Covance cuts guidance on late-stage trial delays

03-May-2010 - Last updated on 11-Jan-2024 at 11:48 GMT

Related tags Revenue

Covance has cut its full-year guidance despite an increase in Q1 revenue, citing delayed late-stage trials, lower demand for chemistry services and costs associated with facility closures as the reason for the adjustment.

The US contract research organisation (CRO) posted operating income for the three months ended March of $52.9m (€40m), down 5.5 per cent from Q1 2009, while net revenue for the same period grew 9.2 per cent to $481.9m.

On a segment-by-segment basis, Covance’s early-stage development business, which has been hit by lower demand over the last 12 months, saw operating income fall 15.7 per cent to $22.9 million.

Part of the reason for the decline was a reduction in operating margins due to costs associated with the impending closure of its preclinical R&D facility in Kalamazoo, Michigan.

In contrast, revenue from the unit grew 6.5 percent for the quarter to $205m as gains in clinical pharmacology and research product sales partially offset lower demand for toxicology testing and chemistry services.

The firm said: “Early Development operating margins, excluding facility rationalization costs in the second quarter, are expected to expand sequentially throughout the year” and predicted that revenue will continue to increase.

Covance’s late-stage business appeared to have a better quarter with operating income up 17.6 per cent to $66.2m as profitability in central laboratory services and clinical development increased margins to 23.9 per cent, up from 22.6 per cent in Q1 2009.

However, for Q2 Covance expects that operating margins will fall “as headcount in clinical development will be underutilized due primarily to the delay of three large trials.”

The revenue contribution from the late-stage unit was 11.3 per cent than in the comparable period in 2009, reaching $276.9m.

However, as Covance pointed out, on a sequential basis “revenues declined $5.0 million due to lower than expected central laboratory revenues from the slower commencement of new trials and the negative impact of the strengthening dollar.”

The firm was equally gloomy about its late-stage business in Q2, suggesting that the anticipated “increase in central laboratory revenues is not expected to offset lower clinical development revenue resulting from three large study delays.”

As a result, Covance now expects full-year revenue of $1.96bn to $2.02bn, which is up 5 to 8 per cent on those achieved in 2009 but less than the 10 per cent gain the CRO predicted earlier this year.