Project cancellations dominate Kendle’s gloomy Q1 forecast

21-Apr-2009 - Last updated on 22-Apr-2009 at 11:00 GMT

US firm Kendle is the latest CRO to revise its forecast and blame “unprecedented biopharmaceutical industry conditions,” which are fast becoming an industry catchphrase, for its Q1 woes.

In an echo of statements made by rival PPD, Kendle said that a higher than expected project cancellation rate and delays in signing replacement deals would cause it to miss Q1 estimates.

In a US Securities and Exchange Commission (SEC) filing submitted yesterday, the contract research organisation (CRO) attributed the shortfall to a 45 per cent project cancellation rate, citing a contract lost in February as a major factor.

The Cincinnati-based firm went on to say that a slight upturn in the number of clients proposing projects in January and February had tailed off severely in March, eventually ending the month at the lowest level for a year.

While Kendle is not due to report full Q1 figures until May 7, it did explain that sales for the opening three months of the year are well below expectations with its Phase II and III business being hit most severely.

The firm’s share price plunged 61 per cent to a four year low of $8.28 when the news broke, eventually climbing back to $10.26 in afternoon trading.

In a conference call held on Monday, CEO Candance Kendle said that growing competition was putting pressure on prices, explaining that “while we have worked to pull costs out of the system… we did not shift quickly enough in recent weeks to improve sales.”

CRO sector struggles in Q1

While Kendle slump was the largest, the firm’s gloomy outlook had a knock on impact on many of its fellow CROs. Parexel’s share price fell 15 per cent to $9.48 while Icon’s dropped 7.8 per cent to $16.90. In addition, Covance and PPD fell 3.5 per cent and 5.7 per cent respectively.

The drug industry’s current focus on M&A rather than R&D has seen a dramatic decline in the number of clinical trials being begun, which is an obvious problem for the CRO industry as a whole.

In a note to investors Alexander Draper from Raymond James said that cancellations may be hitting Kendle harder than other late stage development firms.

Jefferies & Co analyst David Windley agreed. He suggested to the Wall Street Journal that although “the issues raised by Kendle appear to be industry wide… they could be affecting Kendle more severely since the company is smaller than its peers.”