Kendle op profit down 64% as early stage review nears end

By Nick Taylor

- Last updated on GMT

Related tags: Early stage, Revenue

Kendle recorded a 64 per cent drop in Q3 operating income and expects its strategic review of early stage, which will establish a fair value and consider all options, to be complete next quarter.

Net service revenues from early stage fell by 42 per cent to $10.8m (€7.7m), contributing to a $303,000 operating loss. The early stage unit continues to face challenges and this is particularly true of the site in Utrecht, the Netherlands which suffered a regulatory setback earlier this year.

In light of these issues Kendle initiated a full strategic review of early stage operations. Speaking in a conference call with investors, Cadence Kendle, CEO of the company, said the review will establish a fair value and consider all options, from complete exit of early stage to refocusing.

In a discussion about how early stage capabilities impact on securing strategic partnerships Kendle said it is more important to have a strategy for Phase IIa than volunteer studies. This could be a long-term relationship with a clinical site and personnel with expertise in the area.

Kendle plans to discuss the findings of the strategic review of early stage in its fourth quarter conference call which should be held in February 2011. For the first nine months of 2010 the early stage unit had net service revenues of $19.6m, down year-on-year by 28 per cent.

Other results

Net service revenues from late stage fell 17 per cent to $91.5m and operating income was $19.4m, a year-on-year decline. This contributed to a 20 per cent decline in total net service revenues and a decrease in overall operating income, which amounted to $5.6m.

Kendle experienced $10.4m in contract cancellations in the quarter, compared to $53.8m a year ago. New business awards totalled $131.4m, down from $137.2m 12 months ago, and backlog was also lower at $807.4m. Net book-to-bill was 1.5, the highest since the third quarter of 2007.

Late stage partnerships, mid-sized pharmas

Kendle said the late stage strategic partnership sector is at an earlier stage than preclinical and laboratory. Consequently, Kendle said there are opportunities for strategic partnerships as the sector matures to the same stage as preclinical over the next three to five years.

In the third quarter Kendle received more requests for information (RFIs) from top 50 pharmas and continued to target entering into strategic partnerships with existing clients. Strategic partnerships are likely to form focus on geographic or therapeutic expertise, said Kendle.

Potential partners in a strategic deal extend beyond the top 10 pharmas. Kendle said the strategic partnership model has filtered down through the top 50 pharmas and beyond. Also, Kendle said its culture better matches pharmas in the top 20 to 50 so these firms could make good partners.

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