Shares in Kendle International plummeted by more than 50% after the US-based contract research organisation (CRO) warned that its net service revenues for the first quarter of 2009 would be “well below” financial analysts’ consensus forecast of around US$121 million.

The company, whose share price hit a low of US$8.28 at one point, blamed “unprecedented biopharmaceutical industry conditions, which are resulting in longer delays in the signing of contracts on existing awards, fewer new requests for proposals and an increase in contract cancellations and delays”.

Kendle’s shortfall will add to concerns about the viability of the once booming contract research industry as the first-quarter reporting season gets underway. However, analysts cited Kendle’s comparatively modest revenue base versus some of its rivals and suggested the recession would shift the emphasis towards larger, strategic outsourcing deals.

Reuters quoted Piper Jaffray analyst Sean Wieland as saying that, while Kendle’s “disappointment is certainly not a positive data point for clinical research organisations … I don’t think it’s necessarily a bellweather indicator”.

Chairman and chief executive officer Dr Candace Kendle told a conference call that the cancellation rate for the first quarter was more than 45% against a company forecast of 18% - which in itself was higher than Kendle’s average for 2007 and 2008. In terms of dollar volume, first-quarter cancellations were almost twice the rate in the first quarter of 2008 and three times the rate in Q1 2007.

There was also significant loss of revenue from delays in contract signings during the latest quarter, Dr Kendle noted. As of the end of the quarter, 41% of gross sales from the last half of 2008 remained unsigned, compared with 29% at the end of Q1 2008. Moreover, proposals “escalated” in January/February, then dropped “precipitously” in March, she said.

Proposal withdrawals were “at the highest levels in Q1, and specifically in March when compared to the last nine quarters”, Dr Kendle told the conference call, adding: “It is unusual to have a large number of withdrawals at the beginning of the year as project decisions are normally being made and studies started”.

On top of that, there has been a significant increase in price pressure in the market, she observed. “While we have worked to pull costs out of the system over the last year, we did not shift quickly enough in recent weeks to improve sales,” Dr Kendle commented. “In this new environment we feel that price has become the primary predictor of business award.”