Rising costs hit Icon’s Q2 ahead of Pfizer deal hiring drive

19-Jul-2011 - Last updated on 20-Jul-2011 at 11:50 GMT

Icon has posted a 40 per cent drop in operating income as an uptick in expenses dragged on second quarter results.

Net revenue was flat, and beat the consensus of analysts’ estimates, but costs were up close to 10 per cent. Strategic deals have led to increased investments by contract research organisations (CRO) and Icon expects outgoings to continue to grow as it prepares for the Pfizer partnership.

“We are increasing our hiring drive and expect to add significant cost in the next two quarters as we gear up to handle work which will be transitioned to us in the fourth quarter and throughout 2012”, said Peter Gray, CEO if Icon.

The hiring drive has prompted Icon to slash guidance for 2011. “Incremental investment of nearly $45m (€32m), pre-tax, is significantly higher than feared and observers will justifiably question the long-term payoff of the Pfizer arrangement”, said Eric Coldwell, equity analyst at RW Baird.

Working with Pfizer should bring revenue growth though. Ahead of the results, David Windley, equity analyst at Jefferies & Company, said: “The Pfizer win was big for Icon, addressing its need for a source of bookings acceleration.” The Pfizer deal alone could ensure 10 per cent growth.

Backlog growth

Backlog continued to grow. “Our second quarter was in line with our guidance, and new business bookings continued to strengthen, leading to our order backlog exceeding $2bn for the first time”, said Gray.

The rate of conversion of this backlog is one of the key issues for Icon, said Coldwell in a note released earlier this month. Capacity utilisation in the central laboratory business is another big issue.

Icon will discuss these issues in greater depth in an imminent conference call with investors. Outsourcing-Pharma will post live highlights from the call on Twitter, which you can see by following our account.