US-based contract research organisation (CRO) Kendle International slid to an operating loss of US$11.7 million in the fourth quarter of 2010, as restructuring and goodwill impairment charges in the company’s Early Stage business amplified the impact of a 19.4% fall in net service revenues versus Q4 2009.
The exceptional items included restructuring charges of US$3.2 million for the previously announced closure of one of Kendle’s Early Stage locations and goodwill impairment charges of US$7.3 million, also related to the Early Stage segment.
Kendle launched a strategic review of its Early Stage operations during the third quarter of 2010. Recently it emerged from a Form 8-K filing in the US that the company was closing down its Early Stage operations at Kendle’s Phase I unit in Utrecht, the Netherlands, with severance-related costs estimated at around US$3 million.
In the three months ended 31 December 2010, the Early Stage business recorded an operating loss of US$10.7 million compared with operating income of US$1.5 million in the fourth quarter of 2009. Kendle’s Late Stage business managed an operating profit of US$13.3 million in the latest quarter, although that was down by 26.3% year on year.
On a non-Generally Accepted Accounting Principles (GAAP) basis, stripping out the restructuring and impairment charges, Kendle’s operating loss for the latest quarter was US$1.3 million against a US$8.7 million operating profit in Q4 2009.
On the same basis, earnings per diluted share (EPS) came in at US$0.03 million, down from US$0.34 million in the year-before period but above the consensus estimate of US$0.02 per share from analysts polled by Thomson Reuters.
The GAAP loss per diluted share was US$0.62, including US$0.16 per share related to the restructuring charge and US$0.48 per share for the goodwill impairment charge. That compared with EPS of US$0.16, including a US$0.18 restructuring expense, in the final quarter of 2009.
Net service revenues in the fourth quarter of 2010 were US$77.9 million, a 19.4% decline on the same period of 2009. Net service revenues fell across the business, with a drop of 38.2% to US$6.3 million in the Early Stage segment and a 16.2% decline to US$71.6 million in Late Stage operations.
Full-year results
For the whole of 2010, net service revenues were down by 20.0% against the previous year, to US$333.8 million.
On a GAAP basis, Kendle recorded a full-year operating loss of US$1.2 million, which included US$4.5 million in restructuring as well as US$7.3 million in goodwill impairment charges, and a net loss per diluted share of US$0.31.
The corresponding figures for 2009 were operating income of US$35.6 million (including US$10.2 million in restructuring expenses) and earnings per share of US$1.02.
According to chairman and chief executive officer Candace Kendle, the company made “significant strides” during 2010 towards “positioning Kendle for long-term growth, including re-invigorating our sales efforts, bringing in new leadership, improving our processes, realigning our cost structure and implementing new technology”.
Looking ahead, new business awards in the fourth quarter of 2010 were US$152.1 million compared with US$134.7 million for the same period of 2009. With contract cancellations and adjustments amounting to US$51.2 million, the net book-to-bill ratio for the quarter was 1.3.
New business authorisations or backlog as of 31 December 2010 totalled US$828.2 million, a sequential improvement of 2.6% from 30 September 2010, Kendle noted.
