Net revenues remained fairly flat, growing two per cent to $224m (€172m), and the impact of this slight increase was offset by rising costs. Total costs and expenses increased by four per cent to $198m, leaving Icon with an operating income of $26m, down year-on-year from $29m.
Ciaran Murray, chief financial officer at Icon, said in a conference call with investors that the central labs and early phase businesses had had a negative impact on margins. Deliberate, long-term decisions impacted Phase I and the unit is expected to be profitable in the fourth quarter.
Revenues generated by central labs fell by $2m year-on-year. This dip occurred despite steadily increasing new business in recent quarters, culminating in record $32m of bookings in the second quarter.
However, the central labs business has historically taken longer to convert business into revenues. Consequently Murray, and Peter Gray, CEO of Icon, anticipate that the central lab operation will begin to benefit from this new business in the coming quarters.
Overall net bookings also increased, totalling $320m in the second quarter. This helped strengthen the book-to-bill ratio to 1.4 and grow backlog to $1.9bn. Visibility is slowly improving and the company expects growth to pick up in 2011.
M&A and Asia
Gray said Icon is “pretty active” in its search for acquisition targets. Areas of particular interest are Phase I, laboratories, postmarketing and staffing services. Icon predicts that the economy and changes to the industry will drive growth in the staffing services sector.
Geographic expansion in Asia will occur organically, said Gray, with alliances a possible way of expanding in the market. Icon is seeing a lot more interest in Asia, with some of this translating into business activity, and is taking a variety of approaches to building scale in the region.
However, Gray said he is wary of overreacting to the predicted rise of Asia, describing himself as “a bit of a cynic”. To support this view Gray cited the performance of Central and Eastern Europe (CEE) and India over the past decade.
Both regions have been touted as ‘the next big thing’ in clinical research during Gray’s time at Icon but are yet, in his opinion, to become as significant as many predicted. Despite small gains by the rest of the world Europe and the US account for 90 per cent of revenues at Icon.
China is the country that may shift this. Gray said that to date Icon has focused its business on pursuing global deals, with one exception, the US. Icon gave the US special focus, pursuing local deals, because of the size of the market. China could become the second exception, said Gray.