Kendle earnings hit by computer error

By Phil Taylor

- Last updated on GMT

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Kendle International posted a 22 per cent drop in net income to $5m, after a computer error led to problems with a clinical trial carried out for one of its customers.

Shares in the company closed down 7nearly 7 per cent yesterday on the announcement, standing at $19.92 on the Nasdaq.

Kendle’s service revenues rose 5 per cent to $109m, short of analysts’ expectations even if the lost $2.3m in revenue relating to the programming error is discounted.

Earnings per share were down to 33 cents from 43 cents a year earlier, with the computer glitch dragging EPS down around 18-20 cents, according to chief executive Dr. Candace Kendle, who said on a conference call that the mistake had also resulted in additional direct costs at year end.

However, “we believe there is potential to recoup most of these additional expenses through insurance proceeds​,” she said.

Turning to happier matters, Dr. Kendle noted that the group’s early-stage research division did well in the quarter, with revenues rocketing 70 per cent to $9.7m, in large part because of the contribution from the firm’s unit in Toronto, Canada, which was acquired last June.

The late-stage division managed a 4 per cent increase in revenues to $98.5m in the fourth quarter. For the full-year the unit grew sales 19 per cent to $475m.

Geographically, there were good revenue gains in Latin America (up 50 per cent) while European and Asia-Pacific sales declined slightly and North American revenues were largely flat.

There was also evidence of a softening in the business. Gross sales for the quarter were $163m, down 20 per cent on Q3 and 2 per cent year-on-year, said Dr. Kendle, although she noted that the fourth quarter is typically one of the leanest in the financial calendar. The cancellation rate was around 15 per cent, she added.

Requests for proposals (RFPs) were at their lowest point for seven quarters, she added, although there are signs of an upturn in the early period of 2009, both in terms of the number and value of RFPs coming in.

It is much too early to draw a conclusion, but trends are encouraging​,” she said.

It is notable that - for the first time in over a decade - prescription drug sales shrank in 2008, said Kendle, adding: “there is little indication that this trend will reverse in the near term​.”

That makes it important for drug developers to find alternative, cost-effective, drug development solutions, she said, adding that this bodes well for larger contract research organisations that can offer strategic partnerships with biopharmaceutical companies.

Data from a Tufts University study, conducted in conjunction with the Association of Clinical Research Organizations (ACR) suggested that 20 per cent of all outsourcing is now following this strategic, preferred provider business model, according to Kendle.

The company is predicting that in 2009 net service revenues will be in the range of $510m-$530m, representing growth of seven to 10 per cent over 2008.

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