Covance demolishes unfinished $175m lab in Virginia

By Zachary Brennan

- Last updated on GMT

 Covance demolishes unfinished $175m lab in Virginia
Covance demolishes unfinished $175m lab in Virginia
As part of its shift to cut costs, Covance has demolished an unfinished $175m (€128m) toxicology laboratory it was building in Manassas, Virginia.

We announced in 2010 we weren’t going to go through with the site and now we’re tearing it down​,” Melissa Thompson, spokeswoman for Covance, told us.

Jefferies analyst David Windley told “The demolishing was a long time coming and what we’re hearing more currently is that we’re starting to see more [preclinical] orders come into these private labs over the last six months​.”

Windley remains cautious on the preclinical end, however, noting there have been “several false starts – but the private labs are seeing a strengthening in demand over the last six months​,” which he said is the best order pattern since 2008. “We need to be cautious, however, as this is orders not revenue​.”

The Princeton, New Jersey-based company’s initial plans for the Virginia site, which began with the construction of the steel frame in 2007, included the employment of about 550 scientists, research assistants, veterinarians and administrative professionals by 2014, according to a local news outlet.

The land where the unfinished lab sits is on the border of Prince William County and is in the center of the county’s “Innovation Technology Park​,” which includes space for an FBI data center. The county refused to pay for the site’s demolition, according to another local news outlet​.

Projects for the site were awarded about $3.5m (€2.57m) in state and county economic development grants. Thompson told us these funds - which she decribed as “incentives​” associated with planned development of the site - were "never released to Covance​.”  

Officials in Prince William Economic Development department continue to help Covance market the site, according to local reports, because of its size and proximity to the  I-66 highway, as well as Dulles International Airport. 

Covance Supremacy?

Covance seems to be making a strong push to reign supreme in the CRO industry, which is constantly consolidating​.

Our [employee] turnover rate continues to be about half of the industry average… [And] our backlog is at all-time highs​,” an upbeat Joe Herring, CEO of Covance, said Tuesday at the 32nd​ annual JP Morgan Healthcare Conference in San Francisco.

He highlighted Covance’s two largest strategic deals - $1.6B (€1.17B) with Lilly and $2.2B (€1.6B) with Sanofi - noting that they’re the biggest deals ever made by a CRO. The company also has the fastest growing late clinical trial business, Herring added.

The transition to a more central lab-centric approach comes as Covance recently partnered with NeoGenomics​, which was its second genetics partnership​ in as many months.

Analysts seem bullish on Covance, as well. Windley upgraded the shares to "Buy" from "Hold" and raised his price target for the stock from $88.50 to $105. Covance is rated “Buy” by 17 other Wall Street analysts, which have set the stock on an average of $93.69 per share.

Preclinical Shakedown

The destruction of this site comes as Covance is looking to strengthen its preclinical work. According to Windley, preclinical work represents about 18% of its bookings.

 “We expect year-end reports by [Charles River Laboratories] and [Covance] to reveal accelerating preclinical growth, adding to modest, mid-2013 improvement​,” Windley said in a note to investors. “CROs with Phase II-IV exposure got coal in their stock(ing)​.”

Demand is coming back to preclinical after five years of turmoil​,” he told us.

Other Developments

In late December, Covance also announced that its board approved a stock repurchase of up to $100m (€128m) of outstanding common stock.

In addition to its genetics partnerships from November and December, Covance also bought a genomics lab from Merck in 2009​.

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