Covance Sees Healthy Growth in First Quarter of 2013

By Zachary Brennan contact

- Last updated on GMT

Related tags: Contract research organization, Pharmacology, Pre-clinical development

Covance Sees Healthy Growth in First Quarter of 2013
Covance’s 10 percent growth in Q1 2013 compared to the same quarter last year was driven mostly by its central laboratories business and has caused a boost in its revenue targets for the rest of the year.

"Significantly higher kit volumes in central laboratories and continued strength in clinical development drove better-than-expected consolidated results in the first quarter​," Joe Herring, chairman and CEO of Covance, said.

The company’s central laboratories grew by 20 percent, which was the strongest year on year growth since 2009. Similarly, late-stage development saw almost 17 percent growth year-on-year and clinical development grew 18 percent.

By most measures [Covance] had a good quarter, with non-GAAP EPS of $0.75 beating the Street... The beat was rather lopsided however, as its late-stage continued to outperform while early development met the very low bar management appropriately set earlier this year​,” Citi analyst Garen Sarafian said in an analyst note titled, “Split Personality, But the One We Like Is Quite Charming​.”

Sarafian noted the cancelation rate is “at a three year low​,” which “is also notable as it’s been at elevated levels for much of the last two years by our estimates​.”

Preclinical

But Covance’s preclinical business, like many others in the CRO industry​, continues to struggle.

“Covance’s pre-clinical segment that includes toxicology reported 1Q sales of $207mn, below the Street’s $212mn but above our $203mn estimate. While the [year over year] growth of -2.1% was below management’s guidance for flat growth​,” Sarafian said.

But Herring remained positive on the conference call discussing the results last week, noting, “Biotech funding is picking up a little bit and will see some benefit of that as well as pharma clients needing to get back to work in pre-clinical​.”

Covance’s global footprint also is evenly dividing its business between the US and abroad, with about 51 percent of its business coming from overseas, according to a SEC Form 10-Q filed Friday​. Herring also called Covance’s recent expansion into Singapore “a home run​,” as teams from 12 different Asian countries report to leadership there.

IT Business

Previous plans from the company to ramp up IT spending​ also seem to be progressing.

Herring said in the conference call that between three and five years from now, “pharma companies, as well as biotech companies, are going to be buying clinical trials as a service. I think they're going to largely get out of the in-house IT business, trying to either build and maintain or buy and maintain large clinical systems, electronic trial master files, safety systems and that type of thing​.”

With the top five CROs “eclipsing that internal capacity​” of their clients, Herring said he thinks “each of the CROs is going to have a newer, more modern, more integrated IT system​.”

He added that the company is motivated to keep its IT spending flat in 2014 after it finishes its modernization of the systems.

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