Preclinical demand down at Covance but with signs of recovery

By Gareth Macdonald

- Last updated on GMT

Related tags Revenue Clinical trial Pharmaceutical industry

Despite some gains, demand for pre-clinical development services at Covance fell for the second quarter running, offsetting progress made by its late-stage trial and laboratory analysis businesses.

Net revenue and operating income from early development operations, which includes preclinical toxicology, analytical chemistry and preclinical pharmacology units, were $200m and $27m, down 6 and 50 per cent respectively.

Covance attributed the declines to falling pharmaceutical industry demand for preclinical services, echoing comments both it and other contract research organisations (CRO) made during the Q1 reporting season.

While the second period of falling demand is clearly a concern for Covance, revenue was at least higher than the $192.5m posted in the last quarter as a result of chemistry and pharmacology gains, possibly indicating signs of recovery.

CEO Joe Herring was certainly of this opinion taking the view that things are moving in the right direction and stressing the improvement made over Q1.

He also predicted that toxicology testing, the one early-stage development area that did decline with respect to the last quarter, “is on track for sequential improvement in the third quarter, based upon scheduled backlog.”

Late-stage gains help Covance top revenue estimates

Covance's late-stage trial operations were a more concrete source of optimism. The business generated revenue of $266m, 19 per cent higher than the year earlier, and operating income of $65.5 million, up 52 per cent.

Covance highlighted year-on-year growth of its central laboratory unit, clinical development and commercialization units as being the key drivers. The late-stage performance also caused the firm to its earnings guidance.

It now expects to earn between $2.60 and $2.80 per share this year which, while still short of the $3.00 to $3.20 ​it originally forecast is an improvement on the $2.50 to $2.70 ​it predicted after its last set of financials in April.

The firm is hold a live webcast to discuss its results later today.

Buys Merck’s gene lab

In related news, Covance announced plans to buy Merck’s Seattle gene expression laboratory in a move that the firm claimed establishes it as the largest genomics service provider in the world.

The firm also signed a five-year, $145m agreement to provide Merck with gene analysis services.

Related topics Preclinical Research

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