Covance Remains Upbeat on Future as Q4 Exceeds Expectations

28-Jan-2013 - Last updated on 28-Jan-2013 at 12:07 GMT

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Covance management sounded relatively upbeat about its expectations for 2013 as late-stage clinical trials continue to grow and IT spending begins to taper off, company officials said on Friday.

“Management has a high degree of confidence in its mid-teens growth target for 2013 as an unusually high 88% of this revenue is already booked,” Jeffries analysts said in an investor note.

As fourth quarter revenue came in higher than expectations, the company and analysts seem to agree that revenue growth in 2013 will be in the mid to high single digits as the rapid growth in late-stage development is offset by underperformance in early-stage trials.

Joseph Herring, chairman and CEO of Covance, said in the conference call that the company is either one of two or one of three CROs working with seven of the top 20 biggest pharmaceutical companies and “we're increasing literally with all of them... The large strategic deals that we've signed that are very visible took a little longer to get going because they had other agreements, but they're starting to ramp.”

He added that research and development spending has grown more than expected and it’s likely that this trend will continue into 2013 as Covance’s clients “are becoming a bit more buoyant, especially since FDA approvals are at one of the highest levels in recent memory.”

Covance is also expecting its investments in IT to pay off over the next few years. IT spending is expected to continue to grow by 17% in 2013, but it will slow considerably in 2014 to between two and three percent.

“We are going to bring tools to clients they aren’t used to seeing: in terms of predicting and forecasting trials, estimating trial supplies, as well as metrics and dashboards to stay on top of their trial in real time,” Herring said.

Clinical orders were also up by about 40% in fiscal year 2012, and Covance remains confident in its ability to deliver at least mid-teens revenue growth in FY2013.

In addition, hiring in late-stage development more than offset the company’s cutbacks in early stage employees.

Jeffries analysts noted that the current bookings could mean “continued growth, and margins appear sustainable barring cancellations or an uncharacteristic, aggressive strategic deal.”