US-based contract research organisation (CRO) Covance is selling its centralised electrocardiogram (ECG) business to cardiac safety specialist eResearchTechnology (eRT) for around $35 million in cash, with the potential for further payments of up to $14 million.

Covance has also signed an exclusive 10-year marketing agreement with eRT, under which Covance will offer its clients cardiac safety services through eRT’s centralised ECG platform. Based in Philadelphia, US, eRT provides centralised core-diagnostic ECG technology and services for evaluating cardiac safety in clinical development, as well as further technology and services for automating the collection, analysis and distribution of clinical data.

The centralised ECG business accounts for less than 2% of Covance’s annual net revenues, the CRO noted. Under the deal with eRT, Covance gets an upfront cash payment of about US$35 million and the opportunity to earn up to US$14 million from the order backlog transferred to eRT and any revenues generated by new contracts secured under the 10-year marketing agreement. Covance also expects to receive “certain referral fees” over the term of the marketing agreement.

“Covance remains fully committed to providing our clients with integrated drug development solutions, including critical cardiac safety data in clinical projects,” said Joe Herring, chairman and chief executive officer, adding that the arrangement with eRT would allow Covance’s management to “focus more attention and investments on growing our service offerings in the larger markets we serve”.

Earnings on target
The CRO has not factored the ECG disposal or associated contingency gains into its financial projections for the current year and 2008. Covance is maintaining its full-year earnings target of $2.65 per diluted share for 2007, while targeted revenue growth for 2008 is still “in the low- to mid-teens range” and growth in diluted earnings per share is expected to reach 20%.

eRT, on the other hand, has lowered its earnings guidance for the fourth quarter from $0.09-US$0.11 to$0.07-$0.09 to reflect the transition costs of the acquisition. Fourth-quarter revenues are expected to be US$1.5-$2 million more than the previously issued guidance of $27-$28.5 million.

The addition of Covance’s centralised ECG business to eRT’s operations should add around $18 million-$20 million to the latter’s revenue and $0.04-$0.06 to its earnings per diluted share for the year ending December 31, 2008, eRT believes.