The firm still expects to earn $3.00-$3.20 per share in 2009, and can gain confidence from a dramatic increase in backlog - contracts that have been booked but not delivered yet - which rose more than 60 per cent in the fourth quarter to $4.3bn.
However, CEO Joe Herring said that a softening of demand for its early development services, as well as the negative currency exchange effects, will make meeting the target a challenge.
The 2009 target assumes “demand for early development services begins to pick up between the second and third quarters of this year,” said Herring, and also that exchange rates will remain constant.
“We are off to a somewhat slower start in early development services and there continues to be significant volatility in the US dollar,” he added. But the firm’s late development services, and particularly central laboratory, are doing much better.
The results spurred a 2.5 per cent increase in Covance shares to $36.88, which have fallen off dramatically in recent months from a high of nearly $100 last summer and have been hovering in the low $30s of late.
Overall, Covance posted a 6.5 per cent hike in quarterly revenues to $464m, although earnings per share dipped to $0.72 from $0.78 a year earlier. Operating income came in at $63.5m, up 4 per cent.
The reduced demand for Covance’s early development services, which covers testing services such as toxicology, analytical chemistry and clinical pharmacology, continued to peg back the division, with revenues up 3 per cent to $214m.
Growth in analytical chemistry was offset by declining revenues in both toxicology and pharmacology, which were affected by fewer new projects starting and delays, said Covance. In consequence the unit’s operating income fell 11 per cent year-on-year.
Late-stage Development, which covers central lab, Phase II-III clinical trials and commercialisation services, fared better in the quarter with 35 per cent increase in operating income to $44m, on revenues up 10.5 per cent to $224m.
Herring said the firm secured two seven-year, sole source contracts for central lab services from top-10 drug companies towards the end of 2008 that will help the unit continue to run “ahead of budget.”
For the full-year, Covance reported total revenues of $1.83bn, with operating income up 15 per cent to $264m.