Late-stage clinical development services supplied most of the thrust behind the 19.6% growth in net service revenues at US-based contract research organisation (CRO) Kendle International during the first quarter of 2008.
Kendle has significantly boosted its late-stage presence in recent years through the acquisition of Charles River Laboratories’ Phase II to Phase IV clinical services business, which was completed in August 2006. In the latest quarter, net service revenues in the Late Stage segment climbed 18.5% to US$104.8 million, pushing operating income up by 24.2% to US$24.7 million.
By contrast, the much smaller Early Stage business showed only modest growth in net revenues, which were 4.2% higher at US$5.6 million. Operating income in the segment dropped by 28.8% to US$386,000.
The third element in the Kendle set-up is Support and Other services, where net service revenues more than doubled in the first quarter, from US$1.6 million to US$3.7 million. At the same time, this segment ran up an operating loss of US$11.1 million compared with a US$7.9 million loss in the opening quarter of 2007.
Net service revenues overall – which do not include reimbursable out-of-pocket costs – were US$114.1 million in the first quarter compared with US$95.4 million one year earlier. Operating income company-wide was up by 11.9% to US$14.0 million and net income improved by 33.8% to US$5.6 million, giving net earnings per diluted share (EPS) of US$0.38 against US$0.28 in Q1 2007.
However, analysts had been expecting EPS of around US$0.47 and Kendle’s share price fell by as much as 7% on the results. One dampening factor was higher selling, general and administrative (SG&A) expenses, which increased by 25.4% to US$37.6 million.
Kendle said significant one-time items affecting SG&A expenditure in Q1 included costs for an internal global leadership meeting, stock-based compensation expenses related to various equity-related awards given to retirement-eligible Kendle associates, and “an increase in the bad debt reserve related to potential collection issues with a specific customer”. There were also higher than normal recruiting costs associated with the hiring of key executives and additional expenditure to build the company’s infrastructure.
Net service revenues by geographical region in the quarter illustrated the continuing impact of Kendle’s efforts to globalise its business. Of the total, 46% came from North America, 42% from Europe, 7% from Latin America and 5% from the Asia/Pacific region. In the first quarter of 2007, 50% of net service revenues were generated in North America, 43% in Europe, 4% in Latin America and 3% in the Asia/Pacific region.
New business awards for latest quarter came to US$180 million, a 20% increase over the same period last year. Contract cancellations for Q1 2008 were US$25 million and total business authorisations amounted to US$917 million as of March 31, 2008, up by 6% from 31 December 2007 and up by 31% from 31 March 2007. The net book-to-bill ratio was 1.4 to 1 for both the three months ended March 31, 2008 and for the whole of 2007.
Chairman and chief executive officer Candace Kendle said the CRO remained on target to meet the financial goals it had set for 2008. For the current year Kendle is projecting net service revenues of $450 million to $460 million and earnings per share of US$1.90 to US$2.07.
