxicology testing, clinical pharmacology and discovery chemistry services businesses, which is a trend reported by most of the major CROs since the economic downturn began in 2008.
And, according to the 2010 forecast issued by CEO Joe Herring, this pattern of demand is likely to continue for the time being.
Herring predicted that earnings for the next 12 months would be between $2.50 and $2.75 per share on the assumption that toxicology and chemistry earnings will remain roughly flat from the fourth quarter of 2009 levels.
He also forecast a sequential improvement in clinical pharmacology and that operating margins in its late-stage development business will remain near the Q4 2009 level of 23 per cent.
“The earnings target for 2010 also reflects a step-up in depreciation and maintenance expense from new IT systems and other investments, and a return to a normal level of incentive compensation expense.