For the third quarter of 2013 net revenue across all services increased by 11.4% to $606.7m (€441m) on the same period last year, and net income stood at $44.2m, up 17%.
However, though late stage development services were up 19% year-on-year early development revenue had only a modest increase of 1.2%.
Covance CEO Joe Herring said “[early development] performance was led by clinical pharmacology, which delivered strong year-over-year and sequential revenue growth and margin expansion, more than offsetting year-over-year declines in discovery support services and pharmaceutical chemistry services.
“Toxicology, where revenue declined slightly both year-on-year and sequentially, delivered better-than-forecasted orders in the third quarter, setting up expected sequential and year-on-year growth in the fourth quarter.”
This was echoed by ISI analyst Ross Muken noting “strength in nutritional clinical pharmacology was offset by weak discovery support services and pharmaceutical chemistry services,” though “toxicology results came in strong, delivering the best order numbers in the last 10 quarters.”
Balancing Act
Jeffries’ David Windley added that across the contract research organisation (CRO) industry, late-stage growth is slowing, and though Covance’s services have been supported by substantial outperformance in Central Lab it is “unlikely to be sustained.”
Throughout the industry he said early development is recovering to the detriment of the late stage growth cycle, and asked whether “both cyclinders [could] fire at once.”
For Covance, early development counted for around 36% of its revenues this quarter compared to almost 40% last year.
As for the late stage services, William Blair analyst John Kreger was “impressed with the growth,” adding “Central lab has shown accelerating revenue growth for seven consecutive quarters even though this category is virtually fully outsourced already.”