Operating income at Kendle International, the US-based contract research organisation (CRO) that earlier this month agreed to be acquired by INC Research for around US$232 million, fell by 80.9% year on year to US$843,000 in the first quarter of 2011.
Net service revenues for the three months ended 31 March 2010 were US$81.5 million, down by 7.9% on the first quarter of 2010 and in line with analysts’ expectations for the latest reporting period.
Kendle recorded a net loss of US$2.88 million or US$0.19 per diluted share in the first quarter of 2011, compared with net income of US$1.21 million or US$0.08 per diluted share in the year-before period.
On a per-share basis, US$0.08 of the net loss in the latest quarter came from continuing operations – against an analyst consensus of US$0.02 – and US$0.11 from discontinued operations.
The discontinued operations reflected Kendle’s previously disclosed decision to close down Early Stage activities at its Phase I facility in Utrecht, the Netherlands.
The closure plan, which the CRO attributed to “overall adverse operating results due to volatility in the Early Stage drug development market as well as a changing and challenging regulatory environment in the Netherlands leading to cancellations in the Company’s backlog”, became effective as of 1 March 2011 when approval was granted by Kendle’s Dutch Works Council.
As of 31 December 2010, Kendle had accrued around US$3.0 million for anticipated severance costs related to the Early Stage closure at Utrecht. In the three months ended 31 March 2011, the company officially shut down the Utrecht location and laid off most of the employees.
Kendle paid severance costs of US $1.8 million during the first quarter and recorded additions of US$0.9 million to the aforementioned accrual, mainly related to management’s estimate of the expected costs of terminating the company’s lease obligation.
Also incurred during the latest quarter, and reported within the loss from discontinued operations, were additional expenses of US$0.8 million related to accelerated amortisation of leasehold improvements and equipment.
Early Stage loss
Excluding discontinued operations, Kendle’s Early Stage business registered an operating loss of US$399,000 for the first quarter of 2011, compared with operating income of US$218,000 in the same period last year. Net service revenues in the Early Stage segment were down by 9.6% year on year to US$5.12 million.
In the Late Stage segment, operating income for the latest quarter dipped by 4.8% to US$16.2 million, on net service revenues that were 8.5% lower at US$75.6 million.
Kendle was due to announce its first-quarter earnings on 5 May but cancelled the release when its merger plans with INC Research broke. Subsequently, though, Kendle disclosed its first-quarter results in a Form 10-Q filing with the US Securities and Exchange Commission.