Covance sells 'underperforming' site to LabCorp; Reports strong Q4

By Dan Stanton

- Last updated on GMT

Related tags Analyst david windley Pharmacology

Strong Q4 for Covance: Growth in Early development, and late-stage continues 'to defy gravity'
Strong Q4 for Covance: Growth in Early development, and late-stage continues 'to defy gravity'
Covance has sold its high-complexity genomics laboratory to LabCorp as part of what an analyst says is decisive action to shed underperforming assets in its Early Development business.

The sale of the genomics laboratory, located in Seattle, Washington, went through on January 31 the firm announced yesterday, though financial details have not been divulged. Covance will continue to offer its clients services from the site as part of a five year services agreement with Laboratory Corporation of America (LabCorp).

The news comes as Covance reported solid fourth quarter figures that included a 5% growth to $228m (€169m) in revenues for its Early Development business, compared to the same quarter last year, and an operating income for the full year of $87.5m - significantly higher than 2012’s figure of $4m.

“Early Development (ED) revenue exceeded our target by around $8m, while margins were in line,”​ commentated Jeffries’ analyst David Windley in a note.

“At the same time, management is taking more decisive steps than in the past to shed underperforming assets - selling the genomics lab to LabCorp, and ‘listing’ two other ED properties.”

Last month a spokesperson told​ Covance was demolishing its $175m unfinished site in Manassas, Virginia, and an ED site in Basel, Switzerland was also earmarked to close​ in 2012. Both Manassas and Basel “are being marketed for sale,”​ the company said yesterday.

ED Recovery and Toxicology

ED has suffered across the industry since the onset of the global recession in 2008, but increased demand over the last twelve months has led to signs that the industry is recovering.

On the back of Covance’s results, John Krueger from William Blair said he was “beginning to be more optimistic about early stage, particularly toxicology,” ​whilst Ross Muken also noted ED sales beat expectations.

Covance’s Early Development segment includes preclinical toxicology, analytical chemistry, clinical pharmacology, discovery support, and research products, but CEO Joe Herring mentioned growth in toxicology as an attributing factor to the solid results.

Previously management has “declined to call a turn in toxicology in lieu of another quarter of evidence,” ​said Windley, and though “the industry still can't count its chickens,​” Covance reported another quarter of sequential growth estimated to be over 5% for toxicology.

Late Stage continues to ‘defy gravity’

Whilst ED results were solid, results for Covance’s late stage development business – which includes central laboratory, Phase IIb-IV clinical development, and market access services – was strong with a 14.5% growth, netting $395m for the quarter, on Q4 2012.

For the full year, sales were up 16.8% to $1.5bn and operating income grew 22% to $339m. Operating margin remained stable at 22.1%.

“Covance's Late-stage profitability continues to defy gravity, advancing 10 basis points sequentially vs our assumption of a 50 basis points decline,”​ said Windley, whilst Krueger said he was “impressed with late-stage revenue momentum.”

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