Covance in good health

By Kirsty Barnes

- Last updated on GMT

Related tags Covance Profit Firm

Covance has again reported a healthy business performance with a
6.4 per cent increase in sales of $343m (€266m) for the fourth
quarter of 2006.

The firm also reported a 15.7 per cent rise in operating profit of $51.3m, compared to its pro forma results of Q4 2005. However, administrative spending also shot up 14 per cent, attributed to "business growth."

Singled out by Covance as a strong performer was the clinical pharmacology business, with growth spurred by this year's acquisition of Radiant Research, as well as customer demand in the preclinical toxicology and chemistry businesses.

These areas are currently a bottleneck in preclinical development as more biopharma firms, both small and large, are deciding to outsource the function.

Many small biotech firms simply don't have the preclinical infrastructure and resources and rely on contract research organisations (CROs) such as Covance.

Meanwhile, some large firms are closing down their existing toxicology facilities after taking the decision to reinvest elsewhere. Pfizer's cost cutting plan unveiled last week is a prime example of a large firm scaling back its in-house preclinical, among other, activities.

The company has in fact just announced a new 'dedicated capacity' contract with an undisclosed top ten pharma firm.

"This contract is the first dedicated agreement spanning multiple continents, and provides our global client with the opportunity to standardize its global toxicology organisation and study processes,"​ said Covance.

The firm would comment no further on the deal, however, the value was disclosed at $55m.

Under such an arrangement, a pharmaceutical company with a rich drug pipeline will have guaranteed access to Covance's toxicology space when they require it, Paul Surdez of Investor Relations at Covance told

"In the last three years we have gone from zero to five of these types of arrangements and we expect the trend for these types of contracts within the industry to continue to grow,"​ he said.

As a result, Covance is now building a brand new 250 sq. ft. toxicology facility in Arizona that will be ready for 2009.

This will add to the company's existing US preclinical toxicology facility in Wisconsin, and its European facilities in UK and Germany, which was also recently expanded by 30 per cent.

Meanwhile, Covance also said it experienced a lower testing volume in its central laboratory segment for the fourth quarter, attributed to "slow enrolment in large Phase III clinical trials."

This slow enrolment is not specific to Covance, but is a global phenomenon,"​ said Surdez.

"We are not running the trials ourselves so I cannot say why this is happening, but it is affecting all our central laboratories across the world."

Despite this, the firm said that "robust central laboratory orders gives us confidence that volumes will ramp up as the year progresses"​ and has also just announced plans to open a second central laboratory in China, in order to meet the growing demand for clinical trials conducted in the budding region.

Overall, during the fourth quarter Covance managed a 0.6 per cent increase in its profit margin to 15 per cent, attributed to "our focus on productivity enhancements and the expansion of Six Sigma programs."

Surdez said that the firm believes it will improve on this margin again in the coming months by "continuing with its Six Sigma programs and using the operating leverage in its business model."

"Lots of CROs are very people-intensive which makes it hard to improve margins,"​ Surdez explained.

"We are two-thirds laboratory-based, which means that we are much less people-intensive and can use this advantage to increase profitability."

Related topics Preclinical Research Preclinical

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