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Covance to close Arizona tox site as weak demand continues

By Nick Taylor , 03-May-2012
Last updated on 07-May-2012 at 09:58 GMT

Covance is to close its toxicology facility in Arizona after early development demand dipped at the start of 2012.

Talk of possible cuts emerged from Covance in January and after a slow start to the calendar year the axe has fallen on the preclinical site in Chandler, Arizona. Covance opened the facility in 2009 but changes to the contract with its main client, Amgen, have impacted on demand.

We view the significant restructuring actions, particularly the shuttering of the company's newest facility, as a negative development as it seems to indicate the expectation of weak preclinical demand for an extended period,” Tim Evans, senior analyst at Wells Fargo, wrote.

In a press statement accompanying first quarter results, Joe Herring, CEO of Covance, said early development sales were “significantly below...expectation.” Closing the site will bring toxicology capacity in North America down to 2007 levels.

This may still be too much though. Covance indicated a willingness to make further cuts but is waiting on several “large commercial opportunities” that are being discussed at the moment.

It is possible these the biopharma companies involved in these talks want to transfer their own toxicology site to their CRO (contract research organisation) partner. Taking on additional capacity could prompt cuts at the CRO partner.

Charles River Laboratories has also spoken of the emergence of big, more strategic deals in the early development sector. The Massachusetts-based preclinical CRO also reported its results last night and, like at Covance, sales of toxicology services were weaker than expected.  

Sales mix continued to be affected by a greater proportion of non-GLP (good laboratory practice) - shorter duration, lower revenue - toxicology work,” David Windley, equity analyst at Jefferies & Company, wrote.

Windley and other analysts have speculated that the trend to defer GLP toxicology work until later in development has led to a permanent reshaping of demand. By closing its newest site Covance adds further weight to this theory.

Covance in Japan

In other news Covance said that the expansion of its lab partnership with Japan’s BML gives it greater access to execs in world’s second largest pharmaceutical market.

Earlier this week  we reported that US contract research organisation (CRO) Covance has expanded its collaboration with Kawagoe city-based BML adding new services and capacity to the partnership it established in 2010.   

Jonathan Koch, global general manager, Covance central laboratory services told Outsourcing-pharma.com that: “The motivation for expanding our collaboration is two-fold. Firstly the success of the initial phase has produced good results for both parties as well as the desire by both parties to deepen our relationship.”

The second driver – Koch continued – was Covance’s desire to respond to clients needs in the Japanese market.

An increasing number of clients are conducting global and regional studies in Asia and clients in Japan are conducting both regional and domestic studies.

"Expanding our presence and service offering in Japan allows us to enhance support of clients' research across a wide range of therapeutic areas and specialized testing."

Covance and BML’s partnership is built on a core offering of start up safety services, namely chemistry, hematology, urinalysis and haemoglobin A1c. Through the expansion the firms are offering an entire suite of new analysis capabilities as Koch explained.

“The recent expansion adds endocrinology markers: thyroid function; bHCG; insulin; prolactin, cardiac disease markers hsCRP, CK-MB, PSA to assess prostate cancer, and microalbumin.

“Other tests include T and B lymphocytes, natural killer cells, and reticulocytes by flow cytometry. Coagulation tests include pro-time, APTT, and fibrinogen.”

He also confirmed that Covance is expanding its workforce in Japan to “to meet the increased demand and to manage the growth.”

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