Covance chief predicts healthy sector growth in Q2 statement

By Phil Taylor

- Last updated on GMT

Related tags: Clinical trial, Covance

US contract research giant Covance saw a strong performance across its divisions in the second quarter that lifted its revenues by 15 per cent to $462m.

Operating profit rose even more strongly to $67.5m, up 22 per cent.

The healthy results provide further evidence that the pharmaceutical industry’s willingness to outsource drug development in order to cut costs and boost R&D productivity shows no signs of abating.

Covance chairman and CEO Joe Herring is bullish about the sector’s prospects in the next few years, predicting “strong growth potential under a wide range of R&D growth scenarios​.”

He believes outsourcing will accelerate out to 2012 as large R&D organisations focus on the creation of more cost-effective R&D models.

Outsourced R&D was around $18bn in 2007, around 27 per cent of the total spend, he said. Even at a rate of R&D growth of just 1 per cent a year, the total market opportunity would swell to $33bn, assuming a shift towards an outsourcing rate of 47 per cent.

At the other end of the scale – should R&D growth be maintained at its past average rate of 10 per cent over the last three decade – the total opportunity could reach $40.5bn, assuming an outsourcing penetration of 37 per cent.

The second-quarter figures at Covance no doubt give Herring cause to be optimistic in that regard.

Early-stage development services – comprising preclinical chemistry and toxicology testing, research products and early human trials and making up around 49 per cent of Covance’s total net revenues - advanced 11.5 per cent to $213m.

Chemistry services drove second-quarter growth, and there was an additional benefit from the opening of a new clinical pharmacology unit in Evansville, as well as the coming online of new capacity for toxicology services in Madison. Further expansion of toxicology capacity is due in Harrogate, UK, in late 2008, and also at the firm’s new Chandler facility in the first half of 2009.

The late-stage development services unit – which provides central laboratory and other clinical support services, Phase IIb/II trials and market access/periapproval services such as Phase IV testing – performed even better.

Net revenues were up nearly 18 per cent to $224m driven by a 30 per cent hike for the central labs business, and clinical trials (17 per cent of Covance’s business) showed “a sequential increase in revenue and profit​,” according to Herring.

Backlog – the total value of contracts which have been signed but not delivered – rose more than 20 per cent to $3bn, with record net orders of $611m in the quarter.

Included in the second quarter orders were two Phase III wins totaling $70m from the top-10 pharmaceutical company which awarded us a primary provider relationship earlier this quarter, as well as the previously announced $66m dedicated toxicology capacity agreement​,” said Herring.

The company said it was confident it could deliver 20 per cent growth in earnings per share to $3.18 in 2008, excluding one-time items.

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