US-based drug development services provider Covance reported “better than expected” pro forma revenues and earnings per share (EPS) of US$561 million and US$0.73 respectively for the final quarter of 2012, also beating the consensus from financial analysts on those fronts.

Chairman and chief executive officer Joe Herring put the improved performance mainly down to “significantly higher” kit volumes in central laboratories and continued strength in the clinical development segment.

The signs are also promising going forward, with the fourth quarter bringing adjusted net orders worth a record US$769 million and an adjusted book-to-bill ratio of 1.37 to 1.

2013 forecast

Covance is forecasting year-on-year revenue growth in the “mid- to high-single” digits for the whole of 2013 and pro forma diluted EPS (excluding restructuring costs) of US$2.85 to US$3.15, assuming foreign exchange rates remain at year-end 2012 levels.

That compares with net revenue growth of 4.0% and pro forma EPS of US$2.70 (the same as in 2011) for the whole of 2012. 

Taking into account a US$1.5 million contribution from Early Development facilities closed during 2012 as part of Covance’s restructuring programme, net revenues for the fourth quarter grew by 5.6% year on year to US$562.2 million.

Early Development

Revenues in the Early Development segment fell by 7.3% against the final quarter of 2011 to US$217.4 million, with Covance citing declines in toxicology, discovery support and clinical pharmacology, as well as the impact of selling environmental services (which had contributed around US$2.0 million in quarterly revenue) and the aforementioned site closures.Quarterly revenues in Late-Stage Development were US$344.8 million, up by 15.7% year on year and representing a sequential increase of US$20.7 million from the third quarter of 2012,  led by central laboratory services.

Q4 earnings

Covance reported operating income of US$43.1 million for the fourth quarter of 2012, 10.6% higher than in the same quarter of 2011.

Diluted earnings per share on a Generally Accepted Accounting Principles (GAAP) basis were US$0.61, an increase of 77.5% on the year-before quarter.

The pro forma diluted EPS of US$0.73 (flat against the 2011 quarter) reported by Covance for Q4 2012 compared with a consensus estimate of US$0.71 from analysts polled by Thomson Reuters.

The consensus estimate for net revenues in the final quarter of 2012 was US$549.31 million, against the US$560.7 million reported from continuing operations.

Growth action

During 2012, Covance “took several important actions which are expected to drive future EPS growth, including reducing our preclinical capacity and overhead cost structure, advancing our strategic IT [information technology] initiatives, and repurchasing over 10% of our outstanding shares”, Herring noted.

Stepped-up selling efforts led to record adjusted net orders of US$2.87 billion for the full year, an increase of 13.5% over 2011 that delivered an adjusted net book-to-bill ratio of 1.32 to 1.