Covance Sees Multiple Avenues for Margin Expansion, CFO Says

By Zachary Brennan

- Last updated on GMT

Covance Sees Multiple Avenues for Margin Expansion, CFO Says

Related tags: Clinical trial, Covance

Covance’s IT expenses are expected to taper off in 2014, which could contribute to driving wider margins for the CRO, Covance CFO Alison Cornell said Monday.

Cornell, speaking at the Morgan Stanley Global Healthcare Conference in New York, said a combination of an uptick in the company’s toxicology business and a mix of late- and early-stage offerings as “higher margin service offerings are growing faster than others​” could cause the company’s margins to grow further.

With “more safety and efficacy data than any entity in the drug discovery industry​,” Covance is able to mine that data to help sponsors understand what sites might be better enrollers and therefore speed developing compounds to market, Cornell said. She offered two examples of Covance’s work with Bayer where the CRO (contract research organization) delivered studies three months and nine months ahead of schedule.

As for the company’s toxicology business, which seemed to be hot topic for the CFO, she said Covance has seen “strong orders​” continuing throughout the summer, but given the volatility of the sector, Covance is only “cautiously optimistic​.”

Strategic Partnerships

Cornell was also quick to define what Covance sees as a typical strategic partnership with a sponsor, which she said “is a term used very loosely​.”

For Covance, a strategic partnership must be a relationship that lasts “greater than five years​,” involves a transfer of people or assets, and introduces the CRO “much earlier” in the clinical trial process, such as with a study protocol or design.

She gave the examples of Covance’s work with Sanofi, Eli Lilly and Bayer, noting that Bayer has expanded its relationship with the CRO to be Bayer’s “premier provider in the lab space​.”

With more than 800 CROs out there, global work is gravitating the top five and we’re a beneficiary of that​,” Cornell said.

Risk Sharing?

As CROs and sponsors look to further hash out​ how to share the risks of the drug development process between them, Cornell seemed hesitant of the idea.

Covance doesn’t enter into risk sharing arrangements​,” she said, adding, “It’s more like risk shifting than risk sharing​.”

But on a limited basis, where “we have control of the outcome​, we will take on some risk,” as long as a third party or the sponsor does not have any control of the risk.

Covance has been involved in risk-sharing deals in “a very limited extent​,” she added. 

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