Covance is latest CRO to cut 2009 forecast on lower Q1 demand

- Last updated on GMT

Related tags: Revenue, Covance

New Jersey, US based Covance is the latest CRO to cut earnings projections and blame falling pharmaceutical industry demand for its woes.

It said a lower level of study activity and staffing and validation costs associated with its new animal testing facility in Chandler, Arizona were responsible for a 46 per cent decline, to $27m (€20.2m), in first quarter preclinical operating income.

CEO Joe Herring said that while first quarter demand for early development services was down, hurting revenue and profitability, Covance’s central laboratory and clinical businesses had seen a significant upsurge.

Herring went on to say that: “while we believe a bottoming of demand is underway, we expect growth to return later and slower than originally projected and from a lower base of revenue.

As a result, we are now lowering our 2009 revenue growth rate expectation to the single-digit range and our earnings per share target to $2.50 to $2.70 [down from the $3.00 to $3.20 range it originally forecast]."

Preclinical and trials CROs suffer

Covance joins rivals Kendle International and PPD, which have all reduced their forecasts in the last few weeks citing lower than anticipated demand in the first three months of the year.

While initially analysts speculated that the gloom may be company specific, when PPD cut its forecast last Wednesday most were convinced that a contract research sector-wide drop in demand is underway.

Covance’s decision to cut its earning forecast will do nothing to assuage these sector-wide fears, particularly because unlike PPD and Kendle, the firm tends to focus on early stage development work.

So far Covance’s main rival in the US pre-clinical and early stage drug development market, Charles River Laboratories, has made no such restatement of its 2009 forecast, but it is safe to say that its Q1 results presentation on May 5 will attract a lot of analyst attention.

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