Covance ends 2005 on the upswing

By Kirsty Barnes

- Last updated on GMT

Related tags: Cent, Revenue

Covance closed 2005 on a high after net revenues climbed 16.9 per
cent from 2004 to reach $1.19 bn (€1 bn). The current trend towards
outsourcing R&D, coupled with increased productivity and repeat
business has fuelled the company's robust performance.

"Strong order flow over the past two years translated into a doubling of our full-year top-line growth rate to 16.9 per cent,"​ said Joe Herring, >Covance's​ chairman and CEO.

The company's year-end results were boosted by a particularly strong fourth quarter business performance, with record orders of $434 m and revenue growth of nearly 20 per cent.

These fourth quarter orders included two dedicated capacity contracts totalling approximately $34 m, consisting of the extension of an existing contract and a smaller new contract with a top ten pharmaceutical client.

In addition to growth in business, overall increased productivity, as seen by a continued growth in company-wide operating margins, has also been a particular key to Covance's success in 2005.

Operating margin reached a record peak of 15 per cent in Q4, compared with 14.2 per cent in Q4 2004. However, this peak of 15 per cent was only 0.1 per cent up from what was achieved in Q3 2005, a sign that this growth may be halting.

In any case, the company is a strong financial position for the future, with backlog reaching a record $1.67 bn and an expected free cash flow of $90 m for 2006 due to a slowing of capital expenditure.

The shining star in Q4 was Covance's Early Development segment, which provides preclinical toxicology, analytical chemistry, and clinical pharmacology services.

As demand for these services has grown, the segment experienced a strong 24.1 per cent Q4 revenue growth to reap in $150.9 m compared to $121.7 m in Q4 of 2004. Full-year net revenues grew 17.4 per cent.

In addition, the Early Development segment also reported a jump in operating margin to 25 per cent, up from the 22.9 per cent in fourth quarter of 2004.

Covance's Late-Stage Development segment, including central laboratory, Phase II-III clinical development, commercialisation services (Phase IV studies and market access services), and cardiac safety services, also saw Q4 revenues jump up 16.4 per cent, as did full-year revenues.

Operating margins grew 0.5 per cent to 16.2 per cent, primarily as a result of improved profitability in clinical development.

The future looks bright for Covance, with analysts predicting that the overall growth trends the company experienced in this year will continue in 2006.

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