CROs See Brighter Future Despite Cancellations
Contract research organizations (CROs) continue to feel the adverse effects of cancellations and negative foreign exchange, but their most recent earnings reports show some promise.
“To paraphrase the words of Mark Twain, ‘Reports of the death of the CRO industry have been greatly exaggerated,” ICON CEO Peter Gray told investors last week.
The Dublin, Ireland-based CRO reported strong first quarter net revenues with an increase of 9.2% to $201.3 million compared with the same quarter last year, a 25% hike in profit and hopes to add to that performance by acquiring a phase I unit in Omaha, Neb.
Income from operations was $26.9 million, compared with $21.5 million for the same quarter last year. Net income was $20.9 million or 35 cents per share on a diluted basis, compared with $16.9 million or 28 cents per share last year.
ICON purchased a phase I facility out of bankruptcy from Qualia Clinical Services for $380,000. The 33,000-square-foot unit, which currently holds 180 beds, will be turned into a 100-bed unit to be operational in May. The acquisition is expected to dilute 2009 earnings by about four to six cents.
Despite a reported increase in project delays and cancellations across the CRO industry, ICON’s net business wins for the quarter finished strong at $265 million with a book-to-bill of 1.2, and Gray told investors that new business activity had accelerated toward the end of the quarter.
Josef von Rickenbach, chairman and CEO of Waltham, Mass.-based Parexel, echoed Gray’s sentiments. Parexel’s cancellation rate for the quarter was 4.8%, within the company’s projected cancellation rate of 3.5% to 5%, and von Rickenbach told investors that new business wins are increasing.
The company recorded service revenue of $264.5 million for its third quarter up 8% from $245.3 million a year ago.
Parexel recorded flat net income of $14.2 million, or 25 cents a share for the quarter, but increased its 2009 profit forecast to 97 cents to 99 cents per share, up from 94 cents to 98 cents.
“I think we did a very good job of managing costs, collecting cash and winning new business, all despite a challenging environment. Looking forward, we expect continued—albeit somewhat lower—revenue growth and profitability improvements,” von Rickenbach said.
For fiscal year 2009, consolidated service revenue is expected to be in the range of $1.075 to $1.080 billion, down from previous guidance of $1.095 to $1.115 billion. Parexel senior vice president and CFO James Winschel told investors that this guidance reduction reflects overall conservatism rather than concern about a particular client or service area.
“The world is still a little off kilter at the current time, and while we have very clear visibility to the fourth quarter, we certainly also are aware of the reports of some of our competitors and wanted to just be cautious as we went into the latter half of the year,” Winschel said.
The future is not as rosy for all CROs, however. Covance reported last week an 18% decline in first quarter, and the company cut its 2009 profit guidance to $2.50 to $2.70 per share from $3.00 to $3.20 per share. Covance recorded first quarter net income of $40.3 million, or 63 cents a share, down from $49.1 million, or 76 cents a share, a year ago. First quarter net revenue was up 7% to $468.4 million, but early stage revenue, where Covance is traditionally strong, slipped 5% to $192.5 million.
Cincinnati-based Kendle recently warned investors that first quarter revenues would be significantly lower than original forecasts— news that caused the company’s shares to plummet more than 50%.Almost two weeks later, Kendle’s share price continues to hover at around $9 a share. The company attributed the revenue shortfall to pricing pressures and “unprecedented biopharmaceutical industry conditions,” resulting in project delays and cancellations. Kendle’s project cancellation rate for the first quarter was 45%, compared with original projections of 18%.