Increased orders for Covance quells LabCorp uncertainty, says analyst

By Dan Stanton

- Last updated on GMT

Related tags Contract research organization Revenue

Covance reports growth as LabCorp takeover looms
Covance reports growth as LabCorp takeover looms
Covance’s 5% revenue growth and a book-to-bill ratio of 1.3 for the fourth quarter 2014 was better than anticipated and an encouraging sign for LabCorp, an analyst says.

For the full year 2014, the company reported sales across both segments of $2.7bn (€3.2bn) with both early phase and late phase development clocking in 5% growth year-on-year - $915m and $1.6bn respectively.

With the acquisition of the contract research organisation (CRO) by LabCorp pending, Covance did not host a Q4 2014 conference call to discuss its earnings but CEO Joe Herring described the quarter as “well above our previous record level”​ with a net book-to-bill of 1.30.

Book-to-bill ratio is the gross new business wins divided by the quarter’s consolidated service revenue, and is indicative of demand for CRO services, and this figure – the highest for Covance since early 2013 – was deemed “encouraging with regard to the outlook for the combined LabCorp / Covance entity,”​ by ISI analyst Ross Muken.

“Given that the deal announcement came one month into fiscal 4Q, these new order results should quell some concerns related to the uncertainty over Covance relationships in a LabCorp-owned world and serves as a nice kick-off to the combined business,”​ he said in a note.

It had been suggested that uncertainty surrounding the deal could benefit other CROs, with analysts predicting Charles River Laboratories​ could benefit from Covance’s distraction in early phase, and Quintiles’ CEO Tom Pike​ suggesting his firm could take on more market share in late stage development.

Last week, Parexel reported​ a massive jump in its book-to-bill ratio, from 0.88 in the last quarter to 1.54, and was attributed to strong demand for its strategic partners which count for almost half of Parexel’s business.

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