Strategic deals, biotech return to boost CROs’ biz in ‘12

12-Sep-2011 - Last updated on 11-Jan-2024 at 15:43 GMT

CRO performance across late stage, Phase I and central laboratories should improve in 2012 as strategic deals develop and smaller clients return, an analyst said.

Financial services firm RW Baird heard from leading contract research organisations (CRO) at its recent conference and has shared an overview of the findings with Outsourcing-Pharma. Broadly speaking, the outlook is positive.

“Stronger revenue growth with ramping strategic deals should drive higher utilisation of core resources and improving outlook for ancillary offerings, such as central lab and Phase I, should drive materially better performance in 2012”, Eric Coldwell, equity analyst at RW Baird, said.

Icon is among the CROs hoping for an improvement in its ‘ancillary offerings’. Sandy Draper, equity analyst at Raymond James, said the central laboratory unit at Icon posted a $5.5m (€4.0m) loss in 2011, but he predicts it will make a small profit in the coming fiscal year.

Cross selling to clinical trial clients is part of the plan to return to profitability. “Icon has made some progress toward this initiative, though today, still only around 15 per cent of internal central laboratory work is associated with trials being run by [the company]”, Draper said.

Improvement at the Phase I unit should also help the overall business. Last month Icon entered into a preferred provider relationship with Bristol-Myers Squibb (B-MS) which should generate the steady feed of work management at the CRO has said the unit needs.

“We are encouraged to see the company…making at least some progress in moving one of its persistently troubled businesses closer toward profitability”, John Kreger, equity analyst at William Blair, said. Others, while welcoming the deal, noted the limitations of the relationship.

David Windley, equity analyst at Jefferies & Company, said: “[Icon shares the deal] with a private player, B-MY will outsource only part of its work, and the economics are relatively small.” Icon will generate revenue of around $10m a year and B-MS will keep first-in-man in-house, Windley said.

Pfizer ramping up

Improvement at the central laboratory unit and Phase I should coincide with an increase in sales from the Pfizer deal, which, Draper said, gives Icon and Parexel the edge over PPD in the eyes of investors. Draper downgraded PPD in response to shares reaching his target value and other factors.

“We were moderately disappointed with PPD’s lack of additional progression on the margin front, as clinical development margins stagnated and laboratory services profitability was impacted by underperformance within BioDuro and vaccine laboratory units”, Draper said.

Tox up, tox down

RW Baird also provided an update on the toxicology sector which, despite encouraging signs, is still recovering. Reports on the health of the sector have varied from quarter-to-quarter but Coldwell believes this variation can be explained.

Coldwell said: “Ostensibly conflicting commentary on recent preclinical market trends likely reflects nuances of business mix and study duration among players in this space. Despite recent softness detected by one player, we sense that the broad preclinical market remains relatively stable.”