ICON lowers EPS guidance as costs build for Pfizer partnership
Clinical News | July 21, 2011
ICON has substantially lowered its guidance for earnings per share (EPS) in 2011 to accommodate a sharp rise in costs as the company gears up for new business under its recently announced strategic alliance with Pfizer.
The full-year EPS guidance of US$1.10 to US$1.25 given with ICON's annual results in March – already well below analysts' expectations at the time – has been pruned back to US$0.50-US$0.70.
This reflects “significantly increased costs in Q3 without compensating revenue, followed by further cost growth in Q4 with revenues beginning to build”, said the global provider of outsourced development services based in Ireland.
The revenue guidance provided by ICON in March – US$945 million to US$980 million for the full year, which would represent growth of 5-9% over 2010 – remains the same.
Return to growth
Presenting its first-quarter results in late April, which included restructuring costs of US$5 million and a 59.0% decline in operating income, ICON had predicted a return to growth in the second half of the year.
The company had already announced significant investments at the fourth-quarter stage to address the accelerated pace of change in the biopharmaceutical industry, although it did not expect the benefits of these efforts to show through until late 2011 and early 2012.
It looks as though the Pfizer alliance means investors will have to sit it out a little longer. Direct costs were already 15.3% higher year on year at US$150.9 million in the three months ended 30 June 2011, and with net revenues only 4.2% ahead at US$233.0 million , Q2 operating income slumped by 39.6% to US$15.5 million.
Earnings per diluted share for the second quarter of 2011 were US$0.21 compared with US$0.38 in the same quarter of 2010. Analysts polled by Thomson Reuters had been expecting earnings of US$0.22 per share for the latest quarter, while the consensus estimate for Q2 revenues was US$229.9 million, slightly below the reported figure.
Peter Gray, chief executive officer of ICON, said the second-quarter performance “was in line with our guidance, and new business bookings continued to strengthen, leading to our order backlog exceeding US$2 billion for the first time”.
Gross business wins for the three months to 30 June came to US$357 million, giving a gross book-to-bill ratio of 1.53. Net business wins were $310 million, representing a net book-to-bill of 1.3.
The investments ICON has been making to develop its business are “progressing satisfactorily”, Gray noted.
The five-year strategic alliance with Pfizer for clinical trial implementation services was the “major achievement” of the second quarter, he commented. It meant “significant work” would be transitioned to ICON over the next two years as the partnership developed, “which should drive an acceleration in our growth over that time”.
Accordingly, Gray said, the company was “increasing our hiring drive” and expected to “add significant cost in the next two quarters as we gear up to handle work which will be transitioned to us in Q4 and throughout 2012”.
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