Icon guidance below estimates after two large deals cut
Safety or efficacy problems caused the clients to scale-back or stop clinical development of the candidates early in 2011. Combined the contracts were worth up to $50m (€36m) and having lost these revenues Icon issued lower than expected earnings per share guidance (EPS) for 2011.
Icon shares fell following release of the results, closing the day down nine per cent. In a conference call with investors Peter Gray, CEO of Icon, said the guidance was disappointing but the outlook for the second half of 2011 and beyond is positive for Icon and the industry in general.
For instance, by the second half of 2011 the central laboratories unit aims to break-even. In the fourth quarter central laboratories posted an operating loss of $4m, maintaining the trend seen throughout 2010, as the impact of weak demand in 2009 continued.
Orders were strong in the fourth quarter, bringing 2010 bookings to more than $100m, but many deals were for large trials that are slow to convert to revenues. As conversion rates improve, and Icon ends a period of investment, revenues and margins could return to pre-downturn levels.
Investing in scale
Icon invested in central laboratories to ensure the unit has the scale to handle large trials. Scale also motivated investment in Asia, where Icon now employs 1,000 people and plans to add more in 2011.
Gray said it is important Icon is perceived to have sufficient scale in Asia to handle large clinical trials. Clients plan to include more Asian and Latin American sites and patients in their clinical trials, said Gray, and contract research organisations (CRO) must adapt to meet this demand.
The percentage of Icon revenues coming from Asia-Pacific and Latin America reached double-figures in 2010. Icon posted low-single digit growth in fourth quarter and full year global net revenues.
In 2011 Icon expects mid- to high-single digit growth in net revenues. Strategic partnerships, which Icon continues to invest in, will support growth and increase the proportion of sales from top clients. Revenue concentration from the top one, five and 10 clients increased in 2010.
This will continue in 2011, said Gray, as big deals in Icon’s pipeline are secured. In preparation Icon has maintained Western staffing and resource levels above what is currently needed. Icon is also keen to hold onto Asia-based staff because of concerns about a skills shortage in the future.
“The biotech client is back”
Gray said Icon concentrated on strategic partnerships in 2010 but may have been overly focused on these deals and missed other opportunities, notably an upturn in business from biotechs.
“The biotech client is back”, said Gray, and Icon plans to secure more of their business 2011.
